Re-posted from Asian Development Blog
By ADB Blog Team on Tue, 21 April 2015
IFC has been doing a lot of interesting work on investing in the BOP to reduce inequality and close the income gap for those at the base of the pyramid. What more can be done to foster inclusive business, especially in Asia and the Pacific?
We have been focusing on private sector projects and transactions, but I think we can do more on the policy level, discussions with governments. I think that’s where for instance ADB provides good examples, supporting government policies that promote inclusive business in countries like the Philippines or Indonesia. Those things we haven’t tried much at IFC, but are probably areas we can work on and collaborate with ADB.
What about multilateral development banks – what should their role be?
There is a number of areas where we can do much more, and better. For example, one thing we’re still trying to figure out is distributor finance for small-size distributors, retailers, and consumers, From the normal banking perspective, these are risky borrowers, but the microfinance experience tells us that in fact small borrowers may have a very good track record in repaying loans. This could apply to small distributors as well. Maybe we can come up with a solution to show banks how these are not as high-risk as they perceive. Maybe IFC can partner with ADB, other multilaterals, donors, or foundations to manage this risk better. That could be huge, in my opinion, especially if you think in terms of the impact it could have on the ground.
How would you work with national and local governments to help change that perception?
Traditionally, IFC does not really have the expertise in this area, which we leave to our sister organization, the World Bank. We are working with the World Bank to try to have a more integrated approach with governments. This is one of the areas where I think we can learn from ADB, which has the private and public sectors under one roof.
What are the main challenges and opportunities for inclusive business in Asia and the Pacific?
One specific opportunity in Asia is population density, for instance in India and Indonesia. That makes it a little bit easier to approach the base of the pyramid and achieve economies of scale, compared to Africa or Latin America. Probably, the challenge, which we have not experienced yet but I can see in 10-15 years, is balancing the increased economic activity and the impact on the environment and natural resources. Inclusion is pushing for everyone to attain a higher income and benefit from economic growth, making growth more “democratic,” but that also impacts the environment and the sustainability of natural resources. You always have to balance that. Some projects are trying to address this challenge, like off-grid power schemes to give poor people access to electricity and reduce greenhouse gas at the same time.
Do you see any Asian economies that are going to be more at risk than others with this problem?
Those with high population density, especially in urban areas.
Which sectors do you think inclusive business can be more easily scaled up right now in Asia and the Pacific?
Agribusiness and information and communications technology—as a mix of finance and the information and communications technology sector—both have great potential to be scaled up in this region. Mobile payments and other new technologies can enable access to financial services for the base of the pyramid, and even other services like health and education. I believe it’s easier to expand in those areas. Infrastructure is another matter: there is big potential, but how we get there remains to be seen. In particular, if you don’t design infrastructure projects in an inclusive, integrated way, the potential will never be fully realized.