Telling Our Story: Inclusive Business

8/7/2019 Telling Our Story: Inclusive Business

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Telling Our Story: Base of the Pyramid Investments

INCLUSIVE BUSINESS


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Message from the Executive Vice President and CEOThe Private Sector and Inclusive Business ModelsIFCs vision is that people should have the opportunity to escape poverty andimprove their lives.

Increasingly, we do this by supporting clients who are investing in inclusive

business modelso ering critical goods, services, and livelihoods to the poorin fnancially sustainable, scalable ways. The private sector can play a pivotalrole in meeting the needs o those at the base o the global economic pyramid.

Landmark research by the World Resources Institute and IFC has shownthat approximately 4 billion people, or roughly two thirds o the worldspopulation, live at the base o the pyramid. Each o these hard-workingpeople makes ends meet on less than the equivalent o $3,000 per year in

local purchasing power. Beyond low incomes, they have signifcant unmetneeds, depend on in ormal or subsistence livelihoods, and pay what we call apoverty penaltyhigher prices or basic goods and services, o ten o lowerquality, than wealthier people pay.

At the same time, the working poor are creative and resource ul economicagents with an appetite or change. Pioneering companies are fnding waysto tap into this potential, integrating low-income producers and consumers

into their value chains. By using inclusive business models, local companiesare investing in supply and distribution chains that provide better incomeopportunities and more goods and services or the poor. These are coreactivities or these companies. They are designed to scale up and reach

Cover Photo: IFC is helping bring the mobile phone revolution to remote parts of rural India, targeting villageentrepreneurs to become sales reps for client Idea Cellular (p. 4) .


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commercial viability within a determined time frame. This is an important role for the privatesector: to be able to invest in business models that include the poor as full economic partners.

IFCs clients are at the forefront of this movement. And youll read about their experiences inthis issue of Telling Our Story .

Building on these pioneering effortsand the development imperativeour challenge now isto greatly increase the number of nancially sustainable inclusive business models operating at

scale.IFC is approaching this challenge with integrated investment and advisory services, as well as aproactive effort to document and share what we learn. Recognizing that our vision will requirethe combined effort of many partners, IFC is also working to foster a network of corporates,nancial institutions, donors, service providers, and others interested in making the process of starting and scaling inclusive business models easier.

With world-class investment and advisory services, a global/local presence, the ability to shapeindustry norms and standards, and convening power spanning business, government, and civilsociety, IFC will continue to drive action toward a world in which millions of people haveimproved access to goods, services, and livelihoods through inclusive business.

Lars H. ThunellExecutive Vice President and CEO


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W hat is the base o the globaleconomic pyramid? How

many people make up thisdemographic?

The base o the pyramid concept hasbecome a popular shorthand or describingindividuals living below a given incomeor spending threshold. But many peopledebate where these income or spendinglines are best drawn, and consequently thesize of this population and its purchasingpower. Some suggest below $1 or $2 a day

or the poverty line. Others say below $5or $8 a day or the working poor. But howdo you compare across countries?

The World Resources Institute (WRI)and IFC used the purchasing power parity methodology to account or di erencesin costs o living and infation betweencountries (see diagram at le t ). Using acuto o $3,000 per person per year inpurchasing power parity, the estimate isthat there are 4 billion people at the base o the pyramid.

Defning the Base o the Pyramid

4 BIllION

PEOPlE

WRI/IFC IncomeThreshold

B a s i c

G o o d

s

a n d S e r

v i c e s

I n c o m

e

G e n e

r a t i o

n

O p p o

r t u n i t

i e s l A

C K O F

NOTE: The same basket o goods and services that costs $1.72 per day in Indiacosts di erent amounts in other countries a concept economists call purchasing power parity used to compare the cost o living across di erent countries using a common currency.


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The question, however, is not where exactly this income line alls, but what it really captures.

Income is just one parameter for poverty, and an imperfect one at that. The seminal World Bank study Voices o the Poor , based on interviews with 20,000 people living in poverty around the world, ound thatthe poor themselves de ne their situation in a ar more multidimensional way:

There is nowhere to work. (Ecuadoran woman) We need water as badly as we need air. (Kyrgyz woman) Whoever goes to the health clinic healthy comes out sick. (Egyptian villager)

Their de nition focuses not just on lack of income, but on lack of accessto basic goods, services, andeconomic opportunities. Too o ten, poor people cannot get key products at the prices and quality thatothers rely on. Whether they are in ormal settlers, urban dwellers, small-scale armers, villagers, or others,they are o ten denied clean water, electrical power, good roads, modern communications, health care,education, nancial services, andperhaps most importantsteady sources o income. These are thingsothers take or granted, but that those living in poverty struggle to attain.

IFC uses the term base o the pyramid in the broader sense o poverty that the poor themselvesunderstand and experience: not just as lack of money, but also as lack of access to basic goods, services, andincome generation opportunities. And i we were to estimate the number o people living without suchaccess, it would likely be much higher than the 4 billion people identi ed by the income threshold.

With its rigorous, results-based approach, the private sector can develop sound business models at the baseo the pyramid with measurable development impact in addressing these needs. IFC is there to supportclients with such projects, absorb the lessons learned, and then bring them to signi cant scale.


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ho are the people at the base of the pyramid that IFC is reaching?Their stories are in the pages that follow. They are people like:

Manny Libico: One of the 1.6 million poor people that our client Manila Water now serves in the Philippinecapital, most of whom formerly lacked access to clean water ( p. 7 ).

Zaine: A small-scale independent distributor for Coca-Cola SABCO in Ethiopia, part of a system that has createdmore than 12,000 jobs in East Africa ( p. 14 ).

Chan Sreang: A Cambodian woman who feels she does not have enough money to interest any bank, yet cannow save $2.50 a week on her cell phone with our client WINGs service ( p. 18 ).

Bibi Sediqa Musawi:An Afghan woman whose family now hasimproved housing, thanks to a small home improvement loan shereceived from First MicroFinance Bank-Afghanistan ( p. 22 ).

Saodat Karaeva:One of many small-scale cotton farmers in Tajikistan who can now obtain nancing from Tojiksodirot Bank and FirstMicronance Bank, making their operations more protable and

productive ( p. 26 ). Amabelino Chavarra: One of more than 12,000 small-scale farmers

in Central America now selling premium-grade coffee, thanks tonancing and training that IFC, Ecom Agroindustrial CorporationLtd., and other partners provideda model now being offered inVietnam as well ( p. 28 ).

A member of the World Bank Group, IFC is the worlds largest development

nance institution focused on the private sector, committed to creatingopportunity to help people escape poverty and improve their lives. Ourinvestment and advisory services help clients pursue commercially viablebusiness opportunities at the base of the pyramid, engaging the poor asproducers, consumers, and workers.

The past decade has seen major breakthroughs in mobile phones andmicronance, industries that now reach large numbers of the poor on acommercial basis. Other advances may soon lie ahead.

INCREASING ACCESS: Breakthroughs in Inclusive Business

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By investing in local distribution rm Mi Tienda( p. 16 ), IFC is creating opportunity for low-incomewomen in rural Mexico. The small shops they ownare often their families' economic lifeline.

W


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A C C E S S T O I N F R A S T R U C T U R E

Mobile PhonesBreakthrough in Bihar 4

Clean WaterPrivate Sector Delivery 6

A C C E S S T O H E A LT H A N D E D U C AT I O N

Mobile HealthA Hand-Held Solution 8

Hospital CareAvailable, Affordable 10

Private EducationExtending the Reach 12

A C C E S S T O I N C O M E

DistributionReaching Hidden Markets 14

Small-Scale RetailersAnchors of the Local Economy 16

A C C E S S T O F I N A N C E

Banking by Phone

Reaching Customers, Fighting Poverty 18 Microinsurance

The Time Is Now 20

HousingSmall Loans, Big Results 22

Micronance Big Bank, Small Loans 24

A C C E S S T O M A R K E T S

CottonTajikistans White Gold 26

CoffeeLocal Farms, Global Markets 28

Productivity Gains Critical for Chinese Farmers 30

A N N E X

Working Together IFCs Collaboration with Other Organizations 32

India

Philippines

Rwanda

India

Colombia

Ethiopia

Mexico

Global

Global

Afghanistan

Peru

Tajikistan

Vietnam

China

Contents


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INDIA


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4 ACCESS TO INFRASTRUCTURE

Bihar is Indias poorest state: 90 million people in a vast underdeveloped area.

MOBILE PHONES

Breakthrough in Bihar

INDIA

Fixed-line telecom service is weak, and only 2 percent

of the people have access to one of todays mosttransformative forces, a mobile phone.

Bringing low-cost modern communications to Bihar at alarge scale would be a development breakthrough. Withthe right pricing and distribution strategy, it could be abusiness win as well.

This has been IFCs goal since 2008, when we nancedIdea Cellulars entry into Bihar. A rising local rm, Ideawas committed to this challenging, wide-open marketthat as recently as 2006 was receiving only $314million in total annual private investment, by far thelowest of any Indian state.

The risk paid off. Today Idea has 2.4 million paying

subscribers in Bihar.Its protable business model there includes per-second billing, inexpensive prepaid calling cards, andother customer-friendly products. With nearly 60million subscribers nationwide, Idea has won EmergingCompany of the Year honors from Indias top businessnewspaper, The Economic Times .

IFC advisory services are taking Idea deeper, targetingremote areas well beyond its usual distributors reach.Supported by Dutch donor funds, we have helped itnd 1,200 villagers in Gujarat state who buy handsetsbundled with Idea SIM cards for no more than $35, thensell airtime on commission to others who cannot affordto buy their own. This win-win model raises the villagesellers incomes by 25 percent, increases rural telecomaccess, and builds our clients market share.

Inspired by the IFC-nanced Grameen Village Phoneprogram in Bangladesh and its recent replications inAfrica, this approach will now be rolled out on a muchlarger scale in Bihar and other states. It is one of the rstprojects in a larger IFC initiative for all of Indias low-income states, who together have almost as many aspoor people as all of Africa.

IFC is helping Idea find independent sales agents in thevillages of Bihar. Rooted in their communities, they canopen access to the state's vast rural market.


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In Gujarat ( above ) and many other Indian states, IFC client Idea Cellular is making mobile phones affordable to a large-scalemarket. In the last two years, Idea's innovative pricing and distribution strategies have attracted 2.4 million paying

subscribers in Indias poorest state, Bihar.

PHILIPPINES


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6 ACCESS TO INFRASTRUCTURE

Good business can be good for the poor.

CLEAN WATER

Private Sector Delivery

PHILIPPINES

Manila Water Company is a case in point: a successful,

respected company that provides clean water to 1.6million poor people.

In the late 1990s, Manilas water came from a failinggovernment enterprise. Three-quarters of the homesin its eastern half lacked 24-hour service, and shoddyinfrastructure and theft meant most of what waspumped never reached a paying customer.

Area residents, many of them impoverished, hadtwo bad choices: collect contaminated water frompublic taps and shallow wells and risk the healthconsequences, or wait in long lines and pay exorbitantprices to buy the safer kind from private vendors. Nomore.

Privatized with IFCs help in 1997, Manila Water now

serves the East Zone, selling 99 percent of householdsin its area 24-hour clean, affordable water. Only 15percent is lost.

IFC has invested $75 million in the rm, nancing thatspurred additional private capital for a large-scalenetwork upgrade. In time, the companys number ofcustomers has grown from 3 million to nearly 6 million,of whom 1.6 million are poorand a key to Manila

Waters business model.When operations began, water losses were highestin the poorest neighborhoods. So the company beganenrolling those residents as paying customers in thediscounted Water for the Poor program. Many now payjust P70 ($1.50) per monthwell within their reach,and a tiny fraction of the amount they once paid. Thenew service has led to a dramatic drop in waterborne

diseases such as diarrhea.While not a prot center itself, Water for the Poorreduces far costlier illegal tapping and increases thecompanys overall customer base while providing cleanwater to those who need it most. IFC has helped itreach more of the most marginalized communities witha $2.8 million grant from the Global Partnership onOutput-Based Aid.

Manila Water: Selling clean water at prices the poorcan afford.


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"Water is much more affordable now," says Manila Water customer Manny Libico. "We used to take baths only twice a week.Now we can take them daily, sometimes even twice a day." He is one of 1.6 million low-income customers who buy the

company's affordably priced water.

RWANDA


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When it comes to making pro-business reforms, Rwanda is number onein the world.

8 ACCESS TO HEALTH AND EDUCATION

MOBILE HEALTH CARE A Hand-Held Solution

It holds that title in the latest IFC/World Bank DoingBusiness rankings, having taken several steps thathelped it increase private investment by 31 percent andmaintain 11 percent economic growth last year. IFC hasworked closely with the Rwandan governmentthroughout this process.

But how deep into the economy do these reformsreach? Do they have any direct impacts on the

poorest?Ask the people in its most remote villages, far fromhospitals and beyond the Internets reach. For them,serious illnesses can quickly become life-threatening.

But Rwandas improved investment climate has led to

a thriving mobile phone market, creating an all-newplatform for development, including low-cost healthinformation services from IFC client Voxiva. They allowisolated rural clinics to text-message daily reports forfree to national health authorities, who can nowmonitor the outbreak of malaria, diarrhea, yellow fever,and other infectious diseases months earlier thanbefore. The clinics can also order new shipments ofessential medicine this way, receiving them well beforeexisting supplies run out.

Applying a model it first developed in the PeruvianAmazon in 2001 with $250,000 of support from ourinfoDev grant program, Voxiva sells its TrackNetsoftware to the Rwandan government, which theninstalls it on all three national carriers as a publicservice. When Voxiva first entered the market fiveyears ago, the mobile phone revolution was justbeginning. Today Rwanda has 90 percent mobilecoverage, allowing Voxiva to serve almost all of thecountrys 450 rural health clinics.

Although small at the time, Voxiva was highlighted inC.K. Prahalads landmark 2004 book The Fortune at theBottom of the Pyramid , singled out as a business trulyinterested in solving public health problems. IFCs$5 million equity investment is helping it growinRwanda, and worldwide.Making free, instant communication possible in remote

areas, mobile health care solutions support the fightagainst HIV/AIDS in Africa.


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A hand-held mobile phone can save lives in Rwanda. If they have no computers for Internet access, local health care workerscan send and receive detailed text messages and data reports via IFC client Voxiva's information systemopening the door

to treatments that wouldn't have been possible in rural areas until recently.

INDIA


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Severe illness or injury can be nancially devastating to the poor in countries with underdeveloped health care systems.


HOSPITAL CARE

Available, Affordable

In many countries, a single case of hospitalizationcan consume the majority of a persons annualexpenditures. Those hospitalized often either mustborrow money or sell their belongings to pay medicalbills.

India is one of a growing number of emerging marketsproviding public health insurance for the poor whileusing private delivery systems. In some states, those

with incomes low enough to qualify can receive 100percent coverage for hospitalization. To help servethis largely untapped market, we are helping our clientApollo Hospitalsthe countrys private health carepioneerbuild low-cost hospitals in small cities where

effective options are otherwise very limited.Called Apollo Reach, this hospital chain offersspecialized services such as cardiac care, cancertreatment, radiology, neurosurgery, and others for whichusers would otherwise have to travel long distances tolarge cities at considerable expense. Typically costingup to 30 percent less than their larger counterparts,these hospitals bring highly trained doctors and nurses

in to underserved local communities. Prime MinisterManmohan Singh launched the rst one in Karim Nagar,Andhra Pradesh in 2008.

A $50 million IFC loan will help Apollo build 15 more ofthese hospitals, serving 400,000 patients a yearofwhom 120,000 are expected to be very poor. Thehigher fees paid by more afuent patients help makethis business model commercially viable for the parent

company.A visionary cardiologist, Dr. Prathap Reddy, startedApollo despite great obstacles to private sectormedicine in 1983, and has since built it into the nationalleader, with IFC on board as an equity investor. TheApollo Reach chain is fully in keeping with the ultimateaim he has had all along: providing quality health careto all those who need it.

Karim Nagar: Site of the first Apollo Reach hospital.


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The low-cost Apollo Reach hospital chain is saving lives across India. An innovative business model allows it to offer the poormuch higher quality treatment than had been available before. Its highly trained doctors provide first-class care at

affordable prices.

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COLOMBIA


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It is true almost everywhere: more education can lead to higher earning power.


PRIVATE EDUCATION

Extending the Reach

But in Colombia, only a select few have access to highereducation. For many interested students it has simplybeen out of the question, blocking a clear path out ofpoverty. Until recently, that is.

An innovative Bogot-based educational institutioncalled Uniminuto is turning things around with abusiness model that has attracted 35,000 payingstudents of all ages, nearly half from the countryslowest income groups. The model combines low-costtuition and high-value programs in computer science,business, engineering, and other elds that open doorsin the job market. The product is in high demand,sending the company to IFC to nance a majorexpansion. Uniminutos schools frequently targetstudents in informal settlements, smaller cities, and

rural areas that until now have had no such option.Many draw on the countrys World Banksupportedstudent loan program to nance their tuition.

A commitment to a low-cost structure enables it togrow while keeping tuition prices down. Uniminutooften rents or shares its school buildings, and does notspend money on expensive infrastructure.

Sponsored by a respected Roman Catholic group, it ispart of a network of anti-poverty organizations that also

includes micronance and low-income housing arms.We believe that education is critical to promotinggrowth, social mobility, and stability in Colombia, saysFather Camilo Bernal Hadad, the schools rector-general.We are committed to providing both high-quality andaffordable education and to serving areas that have noaccess to services.

An $8 million, peso-linked IFC loan will help the schoolreach an additional 10,000 students by 2011. Ourfunding will support the expansion of three importantcampus sites and the technology infrastructure requiredto expand distance learning offerings for students inmore remote areas.

In the process, more poor students will earn degrees,receive professional certication, and change theirmindsets about the future.

Uniminutos leader, Father Camilo Bernal Hadad, outlineshis expansion plans for the school.


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Graduation day at Uniminuto, an innovative private education provider in Colombia. Its practical, job skillsbased curriculumopens up new employment opportunities for its students, many of whom are from the country's lowest income groups.

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ETHIOPIA


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With just a fourth-grade education and no experience in Ethiopiasmainstream economy, Zaine seems an unlikely asset for a multinationalcorporation. But to Coca-Colas local bottler, he is invaluable.

14 ACCESS TO INCOME

DISTRIBUTIONReaching Hidden Markets

He may not have much formal schooling. But whathe knows is his part of Addis Ababa, especially thecrowded, crooked streets where people gatherregularly, eager to buy soft drinks. The neighborhoodssmall bars, shops, and kiosks are beyond the reach oflarge delivery trucks. Small, hand-pushed carts are abetter way in.

Zaine has signed on to bring Coke products to theselocal vendors reliably each week. A small but importantmarketer for the worlds largest non-alcoholic beveragecompany, he now earns enough to escape poverty,boosting local bottler Coca-Cola SABCOs marketshare in the informal sector that comprises so much ofEthiopias economy.

He is one of a burgeoning group of independent

distributors in East Africa. Supported by $37 million inIFC nancing, Coca-Cola SABCOs innovative deliveryscheme integrates low-income entrepreneurs like Zaineinto its core business operations. Launched in 1999,it is now the South Africanowned rms dominantdistribution model in East Africa. There are roughly 650privately operated distribution businesses in Ethiopia(many operated by rst-time entrepreneurs like Zaine)

that account for 83 percent of Sabcos sales nationwide.In Tanzania, just over 400 such businesses account for93 percent of sales.

Coca-Cola SABCOs system creates more than 12,000jobs and $500 million in revenue annually. Roughly50,000 dependents rely on distributor income.

This success provides valuable lessons. Integrating localbusinesses into the supply chain can increase prots forlarge multinational corporations, particularly in marketswhere traditional distribution practices are not viable.For the poor, such schemes are pivotal: with access tocheap credit, local entrepreneurs can move out of theinformal sector, gain skills, and increase their incomes.

Coca-Colas Distribution Chain: A business opportunity for smallbusiness owners in East Africa.


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Working as small-scale distributors for a major Coca-Cola bottler, East African workers can own their own businesses and earnconsiderable income. IFC has worked closely with South Africanowned Coca-Cola SABCO to develop the model, which has

created more than 12,000 jobs.

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MEXICO


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In Mexicos villages, small shops are big players.

16 ACCESS TO INCOME

SMALL-SCALE RETAILERS

Anchors of the Local Economy

Many are one-woman microenterprises, selling foodand household goods from just four square meters of

oor space. The income they provide their owners isessential in these hard-to-reach rural areas.

But they are cut off from the larger-scale retail industrysefcient distribution chains. To manage their inventory,the owners must travel to distant cities, repeatedlybuying small amounts of goods. This slow, costlyprocess cuts prots and drives up the prices they chargetheir low-income clientele.

In this problem, our client Jos Ignacio Avalos sawopportunity. He set up a distribution company to

supply these smallshops, using a modernlogistics networkthat delivers goodsdirectly to their doors.Called Mi Tienda

(My Store), it offersretailers an inexpensivepackage of volume-discounted goods inindividual unit size,customized nancing,store modernization,and training. This

model has increased revenues of modernized stores by35 percent while enabling them to offer lower prices to

customers.IFC has just taken a $2.5 million equity stake in MiTienda. This helped Mr. Avalos attract another $10million from other investors to scale up his innovativerm, which aims to raise the incomes of 25,000 ruralshop-owners.

Mr. Avalos, a founder of successful local micronanceinstitution Banco Compartamos, has long understoodthe economic value in meeting the needs of the poorand underserved.

He says that the stores are a lifeline, both for theirowners and for the customers they serve: Eightypercent of the store owners are women whose otheremployment options are limited to agriculture ordomestic help.

And customerstypically farm workers or rural peoplewithout steady incomes who have no transportationnow have easier access to a wider selection of freshergoods, at more affordable prices.

To those who might suggest that clients like theseshop owners are too big of a business risk, Avalos sayssimply: Our loan repayment rate is 98 percent.

Jos Ignacio Avalos: Founder of Mi Tienda.


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IFC client Mi Tienda helps small shop-owners in rural Mexico grow more productive, allowing them to increase their salesand provide better customer service.

GLOBAL


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18 ACCESS TO FINANCE

The research is clear: bringing the poor into the banking system in largenumbers is essential to poverty reduction. But how is it done with those inthe most remote, underserved areas?

BANKING BY PHONE

Reaching Customers, Fighting Poverty

In the poorest countries, it may happen best throughphones, not nancial institutions.

In Cambodia, 90 percent of the people never use banks.Yet half the population has access to a mobile phone.Using one as a bridge to the other makes good businesssense and can transform poor peoples lives.

This is the goal of WING, a new ANZ Bank venturein Cambodia supported by IFC advisory services.Launched in January 2009, it cut the costs of localmoney transfers by 50 percent, allowing workers inPhnom Penh to send money back to rural relatives byphone for a small fee. Once transactions go through,money can be quickly obtained from authorized agentsin villages, and the service can also be used to buildsavings. Far faster and safer than other options, it gives

customers condence and control over their money, andsimultaneously introduces them to banking services.

WING already has 100,000 clientsmost ofwhom had no previous banking experience. Theoverwhelming majority of these unbanked usersare women.

Chan Sreang lives in a poor neighborhood ofPhnom Penh with her brother and mother. Hermodest earnings as a waitress go almost entirely to

household expenses, and she feels she does not haveenough money to open a conventional bank account.But she does have a mobile phone. WING has turnedit into her personal banking device, keeping her moneysafe from loss or theft. I just want to put the little I havein my account daily, she says. I know it will be safe.

IFC advisory services helped WING develop its sales

network and tech support call centers and measure itssocio-economic impacts, while also helping governmentofcials grow comfortable with the approach amid thecountrys legal and regulatory climate.

Sensing similar opportunities in Pakistan, Norwegianmobile operator Telenor recently bought control of IFCslocal micronance client Tameer Bank and introduceda similar money transfer service that has found 50,000

subscribers in its rst three months. The acquisitionfollowed value-building advice on mobile bankingthat IFC provided Tameer. We then helped it obtainmore from a Bill & Melinda Gates Foundationfundedprogram at global micronance center CGAP.

As in Cambodia, the new access means much toPakistans rural population, offering signicant potentialto support the incomes of poor and vulnerable groups,

says Tameer Banks CEO Nadeem Hussain.


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IFC client WING makes banking by phone a reality for 100,000 Cambodians like Chan Sreang ( above ), a waitress in PhnomPenh who uses its convenient technology to save $2.50 a week. Inexpensive, accessible, and safe, it makes financial

transactions possible for people who would otherwise never use a bank.

GLOBAL


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The poor are more resilient when they have insurance.

MICROINSURANCEThe Time Is Now

With insurance, a breadwinners death no longer meansnancial devastation for the family. People are also more

likely to invest in expanding their farms, establishingnew businesses, or sending their children to school. InUganda, studies show, the seriously ill take nine daysto go to the hospital if they have no insurance; withinsurance, they take just two and a half.

Microinsurancethe provision of affordable insuranceto the pooris now one of the worlds most demandednancial services. It is one that low-income people

will pay for when it is commercially available, makingup a 1.5 billionperson market that is only 5 percentpenetrated at present, according to a recent study byone of the worlds largest private insurers, Lloyds ofLondon.

To help build this much-needed industry, IFC has justinvested $20 million in LeapFrog Financial InclusionFund, the worlds rst commercial microinsurance

investment fund. Our stake helps LeapFrog reach itstarget size of $100 million, capital it will use to enable25 million people to access insurance in the comingyears.

We cannot ignore the fact that 83 percent of thepopulation in Asia and 95 percent in Africa are low-income or poor, says LeapFrog President AndrewKuper. The industry has a historic opportunity to

develop protable businesses that serve this immensecustomer base. We can generate strong returns for

investors while helping millions of people with theirdaily struggle to get out and stay out of poverty.

The funds rst investment is in AllLife, a SouthAfrican rm targeting HIV-positive and diabeticpeople that others consider uninsurable. Ensuringthat clients undergo testing and actively manage theirhealth reduces the risk AllLife covers, underpinning aprotable, high-impact business model.

LeapFrog is pursuing similarly innovative investmentsin Ghana, Kenya, India, Indonesia, and the Philippines,with IFC a close partner at every stage, helping the rmcombine social impact with strong nancial results.

LeapFrog Financial Inclusion Fund:The world's rst commercialmicroinsurance investment fund.


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Affordably priced insurance can mean everything to lower-income people in Africa and Asia. They comprise a vastuntapped market that the IFC-backed LeapFrog Financial Inclusion Fund is now targeting, using a business model that seeks

strong social impact as well as return on investment.

AFGHANISTAN


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Bibi Sediqa Musawi lives in Afghanistans Mazar-e-Sharif province. Until herlocal bank began offering home loans, there was no way she could afford toimprove the dire conditions of her familys house.


HOUSING

Small Loans, Big Results

It had no doorsjust an open passagewayand alsono windows or kitchen. The income from her tailorsbusiness and her husbands army career was too smallto support repairs, making life cramped and difcult forthe couple and their three children.

Then Bibi Sediqa learned that the First MicroFinanceBank-Afghanistan (FMFB) had begun offering home

improvement loans. She borrowed $2,000 to purchasesteel doors and windows, plus plaster and paint forthe inside of the house. She went to work, and nowis thinking of borrowing more money to plaster theoutside, too.

The home improvement loan program really supportsthe poor, she says. It allows us to complete or repairour houses.

IFC helped found FMFB in 2004, providing its sponsorsat the Aga Khan Agency for Micronance with thecapital and advisory services needed to get started.Today it is the countrys most successful commercial

microlender, bringing modern banking to more than85,000 low-income people nationwide.

To widen the impact, IFC last year began advisingFMFB on the development of housing nance products,providing a resident adviser and other specialistservices. This has enabled the bank to make smallhome loans to nearly 2,000 people like Bibi Sediqa. Ithas built a well-performing $3.1 million housing nanceportfolio that is currently offered at 12 branches acrossAfghanistan, and is expected to grow considerably inthe future.

Monthly payments are less than $100, allowingtypical Afghans to improve their living conditionsconsiderablyadding space, installing wells or hand-pumps that provide access to clean water, or installinglatrines to improve sanitation. It is a protable newbusiness for the bank, and a life-changer for Afghanfamilies.

First-time homeowner Syed Haider's First MicrofinanceBankAfghanistan mortgage costs just a $64 a month.


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Bibi Sediqa Musawi's home in Afghanistan is much better today than it was a year ago. New home loans that IFC helped theFirst MicroFinance BankAfghanistan start offering will allow thousands of other Afghans like her to improve their housingconditions in the coming yearsrenovations they could otherwise never have afforded without this new access to finance.

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PERU


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For Perus largest bank, the base of the pyramid is big business.In September 2009 Banco de Crdito del Per (BCP) paid $79 millionto acquire a controlling interest in an IFC client micronance institution,Financiera Edycar.


MICROFINANCE

Big Bank, Small Loans

With the transaction, the countrys nancial leadersignaled the growth prospects it saw in the business ofbringing the poor into the nancial mainstream. Wermly believe Edycar is a success story in its marketsegment, and we want to provide the capital, funding,and technology for it to continue growing beyond its

current capabilities, said BCPs CEO, Walter Bayly.A prestigious 120-year-old institution that is Perusmarket leader in credit as well as savings, BCP is nowactively targeting low-income clients. We want to learn

from the best in micronance, and the best are all thosewho are part of Edycars team, Bayly said.

When IFC rst met Edycar in 2004, it was a smallnance company with 33,000 borrowers, still dependenton nancing from CARE, the poverty-ghting NGO thathad founded it several years earlier. IFC provided a $5million debt and equity package to help it grow, followedby partial guarantees that enabled it to issue bonds inthe Lima capital markets, raising its prole with localinvestors. Our advisory services then helped sharpenEdycars business focus, reducing its operating costsand making it more attractive to potential new investorsthat CARE was seeking.

Today Edycar has more than 200,000 borrowers. Mostlive in the provinces, where average incomes are farlower than in capital city Lima. Many have never beforehad bank accounts. With one of the lowest average loansizes of any local microlender, it is keenly focused onhelping low-income entrepreneurs climb out of poverty.New owner BCP is making the right decisions to keepEdycars management, culture, and essence intactwhile providing new resources that will help it grow even

further in the coming years.Financiera Edyficar: Fueling entrepreneurship at the baseof Peru's pyramid.


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In the six years it has worked with IFC, Peruvian microfinance bank Financiera Edyficar has grown from having 33,000 tomore than 200,000 clients. It is now owned by the country's largest bank.

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TAJIKISTAN


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26 ACCESS TO MARKETS

Tajikistans economy depends heavily on cotton.

COTTON

Tajikistans White Gold

In many rural areas of this poorest and most fragile ofthe former Soviet states, a large majority of people earn

their living from the crop they call white gold.But the sector has undergone steady decline, leavingit indebted and inefcient today. A lack of competi-tion in marketing and limited access to nance fromlocal banks have left cotton farming barely viable formany smallholders. Partly for this reason, a million Tajikmenalmost a third of the working populationhavemoved to Russia, hoping to earn money to send back to

their families.With support from the Canadian InternationalDevelopment Agency, IFC has responded by crafting acotton advisory services project in southern Tajikistan.

It has helped our clients Tojiksodirot Bank and FirstMicronance Bank introduce a new form of cotton

lending, and between them lend nearly $5 million tolocal small-scale farmers. More than 96 percent of theloans have been repaidmuch higher than averagerepayment rates for the industryraising condencein this new commercial product that does much toincrease rural incomes.

The project has also provided training for farmers toincrease their understanding of productivity and gender

issues. Analysis shows that yields at participatingcotton farms are 37 percent higher than yields at farmsthat did not take part, leading to increased protability.Nearly 6,000 women farm workers beneted frombetter working conditions and improved hygiene andsanitation. This has resulted in healthier and moreproductive workers reaping the benets of moreprotable farms.

Previously we received cotton stalks instead of salariesper hectare of cotton-producing land, recalls SaodatKaraeva, a Dekhan farm worker and mother of ve. Buttwo years ago the farm bought a tractor with a loanfrom Tojiksodirot Bank. We started to receive a regularsalary during cotton collection season. Our family isgrateful to IFC for creating these opportunities forfarmers to take loans, which have made our lives better.

Cotton: The key source of income for Saodat Karaeva(left) and thousands of other Tajik farmers.


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27

Now able to access loans from local banks and increase their output, Tajikistan's small-scale cotton farmers are takingnew pride in their work.

VIETNAM


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Coffee: the worlds second most-traded commodity after oil, and a source of income for small-scale farmers in more than 50 countries.

COFFEE

Local Farms, Global Markets

Many earn far less than they could, held back by lowproductivity and quality. Given the right tools forlearning, they can improve both enough to start sellingto demanding global buyers who will pay them a betterprice.

IFC helps ll this knowledge gap in several countriesthrough an ongoing partnership with one of the worldsbiggest coffee traders, Ecom Agroindustrial CorporationLtd. The collaboration recently led to the launch ofVietnams rst training center for coffee farmers. Overthe next three years, it will build 4,000 small-scalefarmers skills in sustainable agriculture, helping themmeet international certication standards, improve

the sustainability and productivity of their crops, andincrease their earnings.

Support for the training center came alongside a $55million 2008 IFC loan to Ecom in Vietnam and veother countries. It helps local coffee producers qualifyfor organic status and other forms of sustainabilitycertication required by top global buyers.

Seeking a new way to link small-scale farmers to global

supply chains, IFC began working with Ecom in CentralAmerica in 2007. Nestls sophisticated Nespressobrand, the Rainforest Alliance, and others were closelyinvolved from the outset. Also providing local farmerswith both training and nancing, the initiative has sinceenabled more than 12,000 Central American farmersto sell to Nespresso, earning $3.7 million in salespremiums for the independently veried, high-qualitycoffee they now grow.

Amabelino Chavarra owns a small coffee farm inCosta Rica with his brother. Thanks to the training hereceived through the project, he has sold premiumcoffee to foreign buyers for the last two years, usinghigh environmental and productivity standards. His newcounterparts in Vietnam should soon be able to say thesame.

Amabelino Chavarra: IFC/Ecom client in Costa Rica, one ofthe first markets in a growing global partnership.



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By teaming with one of the world's largest coffee traders, Ecom, IFC helps thousands of small-scale producers in Vietnamraise their standards and command better prices.

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CHINA


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Even in fast-growing China, local small-scale farmers frequently still useunsophisticated methods of fertilizer application, limiting their crop yields,sales, and incomes. By nancing a local fertilizer companys expansion, IFC is

helping improve prospects for 850,000 of these farmers.


PRODUCTIVITY GAINS

Critical for Chinese Farmers

Koyo Ecological Agrotech Group Ltd. is one of Chinasleading fertilizer producers. It is using $30 million inIFC nancing to build a new urea and ammonia plant inSichuan province, addressing a fertilizer shortage in oneof Chinas key agricultural centers.

The rms business model involves producing top-quality fertilizer from low-cost local urea, then selling itto small-scale farmers along with valuable training. Itsuniversity-trained agricultural specialists have helpedgrain and cowpea growers improve their fertilizer usethrough soil analysis, correct blending, and timing ofapplication, leading to signicantly enhanced cropyields. Rapeseed farmers, for example, have beenshown to experience a 7 percent increase in yields

after applying Koyos fertilizer, allowing them to earnsignicantly higher incomes.

Government support helps make the product moreaffordable to the end users. Local farmers can draw onannual government subsidies of up to RMB100 ($15)per hectare they cultivate, with additional fundingavailable to defray the costs of seed and agriculturalequipment.

IFCs $20 million loan and $10 million equity investmentis nancing the construction and operation of Koyosammonia/urea complex in Dazhou City, a poor regionof Sichuan 400 kilometers from the provincial capital,Chengdu. The company is part of the larger KoyoGroup, which was established in November 1996 and

is principally engaged in the research and development,manufacture, marketing, and distribution of chemicalproducts and chemical fertilizers. The groupscommitment to quality control and quality assuranceis demonstrated by its proven success in attaininginternational standards, such as ISO 9001:2000 QualityManagement System Certication and ISO 14001:1996Environmental Management System Certication.


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31

Sichuan province's Fuyuan Zeng ( left ) and Tianlin An ( right ) share experiences with their representative from Koyo, an IFC clientthat works closely with Chinas small-scale farmers. Thanks to Koyo's teaching me to mix and spray pesticide to prevent the

diseases and pests, my cowpeas are good this year, and I plan to grow more next year. Fuyuan Zeng says.


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32 ANNEX

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33

29

Working Together Sharing Knowledge and PromotingBase of the Pyramid Investments

IFCs Collaboration with Other Organizations

WORKING TOGETHER


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34 ANNEX

WORKING TOGETHER

Base of the Pyramid Investments

Pioneering companies like the IFC clients featured in this collection areshowing it is possible to meet poor peoples needs for goods, services, andlivelihood opportunities through commercially viable, scalable businessmodels.

Their stories are impressive and inspiringespecially since inclusivebusiness isnt always easy. Companies face real obstacles in designing,

piloting, rening, and building inclusive business models. These obstacles includeovercoming hurdle rates for internal investment, nding clear paths for growth in scopeand scale, managing high expectations, and addressing low tolerance for failure.

Many more companies need to succeed in the world of inclusive business to serve thefour billion people now living at the base of the pyramid. IFC can ll critical gapsforexample, IFC has a strong balance sheet and the ability to deploy results-orientedinvestment integrated with advisory services. But IFC recognizes that no singleorganization can address all the needs. A wide range of actors are working at the base of

the pyramid, and all have important roles to play.This is why IFC is partnering with leading companies, donors, foundations, and civilsociety organizations active in this space. For example, we are working with theGrassroots Business Fund to help social entrepreneurial ventures grow and reachcommercial viability. We collaborate with Technoserve to build small businessescapacity to join the value chains of larger companies, such as IFC investment clients.We are partnering with the Harvard Kennedy School to bring such companies anddonors together to share what theyve learned about doing business with the base of the

pyramid ( see adjacent box ).Our goal in partnering is to learn how, together, we can make the process of starting andscaling inclusive business models easierless costly and more likely to succeed. Fromglobal knowledgesharing to sector-specic collaboration on the ground, we believeconcerted action is what is required to drive inclusive business beyond its tipping point.


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Networking for Inclusive BusinessIFC and the Harvard Kennedy School

M any rms worldwide are in the early stagesof learning to do business with the poor asproducers and consumers.In a way, the inclusive business models they arebuilding can be considered R&Dwith the ultimateobjective of being rolled out at signicant scale. Theseinnovative rms and the organizations that supportthem have a lot to learn from one another.

Since 2007, IFC and the Harvard Kennedy Schoolhave been creating opportunities for leadingcompanies to share the opportunities andchallenges they face in starting and scaling inclusivebusiness models. Through roundtable dialoguesin Washington D.C., Johannesburg, Rio de Janeiro,and Jaipur, a network of practitioners has begunto coalesce and a richness of solutions has beencaptured.

Most recently, IFC and the Harvard KennedySchool have begun to expand the network, bringingcorporate practitioners together with members of

the donor community to better understand whatdonors and development nance institutions can doto help the private sector start and scale inclusivebusiness models more effectively. Together, the twoinstitutions have also published the following reports:

Developing Inclusive Business Models: AReview of Coca-Colas Manual DistributionCenters in Ethiopia and Tanzania (2009)

Business Linkages: Enabling Access to Marketsat the Base of the Pyramid (2009) Supporting Entrepreneurship at the Base of the

Pyramid through Business Linkages (2008) Business Linkages: Lessons, Opportunities, and

Challenges (2007)

2007: Roundtable in Jaipur


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Telling Our Story: Base of the Pyramid InvestmentsInclusive BusinessProduced by IFC Corporate Relations Department

Photography : Subrata Barman/IFC (Cover)

Jos Raul Prez (pages 2, 17, and 33-top right)Ted Pollett/IFC (p. 3)Minakshi Ramji/IFC (p. 4)Arata Onoguchi (pages 5 and 33-bottom right)Manila Water Company (pages 6-7)PEPFAR (pages 8-9 and 21)Apollo Hospitals (pages 10-11)Uniminuto (pages 12-13) Alexis Geaneotes/IFC (pages 15 and 32)Mi Tienda (p. 16)WING (p. 19)First MicroFinance Bank-Afghanistan (pages 22-23)Financiera Edyficar (pages 24-25)Adkham Ergashev/IFC (pages 26-27)Raina Lang (p. 28)Nguyen Huy Kham/Reuters (p. 29)

Koyo Ecological Agrotech Group Ltd. (p. 31)Patrick Daneri Carpenter (p. 32)iStockphoto (p. 34)

Design Partner : Corporate Visions, Inc.Printing : Mosaic

CREDITS

36


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HeadquartersWashington, D.C.:IFC Corporate Relations2121 Pennsylvania Ave., N.W.Washington, D.C., 20433 USATelephone: (1-202) 473-3800

Western EuropeParis:66, Ave. dIna75116 Paris, FranceTelephone: (33-1) 4069-3060

London:12th Floor, Millbank Tower21-24 Millbank

London SW1P 4QP, United KingdomTelephone: (44-207) 592-8400 Brussels:Avenue Marnix 17B-1000 Brussels, BelgiumTelephone: (32-2) 522-0052

Frankfurt:Bockenheimer Landstrasse 10960325 Frankfurt, GermanyTelephone: (49-69) 743-48230

Central and Eastern EuropeMoscow:36, Bldg. 1, Bolshaya Molchanovka Street3rd FloorMoscow 121069, Russian FederationTelephone: (7-495) 411-7555

HOW TO CONTACT US

IFC has ofces in more than 80 countries around the world.Please contact the nearest regional ofce for further information.

Southern Europe and Central AsiaIstanbul:Buyukdere Cad. No: 185, Kanyon Os BloguKat 10Levent 34394Istanbul, TurkeyTelephone: (90-212) 385-3000

East Asia and the PacicHong Kong:14/F, One Pacic Place88 Queensway RoadHong KongTelephone: (85-2) 2509-8100

Tokyo:

Fukoku Seimei Building 10F2-2-2, Uchisaiwaicho, Chiyoda-ku 100Tokyo, JapanTelephone: (81-3) 3597-6657

South AsiaNew Delhi:50-M, Shanti Path, Gate No. 3Niti Marg, Chanakyapuri 110 021New Delhi, IndiaTelephone: (91-11) 4111-1000

Middle East and North AfricaCairo:Nile City Towers, 2005 Corniche el NilNorth Tower25th Floor, BoulacCairo, EgyptTelephone: (20-2) 246-19140/45/50

Sub-Saharan AfricaJohannesburg :14 Fricker Road, Illovo, 2196Johannesburg, South AfricaTelephone: (27-11) 731-3000

Nairobi:Commercial Bank of Africa BuildingUpper Hill Mara/Ragati Roads, 4th FloorP.O. Box 30577-00100Nairobi, KenyaTelephone: (254) 020-275-9000

Dakar:Fann RsidenceRue Aim Csaire X

Impasse FN 18 ProlongeDakar BP 3296SenegalTelephone: (221-33) 859-7100

Latin America and the CaribbeanSo Paulo:Edico Torre Sul, Rua James Joule65-190 andarCidade MongoesSo Paulo, SP, BrazilTelephone: (55-11) 04576-080

Mexico City:Montes Urales, Ocina 503Colonia Lomas de ChapultepecDelegacin Miguel HidalgoMexico, D.F., 1100 MexicoTelephone: (52-55) 4111-10003098-0130

Our vision is


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ifc.org 2010

Our vision is

That people should have the opportunity to escape poverty and improve their lives.

Our core corporate values are Excellence Commitment Integrity Teamwork

Our purpose is

To create opportunity for people to escapepoverty and improve their lives by:

Promoting open and competitive marketsin developing countries

Supporting companies and other privatesector partners where there is a gap

Helping to generate productive jobs anddeliver essential services to the underserved

Catalyzing and mobilizing other sources of nance for private enterprise development

In order to achieve its purpose, IFC offersdevelopment impact solutions through: rm-level interventions (direct investments, advisory services and the Asset Management Company);standard-setting; and business enablingenvironment work.

Telling Our Story: Inclusive Business

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