Inclusive Economy | May 14, 2024

A guide to investing in better livelihoods and expanded access for low-income people 

Kathleen Mignano, Charitha Isanaka, Oreva Odu, Jana Svedova, Mitzi Perez Padilla

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Guest Author

Kathleen Mignano, Charitha Isanaka, Oreva Odu, Jana Svedova, Mitzi Perez Padilla

The global challenges of poverty and income inequality can often seem insurmountable. But investors and companies can help to tackle these critical issues, and reap business benefits, by adopting an intentional focus on low-income consumers, workers, and entrepreneurs. 

Amid rising food and energy prices, conflict, climate change and COVID-induced setbacks in poverty-reduction from which many still have not yet recovered, “inclusive business investing” offers a way to improve livelihoods for low-income people and expand access to essential, affordable goods and services on a scalable, commercially-viable basis.

Directing capital toward positive outcomes for low-income people while realizing a financial return lies at the heart of what we call inclusive business investing. 

Under this approach, an investee’s core activities and operations create value for low-income people in a way that enables them to continue to create impact over time. 

Business benefits

A good example is iMerit in India. This artificial intelligence data company recruits its workforce from underserved rural communities. After three months of training on workforce readiness, mindset change, and basic technology skills, low-income recruits are offered jobs at iMerit that would typically be out of reach for those without higher education. In return, the company enjoys a retention rate of more than 90% compared to an average of 30% in India’s tech sector.

TradeDepot in Nigeria is another example. This fast-growing e-commerce venture connects suppliers of fast-moving consumer goods with micro, small, and medium-size retailers via an online platform and tech-enabled logistics network. By offering transparent pricing, access to credit, and delivery direct to retailers’ doorsteps, TradeDepot aims to solve common problems informal retailers encounter when purchasing goods through traditional channels.

Existing literature has explored the business benefits for inclusive businesses. These include an expanded market share, competitive advantages, stronger supply chains, and greater access to a skilled and productive workforce. They can also attract socially-conscious consumers and potentially gain access to lower-cost capital. Globally, low-income consumers represent an estimated $5 trillion market annually.

For investors, a focus on low-income populations can complement their existing attention areas. For example, investors with an existing focus on gender equality may direct a share of their investments towards generating positive impact for low-income women. Some investors may find they already have inclusive businesses in their investment portfolio. Taking a more intentional approach not only sends a signal to the market, it also encourages investors to look for ways to create additional value through their investments and to track their progress over time.

Practical guidance 

Until now, resources for those seeking to adopt an intentional approach to inclusive business investing were limited. 

The new Inclusive Business Investing Guide fills that gap by drawing upon the experience of the International Finance Corporation, FMO, British International Investment, and other inclusive business investors. 

It offers practical guidance on how to integrate a focus on inclusive business into pre-investment processes, how to measure and manage inclusive impact, how to provide tailored advisory support, and more.

For example, what criteria can investors use to determine if a potential investee qualifies as an inclusive business? The guide recommends a two-fold approach focused on materiality and adding value. Investors should confirm that at least 20–35% of the investee’s suppliers, workers, distributors, retailers, or customers are low-income. 

The investee should also implement one or more solutions designed to address a barrier or enhance impact for low-income populations. 

This could be providing capacity building or inputs, facilitating financing, or tailoring product design, business processes, or distribution channels to overcome barriers. Solutions could also enhance the participation, resilience, empowerment, or advancement of low-income workers.

If investors do not have access to precise data to determine income levels, the guide offers a set of proxies that can be used to estimate if stakeholders are low-income. 

Inclusive business criteria can be used alongside other types of inclusion criteria, such as the 2X Challenge criteria commonly used for gender-lens investing. One investment could potentially be classified in multiple ways.

The guide also helps investors identify if there are opportunities to create additional value for low-income stakeholders. 

A set of questions is provided to kick-start conversations with potential investees on the challenges they face when engaging with low-income populations and potential solutions that could expand the depth or scale of the investee’s impact. 

For example, does the company have a detailed understanding of the spending habits, willingness to pay, and preferences of low-income consumers? Could additional distribution channels be leveraged to expand reach? How might capacity building help to close gaps in uptake or usage of products or services, or in the performance of entrepreneurs across the supply chain?  

The guide also explores methods to help investors easily measure outcomes. For example, a case study explores BII’s use of the Lean Data methodology developed by 60 Decibels to conduct short surveys and hear directly from its investees’ customers, employees, suppliers, and other stakeholders.

Delivering returns

We know that there is no one-size-fits-all approach and that each investor will be at a different starting point, with different priorities and different resources at their disposal. 

However, this guide is designed both for experienced impact investors, as well as those who are still learning. Background information on inclusive business is included to help new investors get up to speed on typical challenges facing low-income populations, as well as a examples of solutions that an inclusive business might use to overcome them.

Whatever their level of experience, investors can identify inclusive business opportunities that align with their expectations for impact and for financial return, as well as their existing priorities—such as climate change, gender equality or financial inclusion. 

The guide may be used within the context of existing impact investing frameworks, such as the Operating Principles for Impact Management.

BII, FMO, and IFC are committed to supporting the private sector to increase impact for low-income populations, and this guide is just a first step towards shaping standards and building this focus among a wider pool of investors. 

We must continue to build the field by documenting the business case and sharing data on the financial performance and development impact of inclusive business investments. 

We must work to develop common and robust inclusion proxies and definitions across portfolios. And we must continue to share learnings on what works and what does not. This new guide aims to advance our collective efforts on all these fronts.

Investors are encouraged to familiarize themselves with inclusive business. Our hope is that investors will leverage the information in this guide to expand the share of capital that is invested in generating positive outcomes for low-income people—boosting incomes, improving livelihoods, and expanding access to essential goods and services.

The authors of the Inclusive Business Investing Guide are Kathleen Mignano of the International Finance Corp., Charitha Isanaka and Oreva Odu of British International Investment, and Jana Svedova and Mitzi Perez Padilla of FMO.