ASEI (23 Apr 2013) IB in PHI - Final Report_with Disclamer

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March 25, 2013

Inclusive Business StudyPHILIPPINES

Prepared by Asian Social Enterprise Incubator, Inc. for the Asian Development Bank

The views expressed in this paper are the views of the authors and do not necessarily reflect the

views or policies of the Asian Development Bank (ADB), or its Board of Governors, or the

governments they represent. ADB does not guarantee the accuracy of the data included in this paper

and accepts no responsibility for any consequences of their use. Terminology used may not

necessarily be consistent with ADB official terms.



ADB TA- 6518 REG: Promoting Inclusive Growth through Business Development at the Base of the Pyramid (Inclusive Business Market Study – Philippines)

Conducted by

Asian Social Enterprise Incubator Inc37 Nicanor Reyes Street1108 Quezon CityPhilippines

[email protected]

Team Leader: Markus Dietrich

March 2013



ABBREVIATIONS

ADB Asian Development Bank ASEI Asian Social Enterprise Incubator, Inc.

BoP Base of the PyramidFIES Family Income and Expenditure SurveyCSR Corporate social responsibilityIB Inclusive business



Table of Contents

Section 1: Executive Summary .................................................................................................. 1

Section 2: Macroeconomic and Poverty Assessment of the Philippines ..................................... 3

Section 3: Size of the market at the BoP in the Philippines .......................................................19

Section 4: Market Scoping ........................................................................................................21

Section 5: Financial Market Scoping .........................................................................................54

Section 6: Donor Mapping .........................................................................................................62

Section 7: Conclusions ..............................................................................................................67

List of Annexes

Annex 1 Inclusive Business Case Studies

Annex 2 Methodology “Inclusive Business Impact Assessment”

Annex 3 List of Participating Companies

Annex 4 Survey Instruments

Private Sector Mapping Survey

Private Equity Fund Mapping Survey

Donor Interest Survey

Annex 5 Summary of the Philippine Inclusive Business Forum Company Assessments



1

Section 1: Executive Summary The Macroeconomic Situation in the Philippines

The macroeconomic development of the Philippines for the private sector is as positive as it has

not been for a long time indicated by economic statistics, credit agencies’ ratings and confirmedby the results of this market scoping study. The economic growth, however, is not inclusive andhas not yet led to a substantial reduction in poverty, inequality and unemployment which ismarkedly higher than in the neighbouring ASEAN countries. The government’s inclusive growthagenda does not embrace inclusive business as a driver for inclusive growth. The ADB study ongrowth in the Philippines An Agenda for High and Inclusive Growth In The Philippines recommends to focus on agribusiness, food manufacturing, design led manufacturing, BPO,tourism and mining sector to achieve inclusive growth. Four of those sectors also feature in thismarket scoping study for inclusive business thereby indicating a sectoral convergence of inclusive business and inclusive growth.

The Base of the Pyramid (BoP) with an income per capita of less than USD 3 consume about

50% of the total expenditure of the country which represents a market of USD 34bn. This totalamount is mostly spent for food (50%), housing (20%), fuel (9%) and transport/communication(6%).

Poverty in the Philippines remains high and stable at 26% and more than 62% are below the $3international poverty line, the BoP threshold. Poverty is mainly a rural phenomenon and causedby a lack of employment opportunities in country side and cities. Hence the main focus of an IBfund from a social perspective should be on companies offering job and income opportunities,i.e. mainly companies with a BoP as supplier business model.

In addition poverty is linked to weak public services delivery in the health, water, energy,education and housing sectors. IB models in those sectors would also strongly contribute to the

improvement of the poor’s living standards.

Inclusive Business in the Philippines

Inclusive business and impact investment is a very nascent concept in the Philippines definedby a low awareness among the business, finance and donor community and a lack of anenabling eco system. As a result, only 2 dedicated impact investments worth total of USD 3million were undertaken in the Philippines in the last three years. In addition IFC invested USD75 million in Manila Water from 2003 to 2005.

The market scoping study identified 70 companies with inclusive business models in thePhilippines in 11 industries engaging the BoP mainly as a consumer, supplier and distributor.

This compares to a potential of 20,000 social enterprises as identified by the ADB and the over 300,000 NGOs active in the Philippines.

On average, Philippine inclusive businesses are looking for debt financing in the range of USD0.5 to 10Mio at interest rates between 4% and 8%. Selected equity deals of the same size arealso sought with IRR expectations of 10% to 20%. The time frame is equally divided betweenshort, mid and long term funding.



2

Recommendations to ADB

It is recommended that funding for IB in the Philippines is integrated in a wider Southeast AsianIB fund as the current state of available equity and debt deals and the nascent ecosystem for IB

does not warrant a Philippine specific fund. Given the reluctance of the banking sector to investin IB and the unavailability of donor funding for an investment facility except perhaps AUSAID,IFC is the most likely investment partner for the IB fund and collaboration should be further explored. However, for individual deals there is an opportunity to bring selected banks on board.

Discussions with fund managers and banks revealed that the expected deal size for equityinvestments would be between USD 0.5 and 2.5 million. The deals size for debt investmentcould be between USD 0.5 and 10 million. Fund managers and the company study suggest thatin the next 3 to 5 years a total of 10 to 15 debt and equity deals with a total size of USD 20 to 30million can be envisaged. In addition both companies and investors suggested to study further the possibility of establishing a credit guarantee facility of USD 10 to 20 million. Companies andfund managers suggested a minimum tenure of the fund of 5-7 years.

Technical assistance is recommended not only to support the investees but also to contribute tothe development of an enabling eco system for inclusive business in the Philippines. Thisincludes working with business organizations, such as PBSP which has adopted the theme of IBin their working program for 2013 to 2014, and partnerships with other bilateral and multilateralagencies. It is suggested to cover several topics under a TA facility such as moving from CSR toIB, sectoral discussions on agriculture, health, education and urban services and the alignmentof the government’s inclusive growth agenda with the private sector inclusive business push.



3

Section 2: Macroeconomic and Poverty Assessment of the Philippines

This section provides an overview of the Philippine macroeconomic performance in recent yearsand the poverty situation in the country.

2.1 Macroeconomic Assessment of the Philippines

The election of Benigno Aquino III as 15 th president of the Philippines in June 2010 has been awatershed moment for the Philippines with profound impact on the macro-economic situation of the country. In “Breakout Nations: In Pursuit of the Next Economic Miracles”, Ruchir Sharmasuggests that the Philippines can transition from the “sick man of Asia” to a “break-out nation” inthe coming decade enjoying a growth in excess of 5%. This assessment confirms an earlier inclusion of the Philippines in the Next-11, a term coined by Goldman Sachs’ Jim O’Neill,describing economies which significantly contribute to global growth through positivedemographic factors and increasing income and domestic consumption.

The economic outlook is also very positively judged by the seventy companies of this studybased on the government’s policies of clean government and tight fiscal discipline. Thissentiment is echoed by the international rating agencies which upgraded the Philippines eighttimes since 2010 to one notch below investment level. On May 2012 Moody’s assigned apositive outlook on Philippines’ sovereign credit rating citing the “continued trend fiscal and debtconsolidation and enhanced finance-ability of government debt”.1 Also in the GlobalCompetitiveness Index the macroeconomic environment ranking of the Philippines improved 14places to 54th out of 139.

Table 2.1: Philippine Rating in International Rating Agencies

Agency Rating Outlook

Moody's Ba1 Stable

Fitch BB+ Stable

Standard's & Poor BB+ Stable

Historically over the last five decades, the Philippines exhibited the lowest GDP growth in the ASEAN-6 region. During the period from 2000 to 2008 its GDP growth averaged about 5% andweakened to 1.1% in 2009 due to the global economic crisis. Growth rebounded strongly to7.6% in 2010, driven largely by robust private consumption, election spending and a strongrecovery in investments. In 2011, GDP growth shrunk to 3.9% below the expectations from theWB, ADB and the 7% growth target of the Philippine Development Plan. Within the ASEAN-6region, comprising Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam, thePhilippines ranked only 5 out of 6 in terms of economic growth. Growth in 2011 was driven by

the service sector, growing at 5.1%, led by real estate and financial intermediation. Industryachieved total 2.3% growth, whereby construction contracted by -7.3% mainly due to lowgovernment spending, and manufacturing growing by 4.7%. Agribusiness grew by 2.7% after

1Moody’s Investor Service (Global Credit Research), Moody's assigns positive outlook on Philippines' sovereign

credit rating, Moody’s Investor Service, http://www.moodys.com/research/Moodys-assigns-positive-outlook-on-

Philippines-sovereign-credit-rating--PR_247006, June 2012



4

two years of contraction. The slow growth can partly be attributed to natural disasters which costthe Philippines 1.4bn USD in 2011.

Figure 2.1: ASEAN-6 GDP Growth Rate

Data source: The World Bank, http://databank.worldbank.org/

In the first half of 2012, GDP grew surprisingly fast by 6.1%. This constitutes the third fastestgrowth in Asia behind Indonesia’s 6.4% and China’s 7.8% growth figure. However, the growthnumber particularly of the first quarter of 2012 is highly influenced by 24% increase ingovernment spending and a 6.6% increase in consumption. Of the industry sectors on thesecond quarter, the service sector grew strongest with 7.6%, followed by industry (4.6%) and aslow growing agribusiness sector (1%). Agribusiness amounted to 11.6% of GDP, Industry32.2% and services 56.2% continuing the trend of a decline in agribusiness and manufacturingand an increase in the service sector since 2003.2 The main contributor to GDP is householdconsumption at 70.8% in 2011 making the Philippines a consumption driven economy. Theoutlook of GDP growth for 2012 ranges from 5.0% (WB), 4.8% (IMF) to 5.5% (Barclay’s).

GDP per capita development since 2000 accentuates the picture of the Philippines is laggingbehind ASEAN-6 countries. The Philippines with USD 2,370 (current USD) GDP/capital ranks 5out of 6, only surpassing Vietnam, as not only GDP growth has been slow but also populationgrowth continues to be high.

2Bangko Sentral ng Pilipinas, BSP Website, Report on Economic and Financial Developments First Quarter 2012,

http://www.bsp.gov.ph/downloads/Publications/2012/LTP_1qtr2012.pdf, March 2012

0

2

4

6

8

10

12

14

16

1990 1995 2000 2005 2010 2011

G r o w t h r a t e ( % )

Year

Indonesia

Malaysia

Philippines

Singapore

Thailand

Vietnam



5

The overall population of the Philippines is growing at a rate of 1.873% and has reached 103.8million in July 2012,3 making the Philippines the 2nd most populous country in ASEAN-6. Theaverage age is only 23.1 years and the country has yet to experience the demographictransition with its dividend leading to higher per capita GDP growth as experienced by other

ASEAN countries such as Thailand, Vietnam and Indonesia which have reduced population

growth to 0.6% in the case of Thailand and 1.2% in Indonesia for the period 2008 to 2010.4 Thehigh population growth places a heavy burden on investment and growth requirements toachieve a significant increase in per capita welfare.

Figure 2.2: GDP based on purchasing power parity per capita, ASEAN-6

Data source: International Monetary Fund, World Economic Outlook Database, April 2012

In 2012, the Philippines had a labor force of 40.4 million. 5 Unemployment level is persistent at7%, reaching 2.8 million, and underemployment stagnates at 22.7%, that is 9.1 million Filipinos.Of the 37.6 million employed people, 20 million (53.3%) work in the service sector, 11.6 million(30.9%) in agribusiness, and only 6 million (16.0%) in industry. 22.2 million (59.1%) are wage

and salary earners, 10.3 million (27.5%) are self employed without any paid employee, 3.5

3Central Intelligence Agency, CIA World Factbook, https://www.cia.gov/library/publications/the-world-

factbook/geos/rp.html, July 20124Ernesto Pernia, Poised to hit ‘sweet spot’?, School of Economics - University of The Philippines Diliman,

http://www.econ.upd.edu.ph/perse/?p=1046, May 20125National Statistics Office, Labor and Employment, http://www.census.gov.ph/statistics/survey/labor-force, July

2012

0.00

10,000.00

20,000.00

30,000.00

40,000.00

50,000.00

60,000.00

70,000.00

1990 1995 2000 2005 2010 2011 2012

G D P b a s e d o n P P P

Year

Indonesia

Malaysia

Philippines

Singapore

Thailand

Vietnam



6

million (9.4%) are unpaid family workers and 1.5 million (4.0%) are employers in familybusinesses.

On closer examination, many service and manufacturing sectors, such as retail and electronicsmanufacturing employ people on a contractual basis further reducing the number of Filipinoswith regular employment. A World Bank study puts the percentage of non-regular employees in

2010 at 32.5% in establishments with more than 20 employees, a number which grew by 16.2%over 2 years.6 Reasons for this development are the inflexible 36 years-old labor code whichoffers high and inflexible protection to regular employees and thereby discouraging companiesto offer to them regular employment status. Labor productivity is by far and persistently thelowest in ASEAN-6 whereas minimum wage is the highest in ASEAN-6 leading to a nonconducive environment for large scale employment generation. On the positive side, thePhilippines has a huge and young labor pool of English speaking and comparatively welleducated people which contributes to the rise of the BPO industry within the country and theOFW community outside the Philippines.

The lack of job opportunities in the home country has contributed towards the emergence of human resources as a major export factor. 9.4 million Filipinos are employed abroad as

overseas foreign workers.7 This group has developed into a major contributor and stabilizingfactor to the consumption led growth of GDP with total remittances growing year to year by7.2% to 20.1 billion USD, equivalent to 8.9% of GDP in 2011. This compares to an average of 1.5% for all East Asian and Pacific countries and places the Philippines as the No. 4 country inthe world in receiving remittances.

Figure 2.3: GDP growth rate and unemployment

Data source: World Bank, http://databank.worldbank.org; Department of Labor and Employment, Philippines

6Rene Onofreo, Promoting Fairness and Inclusive Growth in Outsourcing Arrangements, Paper Prepared for The

World Bank, April 20127Commission on Filipinos Overseas, Statistic 2010,

http://www.cfo.gov.ph/index.php?option=com_content&view=category&id=134&Itemid=814, July 2012

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2009 2010 2011 2012

% U

n d e r e m p l o y m e n t

% U

n e m p l o y m e n

t

Year

GDP Growth Rate

Underemployment

rate

Unemployment rate



7

In contrast to the growth in consumption, the domestic investment ratio has fallen from 25% of GDP in 1997 to 14.6% in 2009. In this aspect, the Philippines has fallen behind the majority its

ASEAN-6 neighbors which have invested substantially more in the local economy. One of thecontributing facts of the lack of overall investment is the low flow of foreign direct investment. In2009, the Philippines only received 1.9bn USD in net FDI out of 35.4bn USD flowing into theregion. In 2011 FDI was further reduced to 782m USD, mainly flowing into financial sector, real

estate and manufacturing. In the period from 1990 to 2009, the accumulated FDI amounted to28.2bn USD, placing the Philippines at the bottom of the ASEAN-6 ranking.8

The main sectors of FDI in the Philippines over the period 1999 to 2009 were manufacturing,utilities and the financial sector. In manufacturing it is especially the electronics industry whichhas established assembly factories in the Philippine Economic Zone Authority (PEZA) areas,special economic export zones, however offers only little value add. The fastest growing sector in terms of employment and local content and value add is Business Process Outsourcing(BPO).9 Both sectors also contribute also significantly to the export industry of the Philippines.

Figure 2.4: FDI and remittance growth in the Philippines, 2004 to 2011

Data source: International Monetary Fund, World Economic Outlook Database, April 2012

Overall, exports are not such a dominate factor for the Philippine economy as in the other ASEAN-6 countries. In 2011 total exports accounted for only 20% of GDP. This makes the

8United Nations Conference on Trade and Development, Philippine Country Fact Sheet,

http://unctad.org/sections/dite_dir/docs/wir12_fs_ph_en.pdf, July 20129

Beckwith, Noah. Due Diligence Report on Indonesia and the Philippines for the ADB Inclusive Bu siness Fund

Initiative. Asian Development Bank, January 2013.

-

5,000,000,000.00

10,000,000,000.00

15,000,000,000.00

20,000,000,000.00

25,000,000,000.00

2004 2005 2006 2007 2008 2009 2010 2011

U S D

Year

FDI

Remittance



8

Philippine economy more resilient in times of global economic crisis and explains why thePhilippines did not experience a recession during the crisis of 2008. On the other hand, the lowexposure to the global economy stifles overall growth opportunities. The export industry is alsomassively concentrated on the electronics industry which contributed in 2009 to 61.6% to totalexports, followed by other manufactured products (24.5%), agro-based products (5.5%), mineralproducts (3.8%) and petroleum products (0.8%) The main export sectors in 2011 were

automotive electronics, sugar, apparels & clothing accessories, bananas and petroleumproducts. In Q1 2012 exports bounced back from a contraction of -4.2% in 2011 to an increasein the 1st quarter 2012 of 7.9%.

The Philippine inflation rate averaged 4.8% in 2011 and decreased continually to 3.6% inSeptember 2012 below the central bank’s inflation target of 4%. This development gave room toseveral interest rate cuts by 25 basis points to 3.5% for the central bank’s overnight borrowingrate in October 2012.

On October 29, 2012, the Philippine currency rose to a 4 year high reaching 41.3 Pesos againstthe USD, an appreciation of 5.44% year-to-date, the highest in the region coupled with thelowest volatility. According to Central Bank Governor Amando M. Tetangco Jr., "The

appreciation has reflected the positive development in the economy particularly the improvedfiscal position as well as the continuing external liquidity of the economy plus of course therobust GDP growth that we experienced in the first quarter.” 10

Also the stock exchange has mirrored the positive economic development in the country in2012. The Philippine Stock Exchange has been one of the strongest performers worldwide withan increase of 22.3% from January to September 2012.

Overall, the Philippines currently holds the promise on a macroeconomic perspective to breakout of its status of a laggard and achieve higher growth figures leading to more jobs and higher income.

The improving investment climate and the fact that the government is serious with promotinginclusive growth and including the private sector will lead to new opportunities for inclusivebusiness in the Philippines. It is suggested that ADB further strengthen this development bydeveloping the ecosystem especially through target setting for IB involvement, sensitisationworkshops for specific industries.

2.2 Poverty Assessment of the Philippines

Poverty in the ASEAN-6 comparison is highest in the Philippines with 26.5% of the populationliving below the poverty line in comparison to Vietnam’s 14.5%, Indonesia’s 12.5%, Thailand’s7.8%, Malaysia’s 3.8% and Singapore’s insignificant number of poor people according to ADB’s

Basic Statistics 2012 overview.

The Philippines’s Human Development Index value for 2011 is 0.644, placing the country in themedium human development category and positioning it at rank 112 out of 187 countries and

10Jimmy Calapati, Peso hits 4-yr high; Least Volatile, Best in the Region, Malaya Business News Online,

http://www.malaya.com.ph/index.php/business/business-news/7724-peso-hits-4-yr-high-least-volatile-best-in-

the-region, July 2012



9

territories. Between 1980 and 2011, Philippines’s HDI value increased from 0.550 to 0.644, anincrease of 17% or average annual increase of about 0.5%.

Figure 2.5: Self-Rate poverty in the Philippines

Source: Social Weather Stations, Third Quarter 2011 Social Weather Report

The most recent survey data publicly available for the Philippines’ Multidimensional PovertyIndex (MPI) estimation refers to 2008. 13.4% of the population suffer multiple deprivations whilean additional 9.1% are vulnerable to multiple deprivations. The breadth of deprivation (intensity)

in the Philippines, which is the average percentage of deprivation experienced by people inmultidimensional poverty, is 47.4%. The MPI, which is the share of the population that is multi-dimensionally poor, adjusted by the intensity of the deprivations, is 0.064. Thailand andIndonesia have MPIs of 0.006 and 0.095 respectively. 11

The MPI data is in line with the government’s poverty indicators. In 2009, the latest officialcensus data, 26.5%, at a poverty line of slightly above the international $1.25 poverty line, of thepopulation was estimated to be below the poverty threshold, a negligible reduction of 0.01%from the 2006 numbers. SWS, an independent survey institute, arrives with its “Self ratedpoverty” indicator at an equally stable picture albeit with much higher numbers of 59% in 2006and 53% in 2009, which extends to 52% in September 2011.

The table below illustrates the development of poverty and the magnitude of the task of achieving the poverty target which would require to move over 7 million people out of poverty by2015.

11United Nations Development Programme and Oxford Poverty and Human Development Initiative, Asia-6

Multidimensional Poverty Index, http://hdr.undp.org/en/statistics/mpi/, October 2012



10

Poverty in the Philippines is concentrated in the rural areas with 70% of the poor populationresiding outside the urban centers compared to 50.7% of the total population. Among the ruralpopulation, fisher folk and farmers were the poorest categories with 49.9% and 44%respectively. There is wide regional disparity of the poor with Mindanao, the southern islands,ranked lowest in most of the categories.

The profile of the poor from the 2006 household survey and the HDI figures from 2011 indicatethe dimensions of poverty in the country.

Table 2.2: Development of poverty in the Philippines, 1991-2009

Indicator 2015 Target(%)

1991(Baseline) 2003 2006 2009

Poverty Incidenceamong population¹ 16.6 33.1 24.9 26.4 26.5

Population² 103,670,000 63,000,000 81,878,000 86,973,000 92,227,000Magnitude of poor (PI xPop)³ 17,209,220 20,853,000 20,387,622 22,960,872 24,440,155

Change in total -7,230,935 -465,378 2,573,250 1,479,283

¹NSCB 2009 Official Poverty Statistics²IMF data³ASEI computation4 Target of Philippine Development Plan

One characteristic of the poor is the large family size with 46.8% of poor families having morethan 7 members. The lack of a population control policy has profound effects on the populationgrowth, especially among the poor population. A reproductive health bill has been in discussionfor many years but so far has not been passed by the parliament.

The majority of the poor work in the agricultural or the informal sector. With the lack of regular employment over 60% of the poor are engaged in the informal sector in unproductive jobsyielding little income. Hence, poverty in the Philippines is mainly a result of a lack of job and

income opportunities. IB can bring those opportunities and essential services to the poor.



11

Table 2.3: Rural and urban poverty in the Philippines, 2000-2006

Poverty Headcount Share of the Poor Population Share

(% of population) (% of poor population) (% of population)

2000 2006 2000 2006 2000 2006

Urban 16.8 19.5 26.8 29.2 49.4 49.3

Rural 44.8 45.9 73.2 70.8 50.6 50.7

Source: Philippines: Fostering More Inclusive Growth, Main Report, The World Bank, estimatesbased on FIES data

Based on a 2008 survey, about 58 million (86.4%) are functionally literate and almost everyFilipino (95.4%) achieves basic literacy.12 Enrollment into formal education on the other handremains low, and below MDG targets, with only 85% net enrollment into primary education and62.4% into secondary education. One of the reason is that public expenditure on education is

only 2.8% of GDP (HDI, 2006-2009), well below the average of the medium (3.7%) and eventhe low (3.6%) HD group of countries. Also, the pupil teacher ratio of 33.7 (HDI), the lack of 68,000 school rooms and 47,000 teachers point towards a quality and accessibility issue in theeducational system.

Total expenditure on health is only 3.8% of GDP13 also below the average of the peer group of medium developed countries which reaches 4.5%. Especially in the rural areas, healthcareproviders are lacking. Whereas the Philippines is on target for most of Millennium DevelopmentGoals the goal of maternal mortality ratio of 52 deaths per 100,000 lives is particularly in danger of not being achieved with an increase of 162 to 221 from 2008 to 2011. With thedecentralisation of the public healthcare system in the 1990s, the national government however has lost control over the implementation of policies making reforms in the provinces hard toachieve.

Access to basic services such as electricity and clean water is lacking for a large number of poor Filipinos. In the case of electricity, the situation for the urban poor has improvedconsiderably since 2006. Almost 98% of Metro Manila’s population has access to energy andclean water through private sector distribution utilities and supported by government enforcedcross-subsidizing. In the rural area, the government is pushing for 99% household electrificationby 2017 from 77% in 2011. This ambitious goal is supposed to be achieved by extending thegrid of the rural electric cooperatives and installing solar home systems. The government hasincreased spending on the grid extension, however, transforming the solar home systems in theoff-grid missionary areas from an ODA driven sector to the private sector is proving to be achallenge. The MDG goal to ensure water access to 92% of the population will be achieved bythe Philippines according to data by WHO.

12TESDA, 2008 Functional Literacy, Education and Mass Media Survey,

http://www.tesda.gov.ph/uploads/File/LMIR2011/ST-PO%2006-03-2011%20%20(FLEMMS).pdf, October 201213

United Nations Development Programme, Human Development Index (2009),

http://hdrstats.undp.org/en/countries/profiles/phl.html, July 2012



12

Table 2.4: Profile of the poor in the Philippines, 2006

Out of 100 Filipinos..... Out of 100 POOR Filipinos.....

18 do not have access to electricity 40 do not have access to electricity

52 do not have their own water source 78 do not have their own water source

52 belong to families with more than fivemembers

a

71 belong to families with more than five membersa

35 belong to families whose head works inagribusiness

59 belong to families whose head works in agribusiness

44 belong to families whose householdheads are informal sector workers

b

55 belong to families whose household heads are informalsector workers

b

3 belong to families whose householdheads did not attend school

6 belong to families whose household heads did not attendschool

44 belong to families whose heads did notreach high school

66 belong to families whose heads did not reach high school

aThe average family size at the national level is five

bInformal sector workers as used here include (i) informal sector operators who are either self-employed without any

paid employee or employer in own family-operated farm or business (NSO,2009) and (ii) workers who do notreceive wages from own family-operated farm or business Source: Philippines: Fostering More Inclusive Growth, Main Report, The World Bank 2010, estimates based on the

2006 FIES

Several factors have been identified to contribute to the persistence of poverty in the country:

1. Too slow economic growth. The Philippine economy’s performance in the last threedecades has proved to be inadequate to stimulate a significant impact on povertyreduction. This has constrained the poor in terms of opportunities to escape deprivationand increased the probability of the non poor to become poor. 14

2. Weakness in employment generation, quality of jobs generated, and incomeopportunities. The failure to sustain a high level of economic growth also explains theunavailability of income opportunities, which make people vulnerable to poverty. Regular

employment in the formal economy has been insufficient to absorb the Philippines’surplus labor, even for the college-educated and particularly for low-skilled workers.Thus the poor have sought employment in the informal economy, characterized by lowwages, little or no social protection, and exploitative contractual arrangements.15

3. Non-inclusiveness of growth with high and persistent levels of inequality across incomebrackets, regions, and sectors. The World Bank’s Development Data platform currentlyidentifies the Philippines as having the most unequally distributed income andconsumption among its Asian neighbors. A comparison of income distribution measuredby the Gini coefficient16 shows very small improvement from .4605 in 2003 to .4484 in2009 and contrasted with Thailand at .425, Indonesia at .394 and at Vietnam .378.17 The

14Asian Development Bank, Poverty in the Philippines: Causes, Constraints, and Opportunities (2009),

http://www.adb.org/sites/default/files/pub/2009/Poverty-Philippines-Causes-Constraints-Opportunities.pdf, May

201215

Ibid. 16

National Statistics Coordinating Board, http://www.census.gov.ph/data/pressrelease/2011/ie09frtx.html,

October 201217

International Human Development Indicators, United Nations Development Programme (2009),

http://hdrstats.undp.org/en/indicators/67106.html, October 2012



13

high degree of income inequality has the effect of rendering poverty less responsive toeconomic growth, slowing down the poverty reduction process. 18

4. Regular shocks and exposure to risks. Social and political conflicts as well as naturaldisasters limits people in pursuing livelihood and economic activity, and exposes them toincome shocks that contributes to their increased vulnerability to poverty. In 2009, when

two destructive typhoons hit the country (Ondoy and Pepeng), it was estimated that theadverse impact amounted to about 2.7 percent of GDP. 19

5. Unmanaged population growth. The economy has not created enough jobs to keep upwith the country’s rapid population growth.20 In two decades, the population grew by 50percent from 63 million in 1991 to 94.6 million in 2010 while economic growth has beenslow and uneven in the same period. Data shows that between 2001 and 2007, workingage population grew 17.6 percent but employment rose only 13 percent

2.3 “Inclusive Growth” as opportunity for economic growth and poverty reduction

The Philippine government acknowledged in its Philippine Development Plan 2011-2016 (PDP)

that the country has “perennially fallen short” of inclusive growth and has made the pursuit of inclusive growth a cornerstone of its economic policy. It states that the “failure of inclusivegrowth in the country is because growth that is low on average, and because such growthlargely bypass the country’s poor.” 21

Figure 2.6: Proportion of Filipino population living in povertyand average GDP growth rate for three years (1991 to 2009)

Source: National Economic Development Authority. Poverty incidence based on Sec. Balisacan’s estimates usingFIES, various years; GDP growth rates based on NSCB

18World Bank (2010), Fostering More Inclusive Growth,

http://siteresources.worldbank.org/INTPHILIPPINES/Resources/IG_Main_Report.pdf, June 201219Asian Development Bank, Poverty in the Philippines: Causes, Constraints, and Opportunities (2009),

http://www.adb.org/sites/default/files/pub/2009/Poverty-Philippines-Causes-Constraints-Opportunities.pdf, May

2012; World Bank (2010), Fostering More Inclusive Growth,

http://siteresources.worldbank.org/INTPHILIPPINES/Resources/IG_Main_Report.pdf, June 201220

World Bank (2010), Fostering More Inclusive Growth,

http://siteresources.worldbank.org/INTPHILIPPINES/Resources/IG_Main_Report.pdf, June 201221

National Economic Development Authority, Philippine Development Plan 2011-2016,

http://www.neda.gov.ph/PDP/2011-2016/default.asp, June 2012



14

The plan to attain inclusive growth centres on key four strategies to realize its goal.

1. Massive investment in physical infrastructure. The country ranks very low in the WorldCompetitiveness Index, namely 113/139 for the overall state of its infrastructure, withparticularly low marks for the quality of its seaport (123/139) and airport infrastructure

(115/139). 22Taking into consideration the inadequacy of available public funds against themassive investment need, the government has set out on a large public-private partnershipscheme involving investment in vital infrastructure including airports and road projects toclear the “distributional bottlenecks”. ADB aims to address this bottleneck with the approvalin July 2012 of an equity investment in the Philippine Investment Alliance for Infrastructure(PINAI) fund, a USD 625 million private equity fund, focused exclusively on Philippineinfrastructure projects. The government has also accelerated government spending,releasing P150 billion for various infrastructure projects lined up for the year while itsseeking $16 billion in investments on rail and airport projects through its Public-PrivatePartnership program. However the implementation of the 20 announced PPP projects hasdeveloped much slower than anticipated and only one, a toll way project, has been started.

2. Transparent and responsive governance. Political instability, corruption, weak rule of law,and inefficient bureaucracy has consistently plagued the country as attested to by variousinternational indices. Both the GCI Report 2011 (Rank 85/139) and the CorruptionPerception Index 2010 (Rank 129/143) place the country very poorly in its rankings. 23 Thequality of the country’s public institutions is still assessed as poor. CGI cites the top fivemost problematic factors for doing business in the Philippines as (i) corruption, (ii) inefficientgovernment bureaucracy, (iii) inadequate supply of infrastructure, (iv) policy instability, and(v) high tax rates. In line with the president’s anti-corruption advocacy “daang matuwid(straight path)”, important and far -reaching steps have been taken to promote transparencyin the government and reduce corruption on all levels and each branch of the government. Itis conceded that it will take time and a sustained effort that these measures will show aneffect in the rankings.

3. Investment in human resources. According to the Development Plan, inclusive growth“requires equitable access to basic social services, as well as stronger social safety nets”.

In education, the government implemented the Basic Education Sector Reform Agenda andincreased length of schooling from 10 to 12 years. As discussed before, the issue in thePhilippines is as much a problem of access as well as quality which is also reflected in thelow ranking in quality of education of the GCI report Rank (110/139). Private sector is notactive in primary education, however very active in tertiary, alternative and specializedcollege education catering mainly to the OFW market of in the health, hospitality andseafarer sectors.

Also in the health sector, the government aims to ensure equitable access to the publichealth service by enrolling all Filipinos into the national health service (Philhealth) and

22World Economic Forum, Global Competitiveness Report 2011-2012 (CGI),

http://www3.weforum.org/docs/WEF_GCR_Report_2011-12.pdf, November 201223

World Economic Forum, Global Competitiveness Report 2011-2012 (CGI),

http://www3.weforum.org/docs/WEF_GCR_Report_2011-12.pdf, November 2012; Transparency International,

Corruption Perception Index 2010, http://www.transparency.org/cpi2011/results#CountryResults, November 2012



15

improving the health facilities through government and PPP projects. Notably the universalenrollment into Philhealth by 2015 from 82.5% as of 2011 and the extension of its coverageis proving to be challenging as decentralization of the health service and bureaucracy isslowing down this development.

The Philippines has also implemented on a large scale a conditional cash transfer (CCT)

program which in 2012 is funded with almost 1bn USD and reaching 3 million poor households. The cash transfer is conditional on school attendance of the children and use of preventive health care and nutrition services and delivers purchasing power to the poor on asubstantial scale. The national database of poor households is the first of its kind in thePhilippines and has the potential to be used by the private sector in identifying poor households.

The estimated housing need in the Philippines stands at 3.7 million as of 2010 and willreach 5.8 million by 2016. 50% of this demand will come from the urban centers. In MetroManila alone, informal settlements have grown by 81% between 2000 and 2006. Publicspending for housing is only 0.1% of GDP, one of the lowest in Asia. The development planintends to strengthen the financing and public housing programs offering the private sector

opportunities to develop mass housing projects.

4. Wage and self-employed employment generation. The government aims to increaseemployment “in the widest legitimate forms” from formal wage earning employment to self-employment. It emphasizes the role of microcredit in the creation of microenterprises andcommunity driven development.

The PDP also recognizes that these strategies will only achieve the goal if other factorssuch as the macroeconomic situation, the countries competitiveness, climate changemitigation and adaptation and the peace and order situation in the southern Philippines areimproved.

The PDP and the Arangkada report by the Joint Chambers of the Philippines both highlightthe low competitiveness of the Philippines in absolute terms and in comparison with itsregional peers as reflected in all global and regional competitiveness reports.24 Although thePhilippines has improved its ranking in the overall Global Competitiveness Index 2011-2012from 85th in 2010 to 75th in 2011 it is still last of the ASEAN-6. The improvement in ranking ismainly attributed to the improvement in basic requirements, efficiency enhancers, andinnovation and sophistication factors. The WB/IFC “Doing Business” report 2012 shows adrop in the ranking by 2 ranks to 136 out of 183 economies, thereby placing last among the

ASEAN-6. This report analyses the regulatory environment for business and highlights thepersistent weaknesses of the Philippine in this aspect: Rank 158 in “Starting a business”,rank 102 in “Dealing with construction permits”, rank 126 in “Getting credit” and rank 133 in“Protecting investors”, all the lowest or near lowest ranking of the ASEAN-6.

Civil society groups, including NGOs, peoples’ organizations, and community associationsare recognized as important providers in the delivery of education (usually technicalvocational training), health (immunization, reproductive health, primary health care, HIV),

24The Joint Foreign Chambers of Commerce in the Philippines (JFC), Arangkada Philippines,

http://www.investphilippines.info/arangkada/wp-content/uploads/2011/06/100580160-Arangkada-Philippines-

First-Anniversary-Assessment-2011-Revised-June-2012.pdf, June 2012



16

and social welfare services (child sponsorship programs, youth counseling, job placementfor persons with disabilities, rehabilitation for battered women, and services for the elderly);as providers of credit—microfinance organizations and private cooperatives provide smallloans to individuals and microenterprises involved in agribusiness or non-agribusinessactivities; as community or sector organizers and advocates of issues related to poverty; andas watchdogs—ensuring the delivery of social services such as education and health. There

are over 330,000 NGOs in the country which explains the import role the sector plays in thedevelopment plan of the government.

Notably absent from the government’s development plan is the involvement of the private sector beyond its role in public private partnerships. The notion of inclusive business does not appear in any of the strategies.

Whereas the PDP has not been specific on the sectoral involvement of the private sector besides infrastructure, two reports have come to similar conclusions. The Joint Chamber’s

Arangkada report and the ADB report High and Inclusive Growth in the Philippines bothidentified almost identical sectors where increased private sector participation and investmentcan have substantial growth potential; generating employment, stimulate public and private

infrastructure development, as well as providing markets to downstream and supportingenterprises.25

Investment in agribusiness and agri-business development is one of the pillars for inclusivegrowth because it is an important source of livelihood and employment for 12 million workers inthe rural areas which is home to 70% of the country’s poor and half of the rural population ispoor. The agricultural-fishery constituency consists of 75% farmers and 25% fishers and the topstakeholders are coconut (21.7%), small fishery (21.3%) and rice (21%). However, the averagegrowth rate of the agricultural sector from 2001 to 2010 is 2.9% which is below the average of the ASEAN countries.

Food manufacturing as a closely related sector is also seen as another pillar for inclusive

growth. This sector’s close linkage with agribusiness for its supply of raw materials , and thewholesale and retail trade sector to which it relies on to distribute its products nationwide andabroad, makes its growth both broad-based and inclusive. Compared to other ASEAN countries,the Philippine’s fresh and processed food export is not only very low with only 3.2bn USD(2009). Indonesia, Malaysia and Thailand all have exports figures in excess of 20bn USD, thePhilippines is also the only country in ASEAN with a negative agri-food trade balance. ThePhilippines agribusiness sector is also less diversified as its neighbors and had in 2010 onlythree industry where it generates more than 250million USD in exports: Coconut oil, banana andcanned tuna. These together with pineapple and seaweed are the main agricultural exportproducts.

Another pillar identified is the country’s design-based manufacturing sector. Filipino designers

have the advantage of cultural awareness and understanding of Western tastes and aesthetics,and coupling it with the ability to infuse Oriental elements into their designs, they have remained

25The Joint Foreign Chambers of Commerce in the Philippines (JFC), Arangkada Philippines,

http://www.investphilippines.info/arangkada/wp-content/uploads/2011/06/100580160-Arangkada-Philippines-

First-Anniversary-Assessment-2011-Revised-June-2012.pdf, June 2012; Cielito Habito, An Agenda for High and

Inclusive Growth in the Philippines, Asian Development Bank (2009),

http://www.adb.org/sites/default/files/pub/2010/agenda-high-inclusive-growth.pdf, June 2012



17

competitive in the face of threats coming from manufacturers in China. Because this sector islabor-intensive, its continued growth and competitiveness can provide wide reaching benefitsacross the population.

The business pr ocess outsourcing sector is popularly labelled as the country’s sunshineindustry which has reported an employment level reaching more than 1 million Filipinos and

almost $19 billion in total revenues across all services in 2011. The biggest employer is the IT-BP subsector with 638,000 employees according to the Business Processing Association of thePhilippines. On the other hand, there are 416,000 employed in the contact center sector according to the industry association CCAP. The rest are in the healthcare informationmanagement sector with 24,700 employed (source: HIMO) and 8,600 animators according tothe Animation Council of the Phils. With global demand for BPO services projected to continueto grow and the country’s positioning as a competitive supplier for this industry, with a well-educated, highly qualified (nursing and medical personnel, creative and skilled animators,programmers and engineers), and English speaking labor pool, the BPO sector can beexpected to continue providing thousands of jobs as well as sustaining related and supportingprivate sector establishments in the succeeding years.26

The Tourism sector is another labor-intensive industry that is considered an important pillar for high and inclusive growth. The Department of Tourism estimates that for every 1 tourist arrival,1.22 tourism jobs are generated. If the country is able to reach the level of tourist arrivals(6million) that Vietnam has seen for 2011 (compared to 3.91 million foreign visitors to thePhilippines), this would mean more than 7 million jobs using the DOT estimate. Growth in thissector will have a domino effect on the other sectors that are also labor-intensive likeagribusiness which supplies it with food, and the industry sector which supplies it with essentialnon-tourism products like fuel and furniture. The tourism sector’s broad-based impact andmultiplier effect throughout the economy makes it an important industry for poverty reduction.

The fifth pillar identified is the mining industry. Although the inclusiveness of growth in themining sector is still being questioned due to the dominant presence of foreign companies, as

well as its social and negative environmental impact, the potential wealth that can be gained ishuge. The inclusiveness of the mining sector can be realized through the development of adomestic industry that can locally process mining products (ex. gold into finished jewellery)instead of the current practice of exporting mainly in primary form (ex. raw mineral ore).

The Arangkada report adds with infrastructure and manufacturing and logistics two additionalsectors to its list of growth industries.

With this positive macroeconomic outlook it is now the best time for the development of the stillnascent IB sector in the Philippines. There are new opportunities for the private sector to growand create shareholder value. But to make the growth more inclusive, business needs tosystemically income and service needs of the poor. The development of IB can be enhanced by

more focused public private collaboration on the IB ecosystem.

This will further stimulate profit and growth opportunities for small and large, foreign andnational companies.

26Beckwith, Noah. Due Diligence Report on Indonesia and the Philippines for the ADB Inclusive Business Fund

Initiative. Asian Development Bank, January 2013.



18

The focus has to be on employment and income generation and the delivery of affordable andaccessible products and services to the BoP to create meaningful inclusive growth.

2.4 Summary

The financial markets have given the Philippines its most positive assessment for a long timedue to marked improvements in the macroeconomic and fiscal situation of the country. Thegovernment addresses concerns on governance and competitiveness and thereby contributesto improving the country’s image as a potential investment opportunity. Having embraced themantra of “inclusive growth” however, has not led to a marked improvement in the reduction of poverty and job generation yet. The development in the next two years will prove whether theplans on large scale PPP infrastructure projects will materialize and lead to the desiredoutcomes. Based on the “inclusive growth” agenda of the government, the private sector and

ADB have also identified industries which will lead to “inclusive growth” leading to aconvergence of public and private sector thrust.



19

Section 3: Size of the market at the BoP in the Philippines

The total size the BoP market in the Philippines can be estimated to amount to USD 34bn.

According to 2009 poverty data figures, 62.52% of the Philippines’ population forms theeconomic base of the pyramid according to the ADB definition of the BoP as earning less thanUSD 3 per day. This correlates well with the 51% of the population considering themselves poor according to the SWS survey. The table below details the BoP headcount according to the threesub segments of ADB’s BoP definition:

Table 3.1: BoP definition (2008)

SegmentIncome/Capita

USD/Day(2005 PPP$)

Income/HouseholdUSD/Day

(PHP/Day)

Income/HouseholdPHP/Year

Population%

PopulationHeadcount

PopulationHousehold

Very Poor < 1.25< 6.25(290)

105,85018.42% 16.9 million 3.4 million

Poor < 2.00< 10(465)

169,72523.28% 21.2 million 4.2 million

Vulnerable < 3.00< 15(697)

254,40521.02% 19.3 million 3.9 million

Total BoP 62.52% 57.4 million 11.5 million

Non BoP 37.48% 34.3 million 6.9 million

Total 100% 91.7 million 18.4 million Source: PovcalNet: the on-line tool for poverty measurement developed by the Development Research Group of the WorldBank (http://iresearch.worldbank.org/PovcalNet/)

As there is no country report from WRI’s Next 4 Billion study, which reconciles poverty data withhousehold income and expenditure data,27 the market sizing of the BoP could only rely on thePhilippine Family Income Expenditure Study (FIES) of 2009 whose household income bracketsto not correspond exactly with the poverty definitions above. According to the FIES report, atotal of 18,452,000 families spent USD 69,66bn in 200928. Of those, about 14 million familiesearning less than PHP 250,000 can be counted as BoP.

Table 3.3: Number of families, total and average annual family incomeand expenditure, Philippines and NCR 2009

Source: Philippine FIES / Income and Employment Statistics Division, NSO

27World Resources Institute, The Next 4 Billion, http://pdf.wri.org/n4b_full_text_lowrez.pdf, November 2012

28Peso-dollar exchange rate based on USD1 = PhP46.5



20

Table 3.4: Main sources of family income, Philippines 2009

Source: Income and Employment Statistics Division, NSO

The total expenditure of the BoP amounts to USD 33.4bn, about 48% of total expenditure.

The statistic below shows the expenditure distribution by category and gives an indication of itsshare in the total expenditure. More than 50% is spent on food and significant amounts arespent on housing, fuel, transport and personal care.

Table 3.6: Total annual expenditure by expenditure group andincome class (PhP), Philippines and NCR: 2009



21

Section 4: Market Scoping

ASEI collected the data for the inclusive business mapping by conducting face to faceinterviews with senior management from 70 companies with inclusive business models. The

inclusive business sector in the Philippines had not been mapped or studied before and thechallenging sampling process indicated already the nascent state of IB in the Philippines.

4.1 Overview of the methodology

As no secondary data sources were available a mainly top down selection process of thebusinesses had to be adopted based on recommendations by local and international chambersof commerce, the Philippine Business for Social Progress (PBSP) organization, variousmanagement associations and ASEI’s network of inclusive businesses. A bottom up approachvia a newspaper advertisement and online survey was not successful and did not elicitmeaningful responses.

After the identification, the companies’ inclusiveness was firstly examined through deskresearch, including an initial analysis of their business model, CSR programmes, businessstructure/organization, and operations.

This phase was followed up by interviews with senior executives, mostly CEOs, of thecompanies. A total of 70 companies were interviewed in the three geographic centres of thePhilippines: Metro Manila, Cebu, and Davao. Thereafter 16 companies were selected as casestudies with the most promising IB features after a careful review which considered businessmodel, impact, innovativeness, and potential to scale-up.

In line with ADB’s emphasis on medium to large companies as inclusive businesses, rather thansmall or start up businesses, 45% of companies in the study have revenue between 1 and 10M

USD and 41% more than 10M USD. Three of the small enterprises consider themselves associal enterprises.

Figure 4.2: Company distribution by size

100%

14%

44%

13%

14%

14%

0% 20% 40% 60% 80% 100% 120%

Total

Less than USD 1M

USD 1-10M

USD 10-25M

USD 26-50M

More than USD 50M



22

18

10

8

6

6

5

5

4

3

3

2

7043%

100%

100%

75%

100%

60%

17%

13%

100%

6%

36%

100%

40%

33%

33%

38%

78%

11%

25%

50%

67%

10%

50%

17%

TOTAL

Tourism

Housing

Education

Information

technology

Health

Energy

Retail

Food and Beverage

Manufacturing

Financial services

Agriculture

Consumer Supplier Distributor Employee

In terms of sector distribution, companies are concentrated in the agribusiness sector (24%),followed by the financial sector (14%) and the manufacturing industry (10%).

In terms of engagement model, the majority of the companies engage or plans to engage theBoP as consumers (43%) or as suppliers (36%). The study also shows that the 39% of

companies engage the BoP in a mixed model (as suppliers and consumers, as distributors andsuppliers, as employees and suppliers).

Figure 4.2: Company distribution by sector and by BoP engagement

Figure 4.3 Company distribution according to geographical location of operations

70

48

11

4

4

3

Total

Nationwide

Luzon

Mindanao

Visayas

Metro Manila



23

The sampling took into consideration also a geographic representation of the three major regions of the Philippines, Luzon, Visayas and Mindanao. The majority of the businesses arelocated in Metro Manila and Luzon with 21% followed by the 6% in the Visayas and 6% inMindanao. Most of the business (64%) operated nationwide, the rest equally divided among theregions.

4.2 Methodology “Inclusive Business Impact Assessment”

Given the potential scale and scope of such private sector projects and the increasing interest of both donors and businesses, it is important to understand both the direct and indirect impacts of ‘Inclusive Business’ approaches. This impact assessment is a major thrust in ADB’s inclusivebusiness concept. Based on the discussions with the companies and the IB Forum, ASEI and

ADB undertook an effort to quantify the impact of the IBs and developed a preliminary “IBImpact Assessment” methodology for the Philippines. As this is the first effort in the country weexpect this methodology to be developed and improved over time.

This understanding will enable to better distinguish the difference between ‘Inclusive Business’and mainstream business so the potential for businesses can be harnessed and tailored topositively contribute to development.29 Inclusiveness of companies was determined throughevaluating their commercial and social impact.

1. Profitability and returns refers to a company’s financial performance and wasmeasured based on the companies’ internal rate of return (IRR) . Table 4.1 illustrates therange of rankings.

Table 4.1 Profitability and returns: range of rankings

Very high 13% and higher IRR

High 9-12% IRRIntermediate 5-8% IRRLow 0-4% IRR

2. Reach refers to the extent to which the business model is engaging the BoP population.The measure depends on the business model: if supplier or distributor model, byhouseholds affected; if employee model, the number of employees hired; if consumer model, number of clients per year given a range. Tables 4.2 and 4.3 shows the rangesfor this indicator.

29Elise Wach, Measuring the ‘Inclusivity’of Inclusive Business, Institute of Development Studies,

http://www.ids.ac.uk/files/dmfile/Pp9.pdf . April 2012.

http://www.ids.ac.uk/files/dmfile/Pp9.pdf

http://www.ids.ac.uk/files/dmfile/Pp9.pdf



24

Table 4.2 Reach of IB models supplier and employee: range of rankings

If IB as supplier or distributor modelLow Up to 1,000 householdsIntermediate 2,000 to 10,000 households

High 11,000 to 50,000 householdsVery high More than 50,000 householdsIf IB as employee modelLow Up to 500 employeesIntermediate 500 to 2,000 employeesHigh 3,000 to 10,000 employeesVery high More than 10,000 employees

Table 4.3. Reach of IB consumer model: range of rankings

If IB as consumer model

S E C T O R

A g r i b u s i n e s

s

F o o d &

B e v e r a g e

B a n k i n g &

f i n a n c i a l

s e r v i c e s

I T

W a t e r

H o u s i n g

E n e r g y

T r a n s p o r t &

L o g i s t i c s

H e a l t h

E d u c a t i o n

C o n s u m e r

p r o d u c t s

R e t a i l

M a n u f a c t u r -

I n g

T

i

Very high >30,000 >1,000,000 >1,000,000 >1,000,000 >100,000 >30,000 >100,000 >100,000 >50,000 >50,000 >1,000,000 >1,000,000 >1,000,000 >1,00

High 30,000 1,000,000 1,000,000 1,000,000 100,000 30,000 100,000 100,000 50,000 50,000 1,000,000 1,000,000 1,000,000 1,000

Intermediate 10,000 200,000 200,000 \200,000 50,000 10,000 50,000 50,000 20,000 20,000 200,000 200,000 200,000 200,00

Low 3,000 50,000 50,000 50,000 10,000 3,000 10,000 10,000 5,000 5,000 50,000 50,000 50,000 50,000

3. Depth of impact on systemic poverty reduction and contribution to inclusivegrowth, measured by income increase per household, labor relations, stability of

income, share in company's profit, others (IB supplier model); income increase per household, payment and commercial relations, relevance of product for reducing povertyand improving standards of living (IB distributor model); income increase per individual,labor relations, stability of income and job, share in company's profit, others (IBemployee model); and in clients per year, relevance of product, pricing for the BoP,payment relations, supply of products, ability to pay, others (IB consumer model). Thisindicator ranked either low, intermediate, high, or very high.



25

4. Relevance for poverty reduction and inclusive growth for rentability of theinclusive business model, which is further divided into five categories: innovation,scalability, replicability, relevance for the country, and sustainable profitability for thefirm. These indicators were ranked either low, intermediate, high, or very high.

Table 4.4 Relevance for Poverty Reduction and Inclusive GrowthIndicator Definition

Innovation The novelty and proliferation of IB modelScalability IB model’s ability to be scaled up within the companyReplicability IB model’s ability to be replicated by other companies Relevance for the country Relevance of the IB model to alleviate the country’s

systemic poverty issuesSustainable profitabilityfor the firm

Profitability of the IB model itself generating sufficientfunds to achieve sustainability

This methodology was used to assess the Philippine inclusive businesses for the study and hasbeen further developed into a self-assessment form for companies used during various IB fora.It is recommended that through TA this methodology is further enhanced and tested to developinto a solid IB assessment tool.



26

4.2 Analysis of findings

The study found that the inclusive business sector in the Philippines utilizes mainly theBoP as consumer and BoP as supplier mode of engagement in a variety of sectors with afocus on agribusiness, finance and manufacturing.

The challenges during the sampling of the market scoping study continued during the interviewstage with senior management as the concept of inclusive business was not well understoodfrom the onset. However, during the discussions it often turned out that business models whichwere practised could be classified as inclusive.

Of the seventy companies, 93% already have a business model in engaging the BoP either assuppliers, distributors, employees, consumers, or any mix of the four, 7% are planning todevelop such business models.

4.2.1 Perception of low income population by IB

The study verified that the companies have a narrower view on the low income sector

than the ADB definition. However while the majority of the companies view low incomepopulation as earning less than USD 10 per day, further interviews revealed that thosecompanies rather viewed the family income then the per capita income.

Figure 4.4: Perception of low incomepopulation by IB companies

The majority of the companies orient themselves approximately at the minimum wage of the

Philippines in defining the low income segment. Depending on the region and the sector theyare active in, this translates to a definition of BoP at less than USD 10 income per day for MetroManila and less than 6 USD in the Visayas and Mindanao region.

Other definitions of the BoP were not derived from an income perspective but from a lack of access to products and services, such as the “un-banked” describing people without access tofinance.

100%

51%

23%

16%

10%

0% 20% 40% 60% 80% 100% 120%

Total

≤ $10/day

≤ $3/day

≤ $1.25/day

≤ $2/day



27

A need is seen to align the different definitions to arrive at a common understanding of the lowincome segment, especially in view of the use of the impact assessment tool.

4.2.2 Growth opportunities for IB

The companies with inclusive business models mirror the positive macro economic

assessment of the Philippine economy and are optimistic to achieve their growthpotential.

The main reasons for the optimistic view on the companies’ future is the favourable businessclimate backed up by an expected rise in domestic consumption fuelled by a growing consumer confidence. As the whole economy rises, the companies expect the BoP to also rise with it interms of income and purchasing power supported by the specific inclusive business strategies.

Figure 4.5: Opportunities for growth

4.2.3 Growth barriers for IB

The companies in the study confirm also the results of the macro economic assessmentthat the major barrier to company growth is the regulatory environment. Additionally, thelack of the lack of government incentives and the lack of access to capital was cited asmajor barriers to growth.

The low ranking of the Philippines in surveys on competitiveness and ease of doing businesswas verified by the results of the study. The regulatory environment and corruption, especiallyon a local level, was seen by the majority of the companies as the biggest barrier to their growth, the third biggest hurdle being the lack of government incentives. The companiesexpressed a desire to better align their work with government programs supplementing eachother rather than standing in competition to each other.

0%

3%

6%

7%

9%

11%

20%

27%

31%

36%

50%

Other

M&A opportunities for company to …

Government incentives/reduced taxes

New customer segments in the BoP

Increased access to technology

Increased access to capital

Increasing export opportunities

Company innovation

Growing consumer confidence

Rise in domestic consumption

Favorable business climate



28

Figure 4.6: Barriers to growth

Inclusive businesses have also asserted that the lack of access to capital has been an activebarrier to their growth. While the larger companies did not have such concerns, it is difficult for small and medium enterprises to obtain financing at all or at a reasonable interest rate. Mostfinancial institutions in the Philippines are cautious of the risks associated with investing inlesser-known companies. This hinders adequate capital to be invested in inclusive growth. Inthe analysis of the study, 86% of inclusive businesses are either interested or in need of financing, details of the financing needs will be discussed in chapter 4.2.12.

Low investment in both new infrastructure and in maintaining existing infrastructure in thePhilippines is cited to have adverse effects on businesses. Many areas in the Philippines havedegraded and inefficient infrastructure services; poor quality roads, ports, an inadequate ICTbackbone and expensive and unreliable electricity.

Input costs, such as manpower, land, energy/power, raw/intermediate materials, and others, areconsidered expensive raising total costs and lowers profit margin.

4.2.4 Inclusive business according to mode of engagement

The most important mode of engagement of the BoP in the Philippines is the BoP asconsumer with the BoP as supplier model a close second. The BoP as distributor andBoP as employee models are far behind in terms of business model development.

43% of the companies engage or plan to engage the BoP mainly as consumer and 36% mainlyas supplier. This distribution of the engagement model is in line with the consumption driven

characteristic of the Philippine economy on the one hand and the high prevalence of poverty inthe rural agricultural areas on the other hand.

The engagement model as distributor or employee accounts for 11% and 10% respectively.These lower numbers are testimony to the challenges of distribution in the archipelago toovercome the last mile profitably and also of the manifold issues regarding employmentopportunities in the country.

0%

0%

4%

9%

10%

11%

17%

21%

23%

26%

30%

49%

Poor corporate governance

Other

Saturated customer base

Lack of access to competitive technology

Competition from international…

High labor costs

High cost of inputs

Competition from domestic companies

Poor infrastructure

Lack of government incentives

Lack of access to capital

Poor business climate and regulatory…



29

39% of the companies have multiple engagement models either in different divisions of thecompany or they started with one model and then extended their engagement to another model.In the agricultural and the renewable energy sector, the study found this double engagementmodel to be prevalent, as employees, or their families, become supplier into the supply chain of the company or the company offers the opportunity to choose between an employee status andan independent supplier status.

BoP as Consumer Model

The consumer model is the most often used strategy for engaging the BoP among inclusivebusinesses in the Philippines providing or increasing access to products and services to the lowincome population. On average the companies engaged 943,000 customers and until 2016 thisnumber is expected to increase to 2,055,000, an increase of 118%.

Figure 4.7: Companies engaging the BoP as consumers, by sector

The BoP 1.0 model30 of resizing packaging of existing products and thereby achievingaffordability for the poor was pioneered in the Philippines by the fast moving consumer goodscompanies for products and by the mobile phone operators for services through the “e-loading”innovation. Sachets of items for the daily use from food to hygiene and opportunities to load themobile phone are ubiquitous in the whole country and have even moved up the pyramid and arenow available in supermarkets. This study did not focusd on this segment of the market but inline with ADB’s inclusive business definition focuses on ompanies with products and serviceswhich tackle key systemic poverty issues.

The consumer business model cuts across all sectors and the consistent key feature is the

affordability of the products sold to the BoP which is achieved by innovating on the product or service itself or on the delivery mechanism.

The most advanced and biggest sector in the Philippines is the financial industry providingaccess to finance to BoP consumers. The strong microfinance industry sector which ranked 4 th in the EIU’s “Global Microscope on the Microfinance Business Environment 2012” report

30Stuart Hart, Capitalism At The Crossroads 2005

30

1

1

1

3

3

3

3

5

10

TOTAL

Agribusiness

Manufacturing

Retail

Housing

Energy

Education

Information technology

Health

Financial services



30

provides the backbone to bringing additional financial services supplementing the traditionalmicro credit, especially micro insurance, to the BoP. The other potentially large sector of inclusive financial services are the rural and commercial banks catering to small business andpoor households with innovative models and without the restrictions usually placed on theborrower by microfinance institutions such as gender and weekly meetings. The third inclusivebusiness area in the finance sector is the remittance business which touches over 10Mio

families, many of them belonging to the BoP which receive money from their members who liveand work outside the Philippines.

In the health sector, the main business model engaging the low income segment as a consumer from a product perspective is the sale of generic medicine at lower cost than branded drugs tothe BoP. The structure of the Philippine drug industry has hindered for a long time the successof generics as experienced in other countries and still the prices in the Philippines aresubstantially higher than, for example in India or Bangladesh. Nevertheless, in recent yearspharmacies offering generic medicine have successfully entered the market using franchisingconcepts for fast scale up and outreach activities to convince the brand conscious BoPconsumer of the advantages of generic medicine.

In the medical services industry, the private sector in the Philippines is concentrating mostly onthe management of private hospitals catering to the middle and high income segment asexemplified by the government’s initiative towards medical tourism. As the poverty analysisindicated primary care in the rural areas is a huge challenge and the study has not foundbusiness models in this space. However, in specialized segments, such as vaccination andmaternal health, companies have developed successful business models. Those models have acommon denominator as they integrate into the existing health eco-system and offer complementary services or infrastructure to make the services available and affordable to theBoP consumer.

As in the health sector, the primary and secondary education sector is dominated by publicinstitutions and the private sector concentrates on private schools for the high income

population, tertiary education and technical training. Among the those private educationinstitutions, business models are in the planning stage to move from charitable scholarshipmodels to “Study Now-Pay Later” student loan schemes which will enable low incomepopulation to attend private education. Also, specialized short term courses are developed toreduce the overall cost of studies to make it more affordable to the low income population.

In the energy sector, the government is conducting a large scale electrification program with theaim to electrify 90% of the households by 2017 by enlarging the grid of the rural electriccooperatives and providing solar home systems for free or at subsidized rates to homes whichcannot be connected. This situation has made it difficult for private sector to develop and scaleup sustainable business models for solar electrification. Due to the complex regulatory situationonly one private qualified third party operator of mini grids, The PowerSource Group, is active in

the Philippines.

In the agribusiness sector the inclusive business models for consumer are situated as abusiness to business model in the supply of seeds to small scale farmers which utilize thoseseeds to increase their yields supported by comprehensive training and financing from thecompanies.

The so called mass housing market has only recently come in to the focus of private sector realestate developers as it was previously dominated by government initiative mostly based on



31

large scale relocation projects. Selected companies, such as Phinma Property Holdings and Ayala Land Inc., are now developing low cost housing either as a private public partnership(PPP) or completely private sector led.

BoP as Supplier Model

The supplier model is the second most often used strategy and the one with the highestexpected growth potential for engaging the BoP among inclusive businesses in the Philippinesproviding an integration of the low income population in the supply chain. On average thecompanies engage 3,400 suppliers and until 2016 this number is expected to increase to10,500, an increase of 209%.

Figure 4.7: Companies engaging the BoP as suppliers, by sector

Over half of the companies in this model belong to the agricultural sector in which the supplier model centres on sourcing raw material from small scale farmers on a contracting basissupplemented by training, provision of seeds, materials and financing and other assistanceprograms.

The agricultural sector in the Philippines has practised contract growing for a long time in aplantation plus model or in a mixed model of sourcing from large as well as small farmers. Themajor crops in the Philippines such as pineapple, banana and sugar are grown on plantationestates. Surrounding small farmers are integrated in the supply chain on a contract growingbasis. However, due to the nature of the crops, the yield in the out grower farms is substantiallylower than on the plantation making this model less attractive for expansion.

Other crops, such as coffee, coconut and organic fruits and vegetables offer better opportunities

as those are less susceptible to the productivity issue and the growth opportunities are higher.Other industries use the BoP as a supplier model to a much lesser extend, ranging from 12% to4% of the companies.

In the manufacturing sector examples were found in the furniture and handicraft industry whichis an important industry in the Visayan region. Models of sourcing of raw material as well asoutsourcing of production, such as weaving, are practised.

25

2

2

2

2

3

14

TOTAL

Retail

Energy

Food and Beverage

Tourism

Manufacturing

Agribusiness



32

The renewable energy industry, especially biomass, also utilizes the BoP as supplier model to aconsiderable extent. Due to the recent implementation of regulation for the renewable energysector in the Philippines, the biomass sector offers now interesting investment opportunities withimpact.

The food and beverage industry has been slow in integrating the low income population in their

supply chain and only a few have developed innovative and inclusive models but those prove tobe successful in terms of profitability and impact and more companies are expected to follow thelead.

BoP as Distributor Model

The distributor model among inclusive businesses is not as prevalent as the supplier andconsumer models making up only 11% of the sample. One of the reasons is the challengingnature of distribution in the Philippines due the archipelagic geographical situation makingdistribution very complex. Some companies however have found innovative ways to developmodels that are effective, profitable, and sustainable. On average the companies engage165,000 distributors and until 2016 this number is expected to grow to 209,000, a slow increase

of 27%.

Figure 4.8: Companies engaging the BoP as distributors, by sector

The food and beverage sector is the industry which has developed models to engage the lowincome population in the distribution of their products.

The other major sector active with distributor models is the retail industry integrating the over 700,000 informal convenience stores, called sari sari stores, in their business model. Largeretailers and FMCG distribution companies engage the sari sari stores with specific programs.

They offer reduced prices and technical assistance, as well the extension of the productportfolio beyond FMCG to BoP specific products for example dengue prevention products andOTC medicine.

In evaluating inclusive business models in distribution in the Philippines, the investor has to judge the positive value of increased income for the BoP as a distributor versus the perceivednegative value of some of the products, such a whitening soap, for the BoP as a consumer. Thisissue has to be taken into account in the impact assessment model.

8

1

3

4

TOTAL


Retail

Food and Beverage



33

BoP as Employee Model

The BoP as employee inclusive business model is the conceptually most challenging model asthe definition is not yet universally accepted and the distinction between an inclusive businessmodel and regular treatment of employees and CSR efforts is not well developed. On averagethe companies employ 2,700 people and until 2016 this number is expected to increase to

5,700, an increase of 121%.

Figure 4.9: Companies engaging the BoP as employees, by sector

Despite the country’s large labor force and rising service industry, viable inclusive businessmodels targeted to engage the BoP as employees have yet to be developed.

In the agricultural sector the study found models in which the BoP employees are regularlyemployed, paid minimum or above minimum wages including benefits. These companies alsopractice outreach programs in the communities benefiting the families of the employees.

In the manufacturing industry and the service industry the study observed a rising trend towardsnon-regular, so called “contractualized” employees versus regular employees. According to theWorld Bank Report31 the number of non-regular workers has increased by 16% to then 32% of the total workforce in establishments with more than 20 workers from 2008 to 2010. This trendmakes it less likely to see the emergence of this model in the Philippines on a larger scale.The booming BPO industry has not yet targeted the BoP as employees as the educationalrequirements of the BPO industry workers is often beyond the BoP educational achievementsand are mostly located in urban area of Metro Manila and Cebu. With the recent trends towardsthe establishment of BPO centers in the rural areas, more BoP as employee engagementmodels could emerge.

Companies also implement the employee business model as part of mixed IB business models.However, this component of the mixed models usually does not impact the BoP as much as theother components in terms of number of people engaged.

31Citation in World Bank draft report, Promoting Fairness and Inclusive Growth in Outsourcing Arrangements

7

4

3

TOTAL

Agribusiness

Manufacturing



34

18

10

8

6

6

5

5

4

3

3

2

7043%

100%

100%

75%

100%

60%

17%

13%

100%

6%

36%

100%

40%

33%

33%

38%

78%

11%

25%

50%

67%

10%

50%

17%

TOTAL

Tourism

Housing

Education

Information

technology

Health

Energy

Retail

Food and Beverage

Manufacturing

Financial services

Agriculture

Consumer Supplier Distributor Employee

4.2.5 Inclusive Business in the Philippines according to industry

The agricultural sector makes up the largest share of the inclusive businesses in thePhilippines, followed by financial services and the manufacturing sector. Combined theycomprise over 50% of the inclusive businesses in the study. The others sectors are lessprominent but also exhibit profitable and impactful inclusive business models.

In the following paragraphs each sector will be discussed in more detail and illustrated withexamples from the study and publicly available information. The study has resulted in themajority of the companies clustered in the agribusiness, financial services and manufacturingsector. However, good IB models were found in the other sectors as well, therefore the studydoes not recommend a sector specific approach for the fund but an opportunistic approach tocompany selection based on the financial and social parameters.

Figure 4.10: Company distribution by industry and engagement model

IB in the agribusiness sector

The agricultural sector represents the largest share of IB in the Philippines with 26%. This is inline with the high prevalence of poverty in the rural areas of the country and the importance of agribusiness to the economy as almost one third of the population is engaged in this sector.78% of the companies in the agricultural sector utilize the BoP as supplier model, 17% the BoPas employee mode and 6% engage the BoP as consumer.



35

At the core of the BoP as supplier model for agricultural inclusive businesses is the sourcing of products from small scale farmers and fishermen. Small scale farming in the Philippines ismostly comprised of farms with less than 2ha. The products are purchased at a fair price under a contract growing or other procurement arrangements, such as farm gate purchasing.

Additionally, technical, capacity building and financial assistance is extended to the farmers tomeet the yield and quality requirements of the company. Contract growing has a long history in

agribusiness and is one of the most developed and stable business models. However the largescale expansion of the model in the Philippine is hampered by the commercial unsuitability of small scale farming of major crops, such as pineapple, corn and sugar, due to a considerableyield disadvantage compared to plantation farming. Another challenge is the lack of a supportiveeco system for small farmers such as the lack of availability of financing.

As a consequence, IB business models with growth potential in agribusiness were found (1) inhigher value markets, such as vegetable and organic produce; (2) with products for which yieldissues do not exist or can be overcome, such as coffee, seaweed and seafood and (3) withcompanies which are willing to extend financing to the small farmers.

1. High Value Market

Dizon Farms is one of the largest fruit and vegetable wholesalers in the Philippines andis engaging over 1,000 small scale farmers into its supply chain. Dizon Farms identifiessuitable farming communities and extends training in farming and processing vegetablesand fruits. The company procures the produce from the farmers at a fair price therebyincreasing their income. The model is commercially viable as farmers who have beenchosen and assisted by the company have better product quality than non-farmer owned farms. One key in Dizon Farms’ IB model is the careful selection of farmers.

2. Products for which yield issues do not exist or can be overcome. Coffee for Peace sources arabica coffee beans and civet coffee, the most expensivecoffee in the world, from 19 tribes in Mindanao, the poorest region of the Philippines.Receiving fair prices from Coffee for Peace instead of below market price from

middlemen and traders increases the income of the indigenous people and therebysupports the peace building activities in the region through economic development.Coffee for Peace utilizes the inclusive business model in their promotion and marketsthe coffee to the expor t market as “Just” coffee with a premium price.

3. Financing for the small scale farmers Unlike trading, agribusiness does not lent itself to micro financing easily as the cyclebetween the need of funding, i.e. the seeding, and the revenue which comes after harvesting is much longer than the weekly repayment schedule of the standardmicrocredit process. Therefore microfinancing is not readily available to small scalefarmers in contrast to small retailers. This means for an inclusive business inagribusiness that financing has to be organised internally which often turns out to be a

barrier for expansion as this is not considered by management as core business and adiversion of funds and resources from more profitable activities. The study found thatoffering debt facilities for inclusive business to finance small scale farmer is a need andan opportunity for the fund.32

32This reflects the findings of the Due Diligence Report on Indonesia and the Philippines for the ADB Inclusive

Business Fund Initiative (N. Beckwith, Asian Development Bank, January 2013).



36

IB in the food and beverage sector

In the Philippines, food and beverage industry inclusive business models use either the BoP assupplier or the BoP as distributor model.

In the BoP as a distributor model microfranchising is the dominant strategy enabling

entrepreneurial livelihood through a systematic franchise offering by the inclusive business.Microfranchising is conceptually a promising model as it is inherently scaleable and aimed atmicroentrepreneurs. But whereas the large franchising sector is a fast growing industry in thePhilippines, this success could not been replicated to the same extend on the micro franchiselevel as the business model development is still in its beginning stages. Julie’s Bakeshop hasdeveloped, based on their successful franchise experience, a staggered micro franchiseconcept for bakery products involving a low cost kiosk franchise and a network of microentrepreneurial direct sellers which use the kiosk as a commissary. Whereas in this case, theproduct itself has nutritional value to the consumer, other micro franchises do not have thisadded value. From an impact point of view, the positive livelihood aspect has to be thenbalanced with the lack of positive value from the product itself.

The food and beverage sector is well-placed to engage the BoP as suppliers, capitalising on theburgeoning demand and increasing sophisticated tastes and desire for processed foods, as wellas to provide for the regional demand for raw and processed interim products. 33 In the BoP assupplier mode, the food and beverage industry engages small scale farmers in their rawmaterial supply chain. This model has one of the best growth potentials in the Philippines interms of impact and ROI as a growing food and beverages market assures increasing demandfor raw material and as the business model development has reached a mature stage as thetwo examples below show.

Jollibee Foods Corporation is the biggest fast food retail company in the Philippines. Jollibee’sinclusive business model sources input products, especially onions, from small scale farmers inthe Nueva Ecija province in Northern Luzon, Philippines through long term contracts and

technical assistance for the farmers. This model started as corporate social responsibility workand is now part of the core business of the company with larger growth perspectives towardsmore farmers and towards more products.

Nestlé practises their global creating shared value model also in the Philippines by purchasinggreen coffee beans from local farmers. It further assist small farmers in increasing their yieldand improving quality of coffee by providing access to better farming technologies, propagatingcoffee planting materials, promoting sustainable practices, directly buying from farmers andlinking with government. Nestle, which has been active in the Philippines for over 100 years, iscurrently working with 5,000 small coffee farmers, however it is only able to source 30% of itstotal coffee bean requirements from this local market. Nestle is committed to increase the shareto 70% engaging 20,000 farmers until 2017.

33Beckwith, Noah. Due Diligence Report on Indonesia and the Philippines for the ADB Inclusive Business Fund

Initiative. Asian Development Bank, Janaury 2013



37

IB in the finance sector

The second largest group of companies among the Philippine inclusive businesses is thefinancial sector with 14%. All companies in this sector use the BoP as consumer businessmodel. The study excluded the pure micro credit institutions as it is already a mature industrywith specialized funding and technical assistance facilities. Inclusive businesses were identified

in the study belonging to three groups, (1) Commercial Banks, (2) Microfinance plus and (3)Remittances plus.

1. Commercial Banks Commercial banks in the Philippines have been restricted by regulation and their collateral based lending practises and minimum deposit requirements in their ability toreach the BoP. The inclusive financial institutions have developed business modelswhich overcome these challenges for two target groups: Micro and small entrepreneursand private individuals for which minimum deposit requirements and transactions costswere either lowered or waived. For micro and small entrepreneurs, small business loanand saving packages were developed. One example is the World Partners Bank whichtargets specifically tricycle drivers and market vendors as customer for its micro savings

program. The Drivers & Vendors Group program requires an initial deposit of USD 2.50and pays interest of 2% p.a. starting from a balance of USD 12.50 on a monthly basisand encompasses financial education on the value of saving.

2. Microfinance plus The leading institutions in the strong microfinance sector in the Philippines have gonebeyond micro credit to offer additional financial services, especially life and non life microinsurance products. Next to the low cost, the fast and non bureaucratic claim settlementprocess, made possible by the dense network of account officers backed up by largeinsurance companies, such as Pioneer Group, is key to the success of these insurancebusiness models. MFIs, such as CARD MRI , are also beginning to develop

profitable models in distributing BoP specific products such as solar lightingsystems to its member base and by setting up and financing micro entrepreneurswhich act as retailers.

3. Remittances plusUSD 20.1 billion was transferred into the Philippines in 2011 as remittances fromoverseas foreign workers. Traditional and non traditional financial institutions, such asWestern Union, have developed business models reducing the cost of remittances andoffering additional services to the BoP. The large mobile phone operators areutilizing their mobile money technology to gain market share in this growing market andalso MFI have entered the market. Traditional remittances companies are growingfast and are expanding their services based on their store locations close to their

customers.

IB in the manufacturing sector

IB models in the manufacturing industry can be found mainly in BoP as employee and BoP assupplier mode.

As mentioned before, the BoP as employee mode of engagement is the least developedconcept among the four modes of engagement. Manufacturers in the Philippines have been



38

engaging to an increasing extend the use of outsourced labour to avoid the restrictive labour laws. There are examples though of firms which employ the BoP with all statutory rights and paywages which are at or above the minimum wage level and offer training to its employees.Furthermore, firms engage in capacity building activities for the users of their products whichcome from the BoP. However, this area has not yielded opportunities for investment.

Manpower labour cooperatives are a relatively new industry which has the potential to developinclusive business models for BoP as employee in the Philippine context. Work Asia is such alabour cooperative that provides outsourced manpower services for labour intensive sectors. Itensures that only projects in which members are paid at least minimum wages with full socialbenefits are entered into. It thereby provides a third way of employee engagement which allowsthe hiring company the flexibility of contractualized workers but also ensures fair wages, socialbenefits, training and higher chances of work continuity for the workers.

BoP as supplier is the more promising IB approach for manufacturing in the Philippines.Companies from the furniture and handicraft industry in Cebu, have developed profitable andscaleable models. For example, All Home Design built its supply chain from raw material(abaca) sourcing to training communities (basket weavers) to small scale consolidators in

Visayas and Mindanao mostly engaging BoP communities. Gandang Kalikasan, which producesthe Human Nature brand of cosmetics, focuses on direct sourcing of its raw material, for example lemongrass, from communities. Both companies provide production and qualitytraining to the communities. The linkage of community based sourcing of natural materials fromthe rural areas with either factory based or outsourced home production is a model that can beprofitable and impactful in the Philippines.

IB in the retail sector

The majority of the companies with inclusive business models in the retail sector utilize either the BoP as supplier or BoP as distributor mode of engagement.

On the distribution side, large retailers, distribution companies and MicroVentures Inc ., a socialenterprise, have developed programs to engage the over 700,000 informal convenience storesin the Philippines called sari sari stores and mostly run by women from inside their houses or small establishments. These programs offer a mix of lower prices, promotional activities,financing, training and the extension of the product range to BoP specific products such asdengue protection sachets and solar lights. However, the majority of the products sold though atsari sari sari stores are alcohol, cigarettes and fast moving consumer goods which requires froman impact fund manager a consideration of the trade offs.

The other mode in which the retail sector engages the BoP is as a supplier of produce.Supermarkets with inclusive business activities purchase from small scale farmers which are

located near the store at fair prices which ensures fresh produce for their customers. The directpurchase offers a competitive advantage in terms of freshness and availability on thesupermarket shelf as the difficult distribution situation in the Philippines, especially with coldstorage, leads to wastage and non availability with a centralized system.

IB in the energy sector

The modes of engagements in the energy sector are split between BoP as consumer and BoPas supplier. In the Philippines 25% of the population has no access to energy in the household



39

which constitutes a potentially huge market for energy suppliers from the private sector complementing the government’s electrification plans. Companies providing solar homesystems and other distributed energy as a first step of electrification though are finding it difficultto develop profitable business models as the distribution, after sales service and competitionfrom government or ODA funded activities stifle the industry. The development of mini grid isanother approach to electrification and one company in the Philippines, The PowerSource

Group, has pioneered such a system as the Philippines’ first and so far only “Qualified ThirdParty” power provider and distributor. In addition to providing reliable power 24/7 and therebyenabling economic development on their sites, The PowerSource Group also engages activelyin community development supporting entrepreneurs in setting up small businesses.

The BoP as supplier mode of engagement in the energy sector can be found in the biomasssector which requires substantial quantities of raw material which can be sourced from smallscale farmers, as practised by SURE . The Philippine biomass sector is growing as regulatorybarriers have been removed in 2011 and 2012 and the generation price of electricity hasincreased to make biomass a viable option for inclusion in the energy generation mix. Due tothe recent changes in the regulatory framework plans for the establishment or expansion of biomass plants are now considered. Due to the large amount of natural raw materials needed

for a commercial biomass plant, one plant engages 8,000 farmers upwards.

IB in the health sector

The health sector in the study comprises pharmaceutical companies, pharmacies and medicalservice businesses. All pursues the BoP as consumer model.

Pharmaceutical companies are mainly as manufacturer of generic drugs active in the BoPmarket. The emergence of pharmacies specializing in the distribution of generic medicine andtheir rapid growth through franchising started about five years ago. Since then medicine hasbecome more affordable, however it has still not reached the low price points seen in other

Asian countries.

One successful pharmacy business is Generika Inc. which has franchisees all over thePhilippines, providing access to low-cost, generic medicine as well as diagnostic healtheducation/services to the BoP. Through active education and marketing community outreachprograms, Generika reduces the costs of health for the BoP by convincing customers on theproper use of medicine and by switching their purchases to non-branded medicine.

Primary and secondary general health care facilities for the low income segment are mainlysituated in the public sector. Inclusive health care services could be observed in the specializedhealth care sector such as vaccination and maternal health. Family Vaccine Specialty Clinic s(FVSC) are located in 41 rural hospitals nationwide. They provide non mandatory vaccinationservices, such as rabies vaccine to the rural clients, which is 70% more affordable than in the

public clinics while at the same time a profitable proposition for the company.

IB in the IT sector

The majority of the IB models in the IT industry utilize the BoP as consumer model and businesswere identified in the internet café, mobile communication and finance services sector. Thesuccess of Smart Communications and Globe in bringing mobile communication to the BoPthrough pre paid e-loading is well documented. Both companies continue to introducing newapplications to their customers mainly with the aim to increase loyalty as there is no other



40

barrier to switch to the other network. Both networks also started microfinance mobile bankingoperations: Globe and BPI founded BanKo and Smart Communications announced the launchof mbank Philippines in a major drive to utilize the coverage of the mobile phone network in thePhilippines to reach the un-banked and reduce transaction costs for the bank as well as for theconsumer through technology. BPI Globe BangKo is the Philippine’s first mobile phone-based,microfinance-focused savings bank. BanKo is leveraging on its combined assets in banking and

telecommunications to promote financial inclusion and is pioneering the delivery of formal financial services through its network of partner outlets.

Another example of an inclusive business model utilizing technology to increase access tofinance is Encash which deploys ATMs in rural areas not deemed viable by commercial banks,allowing users in remote locations to conveniently obtain access to cash. Encash charges theuser a withdrawal fee between USD 0.50 and USD 2.00 which makes it for the user whopreviously had to ride to the next town an attractive proposition and commercially successful for Encash. The availability of cash in the village has led the emergence of micro enterprises near the ATM as people spend the money no longer in the town but in their own village, therebyincrease the impact of inclusive business model and creating economic development.

IB in the education sector

All companies in the education sector use the BoP as consumer mode of engagement. As in thehealth sector, primary and secondary education is dominated by the public sector. The privatesector is only active in this sector through charitable activities and very recently public privatepartnerships in building schools. Inclusive business activities in the education sector could beobserved from private schools either in the form of introducing student loan programs to reducethe initial cost of the studies or the establishment of schools in areas where there is noeducational facility present. After identifying communities, the school develops quality educationcurriculum depending on the communities' needs, including education programs and livelihoodtraining programs. Vocational and short term training courses is another area in whicheducational institutions reach the BoP.

IB in the housing sector

All companies in the housing sector use the BoP as consumer mode of engagement. Again, asin education and health, the public sector is the primary player in mass or socialized housing, asthe housing for the poor market is called in the Philippines. The private sector has concentratedon the middle and high end market which currently experiences a boom in the Philippines drivenby low cost of capital, inflow of OFW remittances and macro economic stability. In the recentyears, however, real estate developers have started projects aiming at the mass housing marketeither as a private development or in public private partnerships. However, the lack of an ecosystem, such as micro mortgage schemes, the high cost of land in the metropolitan areas,regulatory and land title issues, among other barriers have so far hindered the scaling up of

inclusive housing business models despite the massive opportunity which can be sizedaccording to the backlog of 3.7 million houses in 2011. Phinma, a local housing developer, hasdeveloped an inclusive public private partnership model with the authotities of Quezon Cityconverting an informal settlement into a socialized housing project.



41

IB in the tourism sector

IB models in the Philippines have been identified as using the BoP as supplier mode. Thisseems counterintuitive as tourism is usually associated with employment opportunities for thelow income segment. While this is true for many small and medium tourism firms, the study hasnot found inclusive businesses in tourism which have scaled up or replicated in a meaningful

way or have the potential to do so. The tourism companies identified in the study are either engaged in rural eco tourism or source souvenir items from low income households. Theintegrated community development in the rural tourism models starts by engaging the BoP astour guides. The tours also empower communities to provide services and products, such asbed and breakfast, food, and others to the tourists.

4.2.6 Main Reasons in Engaging the BoP

The three main reasons for engaging the BoP are growth and profitability, company andbrand reputation enhancement and innovation.

While competitiveness and product differentiation remain to be key strategies for growth andprofitability, inclusive businesses in the Philippines have realized that the BoP space positivelyreconstructs their market boundaries. The potential that the BoP enables these companies toreach beyond existing demand, whether through increased consumption of their goods, wider reach in distribution, stable supply of inputs to keep up with demand, and/or expansion of operations. These inclusive strategies directly increase profitability and drive company growththrough increased sales and/or lower costs.

Figure 4.11: Main reasons to engage the BoP in IB operations

0%

3%

3%

3%

4%

6%

6%

9%

9%

17%

19%

27%

34%

61%

To attract additional company to the company

Comply with government regulations

To secure a long-term license to operate (first-mover

To mitigate local stakeholder risks

Contribute to a charitable cause

To appeal to company shareholders

Innovation/Research and Development

Improve product quality

Comply with management directive

Comply with Corporate Social Responsibility Strategy/internal …

To gain first mover advantage in this market segment

Strengthen company reputation/brand

To localize my company´s supply chain and reduce associated

Increase company growth and profitability



42

Inclusive strategies also indirectly affect profits and growth by enhancing companies’ (and their products’) reputation, which provide long-term advantages. Good company reputations improveprofitability in the long run because it attracts customers to products, investors to securities, andemployees to its jobs. In the age that poverty alleviation and environmental awareness isstrongly promoted, more and more consumers prefer products that are helpful to these causes.

This is also the case for investors, as more investments are dedicated for social inclusiveness.Investors who focus more on company growth are also attracted because enhanced companyreputation suggests room for profitability. Social enterprises such as Gandang Kalikasan , themanufacturer of organic beauty brand Human Nature and MicroVentures Inc . which runsHapinoy, have built a strong reputation in the Philippines by capitalizing on its inclusiveness.

Inclusive businesses in the Philippines are also aware that in order to sustain growth, they mustcontinue to innovate and create opportunities, process ideas, and streamline efforts that willeither improve or increase the value that their products offer to the market. Engaging the BoPallows companies to find creative solutions that both commercialize their ideas and improveoutput as well as increase opportunities and profitability.

Globe Telecommunications is one of the leading telecommunications companies in thePhilippines. Through the e-loading, the electronic distribution of prepaid credits, the companyrecognized the potential of working with the BoP and has since developed various uniqueproducts and services as well as innovative processes for the BoP. Globe has expanded itsservices to the financial sector, such as the Globe GXi and BPI Globe BangKo. Globe GXi or GCASH is an internationally acclaimed micropayment service that transforms a mobile phoneinto a virtual wallet for secure, fast, and convenient money transfers at the speed and cost of atext message.

Engaging with the BoP also reduces costs (transaction and transportation costs, among others)as inclusive businesses’ supply chain is localized. Coco Technologies, a company engaging inthe manufacture and marketing of coconut husk, was able to bring down costs and ensure

quality supply by contracting 2,000 farmers in Bicol.



43

4.2.7 Advantages of IB to the company

The major benefits companies experience when implementing inclusive business modelsare the creation of shared value, increased sales, improved reputation and stable supplyof inputs.

Figure 4.12: Benefits of the IB model to the company

The biggest benefit of inclusive strategies implemented in the Philippines to the companies isthe creation of shared value (CSV). Companies realize that by integrating their CSR efforts intothe core business model, they not only improve their bottom line but also multiply their impactthrough leveraging the business. Nestlé is at the forefront of the Creating Shared Value initiativeon a global level and have also integrated it in the Philippine operations. The Nescafe Plan for Small Coffee Farmers in the Philippines assists farmers in post harvest facilities and includesintervention in forming cooperatives to invest in a common facility. It also encompasses theincrease in the number of buying stations nationwide to be able to grade the coffee beansnearer the farms. The third element is the setting up of multiple demo farm for capacity buildingwith the aim to increase the quality and yield of the coffee beans sourced from the farmers.

26% of the companies cited increased sales as a major benefit to the company when engagingthe BoP. For example United Laboratories, the country’s largest pharmaceutical company, hasdedicated the brand Ritemed to providing quality and affordable medicine to the BoP. Ritemedsince 2002 has marketed and distributed generic and herbal medicine. The company was ableto meet revenue targets of US$20 million within five years. It successfully leveraged thereputation of its parent company to convince Filipinos to use generics, making quality drugsmore accessible to the poor.

Also a quarter of the companies report improved reputation and brand equity in local andinternational market as a major benefit to them. Mapua Institute of Technology has cited thisreputational aspect as their main benefit helping it in attracting and retaining good students.

The other important benefits inclusive businesses derive from working with the BoP is the stablesupply of critical inputs in the supply chain, due to contracts with suppliers. This also ensures

1%

1%

4%

6%

9%

11%

14%

19%

19%

26%

26%

26%

39%

create shared value

Improved results for CSR report

Cheap labor supply

Favorable engagement with national government

Innovation

Improved profits

Lower transaction costs in supply and/or distribution

To contribute to sustainable development

Stable supply of critical inputs in supply chain

Improved reputation/brand equity in local and…

Improved sales

To create shared value



44

the quality and first-hand choices of goods. MCPI Corporation, for example, has trainedcommunities from all over the Philippines to farm seaweeds and has entered a contract growingarrangement with them to gain first hand choice of seaweed to be bought, ensuring both steadysupply and good quality seaweed for the company’s production.

4.2.8 Benefits of IB to the BoP

According to the companies, the most important benefits the BoP experiences when theyare included in the inclusive business models are the increased income, and the accessto new products, services and technical assistance.

Given that many of inclusive businesses engage the BoP as suppliers, increases in income for the BoP and access to technical assistance are considered at the top of the advantages to theBoP. Companies with inclusive supplier models pay fair prices to their suppliers and therebyincrease and steady their income. The direct supply chain linkage between the company andthe small farmer or a well managed aggregation system eliminates the need for middlemenwhose margin can be re-distributed to the farmer and the company. Many of the previously

mentioned companies engaging the BoP as suppliers, such as MCPI, Coco Technology , andDizon Farms, pay farmers at least fair market prices. BoP as supplier models also ensure asteady stream of income. Inclusive businesses enter into contracts with the farmers thereforethe suppliers are secure that their goods will be bought provided that these meet therequirements of the company. To enable the farmers to meet the quality and yield requirements,technical assistance is in most cases extended for the benefit of the farmer, for example inNestlé’s demonstration farm.

But not only in the agricultural sector benefits the low income population from technicalassistance. Most inclusive businesses in the Philippines provide technical training and know-how when engaging them as suppliers, distributors or employees which leads to animprovement in the skill set of the BoP. These skills are usually those that can be applied to

other sectors and fields as well, expanding the BoP population’s capabilities and empoweringthem for improved economic situation. Further, some inclusive businesses also providetechnical assistance in the form of loans, grants, and working capital to their BoP suppliers whocannot afford the costs of start-up supplies. This is especially true for those in the agribusinesssector. Companies engaging the BoP as employees such as Holcim Philippines and Gandang Kalikasan also provide training that is transferable and applicable to other industries.



45

Figure 4.13: Benefits of IB models to the BoP

The other major benefit the companies identify for the BoP is the access to new products andservices which derives from the BoP as consumer model. Out of the 11 sectors reviewed in thestudy, 9 engage the BoP as consumer offering access to new products and services. Thoserange from financial services, such as microinsurance, to energy via solar home systems or minigrids, to health with affordable medicine and vaccination services, to access to internet,education and housing.

4.2.9 Difficulties encountered in engaging the BoP

The major difficulties experienced by the companies in engaging the BoP can be dividedinto internal and external challenges. On the company side the lack of information aboutthe BoP and the high start up cost of BoP initiatives top the list whereas the major external challenge is the lack of qualified BoP participants as counterparts for thecompany and a general lack of information about the BoP.

Developing relationships with the BoP has been challenging to most inclusive businesses. Asmost of the businesses start engaging the BoP as a completely new market, supply source,distribution channel or employee base, they realize that they cannot extrapolate findings fromnon BoP business models and research. Therefore gaining information about the BoP is of particular and primary concerns. Information about the BoP is especially critical to marketingstrategy, pricing, distribution, investment size, and other business considerations. To addressthis, companies have invested resources and time for market research and communitypartnerships.

The lack of skilled and qualified participants relevant to the inclusive business is also a topconcern for the companies. By providing training and capacity development, inclusivebusinesses are able to build manpower for their operations.

1%

3%

3%

3%

3%

3%

10%

13%

16%

16%19%

23%

27%

61%

Improved infrastructure

Acess to housing

Improved nutrition

Access to technology

Access to new markets

Other

Access to credit

Access to financial services

Secure and long-term buyer of goods and services

Employment opportunities

Access to basic services like water, sanitation, …

Access to technical assistance, know-how,…

Increased income for suppliers or distributors



46

Developing inclusive businesses models also incurs higher costs than traditional models due tothe need of building a complete eco system around the core product or service including amongothers intensive research, marketing, capacity building and training, distribution and other indirect costs. IBs have overcome such difficulties through various solutions. The most commonmethod in the Philippines is to engage the BoP through their corporate foundation.

Figure 4.14: Difficulties in engaging the BoP

4.2.10 The role of CSR and corporate foundations for IB

71% of the companies have dedicated CSR activities and 49% manage the CSR activitiesthrough their own corporate foundations. Both results show the importance that thosecompanies place on social responsibility.

Historically, Philippine companies have been very active in their CRS activities and charitableactivities, many of them executed und funded via their own corporate foundation. This has led tothe development of a CSR eco system in the Philippines supported by organizations likePhilippine Business for Social Progress and the League of Corporate Foundations backed up byacademic research in business schools, notably the Asian Institute for Management anduniversities such as University of Asia and Pacific which run centers for CSR. Over the lastyears a shift is taking place to make CSR more strategic, i.e. integrate and align CSR activitieswith the core business under the concept of Creating Shared Value (CSV).

The case of Jollibee Food Corporation (JFC) is an example on how the corporate foundationenabled the development of an inclusive business model and provides a blueprint for other

3%

7%

7%

7%

10%

10%

13%

16%

21%

29%

39%

39%

Lack of management buy-in and company support

Insufficient volume with sufficie nt margins to make

business viable

Negative perceptions about the value of the opportunity

with the BoP

Lack of company c apacity to effectively develop the

inclusive business project

Lack of trust between the company and the BoP

Lack of organizational capacity and organization among

supplier (if applicable)

Lack of access to relevant technology critical to the

inclusive business initiative

Lack of finance to kick-start the project

Lack of appropriate distribution channels

Start-up costs for the inclusive business initiative were

too high

Lack of information about the BoP (i.e. consumer

behavior, needs, productive capacity, etc)

Lack of skilled and qualified participants from the BoP to

make projec t a succ ess



47

businesses to move from CSR to inclusive business models. Jollibee Foundation has beenresponsible to manage the relationship with the BoP for the company. Its Farmer Entrepreneurship Program built linkages from small farmers to the supply chain of JFC and after 5 years and with the support of specialized NGOs, the corporate purchasing department nowsources 20% of its onion demand from this channel at market price.

4.2.11 Organization development of inclusive business

All companies have a specific BoP strategy but utilize different ways to execute thisstrategy. 75% have integrated the BoP strategy implementation with the line managementwhereas 25% use a specialized unit.

The majority of companies have fully aligned the implementation of the inclusive businessesstrategies in its day to day operations supervised by the line management. This indicates a highlevel of integration of engagement with the BoP into the core business model, thereby fulfillingthe definition of an IB business model.

4.2.12 Funding Needs of Inclusive Businesses

Sources of financing used in the past

IB companies have used in the past equity and debt, or a mix of both to finance their company.Credit guarantee did not play a role in sourcing financing. 7% of the firms were able to sourcegrant funding. In the absence of an impact investment community in the Philippines the fundingcame from local and international commercial banks. Of the specialized impact financeorganizations only LGT Venture Philanthropy has an office in the Philippines. LGT VP has so far one investment in a social enterprise undertaken within the last three years. In 2012 the equityinvestment into Encash by responsAbility Social Investment AG and Incofin Investment Management , arranged by Unitus Capital was the second impact investment in the country.Both investments amount to a total of USD 3Mio of impact investment in the Philippines.



48

Figure 4.15: Financing used in the past by IB companies

Financial requirements

On average, Philippine inclusive businesses are looking for debt financing in the rangeof USD 0.5 to 10Mio at interest rates between 4% and 8% per year in USD terms. Selectedequity deals of the same size are also sought with IRR expectations of 10% to 20%. Thetime frame is equally divided between short (1-5 years), mid (6-10 years) and long term(more than 10 years) funding.

80% of the companies are looking for financing indicating a clear need to funding to inclusivebusinesses in the Philippines. To fund the inclusive business models, the majority of companies

are looking for financing in the range of USD 0.5 to 10 Mio, falling well into the range of theproposed ADB fund.

Figure 4.16: Financing requirements

41%

29%

14%

6%

6%

1%

1%

1%

Mix of equity and debt

Equity

Debt

Equity, debt, and grants

Declined to answer

Equity, debt, and guarantee

Grant

Debt and Grant

18%

41%

10%

6%

4%

20%

100%

0% 20% 40% 60% 80% 100% 120%

– 1million

2 – 10 million

11 – 25 million

26 – 50 million

+ 51 million

Do not need financing

Total



49

The analysis of the type of financing sought shows a clear preference of debt over equity and toa lesser degree grant funding. Reasons for the preference of debt were not discussedsystematically, but reluctance to share ownership in closely held family businesses, a lack of experience with venture equity, governance issues and high return expectations of equityinvestors were among the reasons. Debt financing is also the most familiar modality for

businesses.34 However, selected equity deals were sought usually by more sophisticatedcompanies with a plan to either take the business public, to split off the inclusive business unitinto a separate company or to fund a special purpose vehicle.

The major uses for the funding are expansion of operations, working capital, upgrading of infrastructure for efficiency, and training and capacity building of suppliers and employees.

Figure 4.17: Preferred financing type

The targeted IRR for equity investments indicates that whereas there are a substantial number of companies targeting above 11% returns, the majority is looking at the bracket of 5% to 10%and even below. This analysis limits the use of private equity investment as targeted IRRs for this type of investment have to be in excess of 10%.

34The capital market Due Diligence Report on Indonesia and the Philippines (Beckwith, Asian Development Bank,

January 2013), recommends that the IB Fund provides financing through debt, for the reasons provided aside from

its familiarity in the Philippines. The findings of the report are also consistent with the study’s findings on the

financing requirements of companies for .500M USD to 10M USD loans.

9%

11%

15%

64%

Equity

Equity and debt

Grant

Debt



50

Figure 4.18: Targeted IRR

The comparison of financing requirements according to sectors shows a preference of financingin the range of USD 1 to 10Mio in seven out of eleven sectors, making this bracket not only the

most sought after but also the most widely distributed.

Figure 4.19 Financing requirements by sector

The analysis of the size of funding requirements by mode of engagement reveals an equaldistribution between BoP as supplier and BoP as consumer along all five brackets and BoP asdistributor exhibiting only requirements in the lower brackets.

26%

33%

41%

11%-20%

< 5%

5%-10%

1 1 2

1

1

1

1

1

2

1

2

2

4

2

7

1

1

1

1

2

1

1

1

1

Tourism and Hospitality

Housing

Education

Energy, including renewables

Food and beverage


Health

Manufacturing

Banking and financial servic es

Retail

Agriculture

Less than USD 1M USD 1M-10M USD 11M-25M USD26M-50M More than USD50M



51

Figure 4.20: Financing requirements by engagement model

Financing timeframes of 1-5, 6-10 and above 10 years are all equally requested by the inclusive

businesses. This result is counterintuitive to the assumption that long term patient funding wouldbe mostly required.

Figure 4.21: Preferred timeframe

4.2.12 Technical assistance

Technical assistance was requested by 2/3 of the companies. It was also sought bycompanies which were not interested in receive financing which demonstrates a need for technical assistance for inclusive business independently from financing. Technicalassistance is required to equal extend for internal company uses and for external uses.

Awareness raising, education and capacity building on community level and communityorganizing are the major areas of TA funding mentioned for external use. While the companiesunderstand that those activities are indispensable for successful engagement of the BoP, theyare also aware of the high costs of those activities which are difficult to cover with the marginsfrom the operations.

1

8

1

1

2

2

2

2

9

1

2

2

1

1

Less than USD 1M

USD 1M-10M

USD 11M-25M

USD26M-50M

More than USD50M

BoP as Consumer BoP as Distributor BoP as Supplier BoP as Employee

30%

38%

33%

1 - 5 years

6 - 10 years

> 10 years



52

Figure 4.22: Interest in ADB Assistance

It should also be noted that technical assistance is required to address issues in financial

management and business planning. It was found that many of the IB companies either have (i)substandard or non-existent financial record-keeping, (ii) poor or weak business plans, (iii) weakfinancial management, and (iv) poor marketing and client-outreach strategies. Further, there arecompanies that are lacking of understanding of cash flow management.35

Internally, the companies see a need to TA funding for business development, research anddevelopment and market research and capacity building for management and staff. Thiscorrelates well with the lack of information and knowledge companies expressed as one of themajor difficulty of working with the BoP.

35Beckwith, Noah. Due Diligence on Indonesia and the Philippines for the ADB Inclusive Business Initiative. Asian

Development Bank. January 2013.

67%

33%

91%

15%

Interested Not interested

Need for technical assistance Need for financing



53

4.2.13 Summary and Recommendations for ADB

Debt financing in the range of 0.5-10Mio is the major funding need for inclusivebusinesses in the Philippines, with selected equity deals possible in the same range. Asector agnostic approach and individual assessments of each deal opportunity arerecommended. Restrictions based on sector and mode of engagement is not

recommended as the study did not reveal a qualitative difference based on sector andmodes of engagement parameters.

The market scoping study has revealed that while most entities engaging the poor are socialenterprises and cooperatives which would not qualify for commercially viable investment by

ADB’s private sector department, there are some companies with viable inclusive businessmodels in the Philippines ADB could promote and invest in. Only a few, however, perceivethemselves as inclusive businesses as the awareness of the concept is very low.

The BoP as consumer and the BoP as supplier mode are the most practiced modes of engagement, followed by the BoP as distributor model. All three contain companies withinvestment opportunities. BoP as employee as a stand-alone mode of engagement is still too

early in its conceptual model development to be recommended for investment.

Agribusiness, financial services and the manufacturing industry contributed the highest number of companies to the study in line with the high level of development of inclusive businessmodels in those sectors. However, in other sectors the study also found individual welldeveloped IBs, so that a sector based pre selection is not recommended for the fund.

With only three impact investors which have successfully closed deals and a total of USD 3Mioimpact investment during the last three years, ADB cannot rely on a network of impact fundsand structure the ADB IB fund as a wholesale facility feeding those impact investors.

It is therefore recommended that funding for IB in the Philippines is integrated in a wider SE

Asian focused fund. Similar to the task of the inclusive businesses themselves, ADB shouldcontribute through technical assistance to develop an enabling eco system for the developmentof inclusive businesses in the Philippines.



54

Section 5: Financial Market Scoping

ASEI collected the data for the financial market scoping by conducting fifteen face to face

interviews with senior management from financial institutions. The impact investment sector in

the Philippines had not been mapped or studied before and the challenging sampling processindicated already the nascent state of impact and private equity investment in the Philippines. In

addition ASEI made use of a background note on the Philippines and Indonesia prepared by

Noah Beckwith as capital market expert for the ADB IB project. It is also based on a much more

detailed background study prepared by the capital market expert in the ASEI team. Section 5 is

a summary of those findings.


The impact investment market in the Philippine is in a nascent state and only a verylimited number of impact investment funds are active in the country. Therefore the

majority of respondents came from commercial banks and investment funds.

Of the 15 financial intermediaries in the study seven are commercial banks with assetmanagement divisions, four are PE funds and four are impact investors. Domestic andinternational made up half of the participants each.

The study observed a low level of awareness for impact investment among the commercialbanks and funds. Also the independent PE market in the Philippines has only a limited number of participants and there is little, if at all, awareness for IB opportunities.

5.2 Macro Economic Assessment

The finance community views the economic outlook of the Philippines as positive andconfirms a high level of liquidity in the market fuelled by record level of remittances, highlevel of speculative funds and low interest.

Most respondents are in agreement that the economic prospects for the Philippines in the shortto medium term are positive. They cited GDP growth, high inward remittances sustaining agrowth of 5.6% to reach USD 15.3 Billion as of August 2012, healthy foreign exchangereserves, business optimism, improvement in governance, fiscal reforms, and political stability,among others, as the main drivers for economic growth in the country. The increases in dollar inflows are reflected in the high Gross International Reserves, which as of September reached arecord high of USD 80.73 Billion. Amid this positive outlook however, expectations are tempered

with concerns over high unemployment and underemployment rates, lack of infrastructure, thehigh cost of energy, the high dependence on oil importations, sustainability of investments,weakness of the manufacturing sector, continuance of significant levels of graft and corruption,and questionable security in the rural and provincial a areas.

In terms of comparative national and corporate balance sheets, the Philippines is judgedfavorably when considered among some of its neighbours. The capital markets haveexperienced phenomenal growth over the past 5 years, although these growth rates must beconsidered to result from initiating from a lower base. The stock markets are currently trading at



55

relatively reasonable PE ratios compared to its ASEAN counterparts. In terms of absolute valuethough, the Philippines’ publicly traded capital market, estimated at $202.3B as of year -end2010, is much smaller than some of its neighbours (China with $4,028B, Japan with $4,100B,Hong Kong with $2,711B, South Korea with $1,093B, Taiwan with $784B, Singapore with$620B, Malaysia with $410B, and Thailand with $276B) making it more susceptible to highspeculative swings with the entry of even lesser amounts of speculative foreign investment

inflows or “hot money”. This analysis obviously also extends to the currency market, whereover-valuation of the Philippine Peso due to a highly speculative environment rather thanfundamentals, is a definite possibility. Since the beginning of the year, the Peso has alreadyappreciated by over 5% against the US Dollar, and this has been a cause for concern by theCentral Bank.

Due to, among others, the presence of high levels of speculative capital, and inward remittancesfrom overseas workers, most respondents have observed that the liquidity levels in thePhilippine financial markets are very high at this point. Because of this, prime borrowers caneasily source long term money at comparatively low rates. There are however, only a limitednumber of “prime” borrowers, and most of the liquidity is competing to be mobilized within this“prime-user” base.

5.3 Regulatory Environment

The regulatory environment is a major concern for doing business in the Philippines.

Many of the discussions mentioned the regulatory environment as a major concern for doingbusiness in the Philippines. The main concern however, has to do with the perception of thePhilippines as a country that tends to change the rules of the game midway. The banking andfinance sector for instance, is one of those perceived as over regulated. In the case for exampleof the Rural Banks, they claim that the policy making bodies have in effect been hindrances totheir growth through the issuance of irrelevant and outdated rules and regulations. To a great

extent, the regulatory framework for financial institutions has determined the flow of credit to afairly limited sector. The proliferation of policies aimed at promoting “sound banking practices”,has in f act limited the flow of credit to exclude many of the “viable, but not bankable”enterprises. These firms are typically classified within the SME, or Small and Medium Enterprisesegment, which, as a general rule, are undercapitalized and are therefore the ones that tend torely heavily on debt funding for growth. This situation has largely been responsible for spawningthe significant growth of the “Micro Finance Sector”, which uses credit evaluation methodsdifferent from those used in the banking sector. Micro finance however still operates in the other extreme end of the spectrum in terms of the size of the credit tickets that it serves. There is stilla large sector of capital and credit demand that is underserved, or not served at all.36

36Beckwith, Noah. Due Diligence on Indonesia and the Philippines for the ADB Inclusive Business Initiative. Asian

Development Bank. January 2013.



56

5.4 Business Reporting System and Transparency

Governance and transparency are major issues for the investment community, especiallyon non-public companies.

Graft and corruption within government in past has been widely acknowledged. It is also

realistically accepted that it will take substantial time and effort to curb this ailment within thesystem. Because of this, transparency and governance of business in its reporting, hassuffered, and much of the business community has geared its reporting towards “tax avoidance”rather than anything else. Financial Statements are reliable only to a limited extent, and“minimum compliance” with corporate reporting requirements is the rule more than theexception. It is within this framework that post-ante monitoring must be put into perspective,especially within the non-listed equity investment segment.

5.5 Summary of Survey Results

Major obstacles to investment in Philippines included government bureaucracy, rule of law,regulatory environment, corruption and competition with state-owned enterprises.

Main reasons for investors to invest in the Philippines included positive investment climate,diverse and attractive investment opportunities, medium-term real growth, potential for highreturns, tax incentives and administrative burdens, effective corporate governance, attractiveregulatory environment, quality of legal enforcement, political stability, security of propertyrights, entrepreneurial culture and innovation and labor market rigidities.

The Philippines is considered most attractive for private equity investments in energy, bankingand finance and information technology.

The finance community can envision private equity investments to be most attractive in energy,information technology, health and banking and finance

Opportunities to integrate low-income segment investments include education, banking, realestate, pharmaceuticals, retail, hospitality, food, transportation, oil, manufacturing, agriculture,forestry, IT, energy, textiles, water and health insurance.

Preferred regular investment instruments were equity, followed by debt and by blended equityand debt. Preferred IB investment instruments were debt, followed by equity and by blendeddebt and equity.

Expected IB deal size was $1-5 million with an expected term of 10 years and expected returnsin the 10% range.

Most important factors in making IB investments included quality of management, followed bycompany track record/performance and by speed at which value can be created. Conversely,factors seen as deal breakers included country risk along with questionable management andcompetition.

Opportunities for private equity fund development in the Philippines were positive because of life-cycle, specific attractive sectors and under-capitalization. For investors, the most importantdeal-maker was the potential for financial returns, followed by the potential for social returns andby the viability of the business model.



57

Challenges for private equity fund development included lack of regulations, foreign ownershiplimitations and market knowledge. Most important potential deal-breakers were weak prospectsfor significant financial returns, followed by limited or no company IB track record and by lack of skills/experience in current management.

Most attractive exit strategy was secondary sale, followed by trade sale and IPO.

Biggest challenges to starting a private equity fund were negative perception regarding possiblereturns of a private equity fund, followed by perceived risks far outweigh returns and by lack of viable pipeline of IB opportunities. These obstacles could, however, be overcome withinformation dissemination and host government support.

Three respondents showed interest in managing such a fund: responsAbility, Narra Venturesand LGT. Additionally, collaboration with IFC could be explored for the management of the IBfund.

Preferred investments would take minority equity positions with board seats or debt with

management participation and with acceptable returns.

5.6 Conclusions and Suggested Courses of Action

5.6.1 Objectives of the Fund

The objective of the fund must be clearly defined qualitatively and quantitatively. Specifically,the quantitative financial returns must be set within relative and comparative limits, while thequalitative and quantitative social/IB returns need to be clearly defined relative to how these twotypes of returns are envisioned to jointly measure the success of the fund manager. Themethods, by which these will be measured, must likewise be clearly determined and defined.

While the proponents of the fund may define the objectives with certain parameters in mind, thefinancial returns on alternative investments must definitely be considered in determining thereasonableness of the objectives being set.

5.6.2 Fund Size and Average Deal Size

Discussions with fund managers and banks revealed that the expected deal size for equityinvestments would be between USD 0.5 and 2.5 million and the deal size for debt investmentcould be between USD 1 and 10 million. Fund managers suggested that in the next 3 to 5 yearsa total of 10 to 15 debt and equity deals in a total size of USD 20 to 30 million could beachieved. In addition, both companies and investors suggested considering the establishment of a credit guarantee facility of USD 10 to 20 million. This could be sourced by co-financing from

company foundation

The fund managers recognized that the probable targeted investments are companies thatcould be undercapitalized to begin with, and hence, limited in their capacity to accept debt or capital without substantially altering ownership/control and management structures within thesecompanies. Many of the medium sized corporations lack the sophistication to manage sizeabledebt and capital levels given the requirements normally required by debtors and capitalists. It istherefore recommended to allocate a portion of the TA facility on capacity development of theinvestees.



58

5.6.3 Domicile and Ownership of the Fund

This issue has of course tax and regulatory implications, considering the existence of restrictiveforeign ownership laws in the Philippines. While there are ways to avoid violations of the foreign

ownership laws via the use of nominees, trustees, special purpose vehicles and the like, theseoptions can sometimes become costly and complicated. The eventual exit mechanisms wouldalso need to be able to deal with the various peculiarities of these options. This issue will havealso an impact on the choice of fund manager, as locally based ones would have an obviousedge regarding knowledge of local conditions and regulatory frameworks.

5.6.4 Tenure of the Fund

This was one issue consistently discussed at length given the focused nature of the fund. Whilethe financial considerations mostly envisioned these to be 5-7 year investments, the financialinstitutions were unsure whether the requirements of “IB impact” could be achieved within thisperiod. Not that they were saying that it could not be done, but most were unsure that the

impact objectives could be matched with the financial objectives, timing wise. The final decisionon the legal tenure of the fund will have consequences on the investments as well. If the fundmanager is able to fully mobilize the funds within less than a year after the fund is formallylaunched, then there is potentially less of a problem. However, if the investment eligibility issueprolongs the mobilization period, then there may be more pressure to structure the investmentdeals over a shorter period, such that the maturities matches with the overall fund tenure.

5.6.5 Mechanics of the Fund

Some of the typical questions on the fund mechanics have already been discussed, such as thetenure, fund size, deal size, etc. However, many questions and issues regarding the investmenteligibility (target investments), performance benchmarks/measures, ex-ante impact assessment

function, ADB role, fund manager role, fund manager compensation structure, and debt fundingcapability, were also discussed. Furthermore, clarification was also sought on whether thefunction of the final chosen fund manager, included filling out the co-investor funds. There wasquite a bit of discussion on the working mechanics in determining the “IB eligibility” of thepotential investments. Would the eligibility be solely ADB’s, or would it be left up to theinvestment committee composed of the fund management and stakeholders.

Under this section, one of the major discussion points was on the envisioned fund manager Compensation Scheme. This issue is directly related to the final job description of the fundmanager, as significantly dictated by the types of investments that the fund will make. WhilePrivate Equity Managers are measured by the profits that they generate, the IB fund manager will additionally be measured against the IB impact of the portfolio. In this light, the implied

participative nature of the investments will require more administrative time and effort from thefund manager, although there is still a lack of clarity of how the IB Impact factor will be infusedwith the financial profitability in measuring the “success” factor of the investment fund. Since thefund manager will be given direct responsibility over achievement of the IB impact factor, thereis a definite expectation for remuneration in achieving the IB or social metrics benchmarks,assuming these can be significantly measured and quantified. Discussions in this areagravitated towards schemes involving a “fixed annual compensation”, plus a success basedportion, the latter not necessarily on an annual basis, but a pre-agreed periodic basis.



59

The number of investments in the portfolio would directly impact on the amount of time andeffort required of the fund manager, and the variation of skills required of the same in performingsaid function. The measurement tools for the valuation of the investments will have to be quitespecific, especially if the equity issues are not listed on the stock exchanges, and consideringthe Business Reporting and Transparency issue discussed earlier in this report. These tools or valuation methods will need to be pre-agreed so that the exit pricing mechanism is well defined.

The issue was also brought up on how to measure returns on packages that include both debtand equity financing if the Fund will also invest in debt issues, and whether or not the fundmanager will have the flexibility to arrange independent debt packages for the potentialinvestment recipients if the fund will not carry an eventual “debt feature”.

5.6.6 Role of ADB and/or Use of the ADB Brand Name in the Fund.

Since this is an investment fund with social impact objectives, all parties interviewed agreed thatthe ADB name in the fund would be a positive for the eventual fund manager and co-investors.While there were numerous aspects put forward for clarification regarding the actual envisionedrole and participation in the formation, establishment, and execution of the fund, these mostlyhad to do with how the terms of ADB’s involvement would compare to the terms of all the rest of

the co-investors. There were different views on what the tenure of the fund should be, and howthe situation would turn out if ADB were to exit prior to the final maturity of the fund in general.There were also comments/questions raised on whether a parallel debt fund would be arrangedby ADB, also on a co-financed basis or whether debt and equity could be deployed through thesame facility which would be the preferred option. While equity funding has its advantages,previous discussions have also pointed out the disadvantages in the Philippine situation. Acommon envisioned exit mechanism, although convenient, is not necessarily desired by a goodnumber of unlisted businesses. Contrary to perception, listing in the Philippines, is a highlycomplicated exercise, and is quite tedious as well. The statutory and reportorial requirements of listed companies here, is also a deterrent in many cases. Not only does compliance with allthese involve a lot of work and red tape, but it also costs a lot of money. As pointed out in anearlier portion of this report, the “Transparency in Business” reporting problem in the country will

probably necessitate significant “cultural” shifts for companies transforming from non-listed tolisted status. In this light, there will probably be an increased significance in the need for avariety of quasi-debt and quasi-equity instruments in structuring some of these investments.Moreover, the use of straight debt hand in hand with equity capital to finance the growth of these targeted corporate investments will be in definite focus when this fund is put intooperation.

5.6.7 Cost of Capital

It was noted in earlier sections that a high level of liquidity in the money and capital marketsexists in the current Philippine setting. Because of this, borrowing costs on the average arecomparatively low and long term debt is principally available in the market although often not

provided without further guarantees. While there are obvious differences between equity anddebt funding especially in terms of cash flow considerations, these become less significantwhen long term debt funding is available in the market. As such, the focal point of comparisonbetween the two types of funding becomes the comparative cost between the two. To simplifythe issue, the effective cost of debt is measured by adding the interest paid on the debt to other fees and/or front end charges. The effective cost of “venture or private equity” funding, ismeasured by the expected return on investment. In the case of private equity the Return onInvestment for the investor would come by way of capital appreciation of common stock, and/or dividends paid on common shares held. While equity funding enhances bankability, and hence,



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borrowing capacity, the overall cost consideration will probably have to be addressed byrecognizing the necessity of debt funding to bring down the average cost of capital. In general, itis easily recognized that the cost of equity normally exceeds the cost of debt, and it is only thedegree that is determined by the various situations.

5.6.8 Fund Administration

All participants of the study agree that the eventual fund manager will need to do more thanmerely pick the equities that are to be invested in, such as the function of the normal portfoliomanager. To achieve the desired impact of the investment in the IB portion of the companyinvested in, the deal needs to be structured in such a way that the investor has a say in howmost of these funds are deployed. It was suggested that equity investments such as these needto have pre-structured exit mechanisms even prior to the execution of the investment. Theeventual fund manager, will therefore need to function more like a venture capitalist, who putshimself into a position where he can monitor the investment, and have a say in how this moneyis deployed. Most of the interviewees were not knowledgeable about IB, or its definition. Tomost of them, IB is synonymous to CSR, or Corporate Social Responsibility, where “socialimpact” is fairly obvious. Because of this, there are concerns and questions regarding the nature

of “eligible investments” that will eventually compose the portfolio of the fund. A number of participants voiced the concern that this fund would be too specific and restricted, and wouldhence complicate the working mechanics of the fund and the job description of the fundmanager. They envisioned that the degree of difficulty in managing such a fund would not onlyconcern satisfying the financial return expectations, but also the social impact expectations.Measurement of the latter of course, would entail additional functions of measuring monitoringthe social impact of the investments.

5.6.9 Inclusion of Philippines in a regional IB fund

As the number of available deals in the next years is limited, it was suggested to establish aregional IB fund including the Philippines as one investment destination.

One fund servicing several countries carries an international dimension to the search for co-investors. It will also be a more complicated process in determining commonly acceptableparameters for the fund, such as returns, investment tenures, etc. The arranger of the fund willneed to put an international dimension into concocting a formula that will make investment intothe fund attractive in terms of financial returns, tenure, and risk.

As previously discussed, an “acceptable return” in any particular country, will always bemeasured against comparable investment alternatives available in that country. Acceptable riskis also relative, and perhaps a guarantee of at least a portion of the investment principal wouldhelp smoothen out significant differences in risk acceptance criteria of potential fund co-investors. This may be a feature of the fund where various donor institutions can participate. A

guarantee facility, even if limited, would tend to enhance the fund’s features from the standpointof potential co-investors, and at the same time, promote the “social impact” aspect of it.

If the main fund manager is based for example in a regional center, but would expand theinvestment portfolio to include the Philippines, then it would not only be practical, but advisableto appoint a “sub-fund manager ” in the Philippines, as he would be more familiar with the localpeculiarities and market players.



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5.6.10 Use of Technical Assistance

In many cases, depending on the complexity of the investment structure, bridging facilities maybe necessary to pave the way for the entry of substantial debt or equity investments. Capacityenhancement of the recipient to handle additional debt or equity capitalization, will also be anecessity, especially in the case of equity financing, where the establishment of the exit

mechanism is rather complex. Equally complex would be the exercise of complying with any ex-ante social impact monitoring system. For this, a technical assistance program would berelevant and desirable.



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Section 6: Donor Mapping

The development agencies active in the Philippines focus on technical assistance and are notable to contribute funding to the IB fund. Of the development agencies, only GIZ has an active

inclusive business program. IFC has an extensive investment portfolio in the Philippines and isstrategically aligned with an IB fund through its inclusive business agenda.


ASEI collected the data for the donor mapping by conducting eight face to face interviews with

senior management from development agencies and multilateral organizations active in the

Philippines.

Of the 8 organizations in the study five are development agencies, two are multilateralorganisations and one is a NGO.

6.2 Donor Agencies Overview

The study observed a low level of awareness for impact investment among the developmentagencies with the exception of GIZ and IFC. IFC has an extensive investment portfolio in thePhilippines with an emphasis on banking and finance. IFC is the most likely investment partner for the IB fund and collaboration should be further explored.

6.2.1 Oiko Credit

Objectives

Oiko Credit is primarily a micro-financing institution that also provides credit to tradecooperatives, fair trade organizations and SMEs in the developing world, with emphasis onhelping rural areas and women.

Background

Domiciled in the Netherlands, Oiko Credit was originally established by the World Council of Churches to assist the needs of the third world countries. Presently, the religious foundationhas been removed and the organization is purely secular. Total portfolio is over 600M Euros of which micro-finance is some 79% of total portfolio, and Asia has some 91% of all micro-financing.

Ability to assist in inclusive business fund

Equity financing and investments do not fall within its charter, hence, the institution is not eligibleto participate by way of investments in any Private Equity Fund, IB or otherwise. It may,however, invest directly in IB type projects which meet their loan/micro-finance criteria. There isalso the possibility that they may participate in direct debt financing syndications led by other institutions.



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6.2.2 European Union Development and Cooperation (EuropeAid)

Objectives

EuropeAid was founded by the European Union with the aims of reducing world poverty,ensuring sustainable development and promoting democracy, peace and security.

Background

Domiciled in Belgium, EuropeAid is the action arm of the EU tasked with fighting hunger,preserving natural resources, assisting in agricultural and rural development, promotingemployment and social protection, economic support and infrastructure development. They arekeen to assist in government policy development through the PCCI, MAP and DTI, or other suchprivate and/or government organizations. They are also focused on linking agencies,institutions and donors for joint development efforts. Their present thrusts in the Pacific areaare in agriculture and energy.


Equity financing and investments do not fall within its charter, hence, the institution is not eligibleto participate by way of investments in any Private Equity Fund, IB or otherwise. The EC,however, showed interest to eventually provide assistance through technical assistance grantsfor inclusive business related activities.

6.2.3 Canadian International Development Agency (CIDA)

Objectives

CIDA is the Canadian government arm tasked at helping people living in poverty worldwide.

Background

CIDA’s priority themes are increasing food security, securing the future of children and youthand stimulating sustainable economic growth. They lead a global commitment in improving thematernal, newborn and child health in developing countries and reducing the number of preventable deaths. They work with multilateral and global partners, partner with Canadiansand directly participate in developing country programs that are in line with poverty reduction.

Ability to assist in inclusive business

Equity financing and investments do not fall within its charter, hence, the institution is not eligibleto participate by way of investments in any Private Equity Fund, IB or otherwise. CIDA showed

strong interest to support the proposed TA facility through technical assistance grants for IBeco-system development.

6.2.4 Australian AID (AusAID)

Objectives

AusAID is the Australian government overseas aid program which provides assistance to thepoor in the Asia-Pacific region.



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Background

AusAID works with the governments of its neighbouring countries to help them improve the waythey deliver their economic and community services through the delivery of goods and services,building institutions through the training of staff, improving management systems and

institutional cultures, and policy dialogues and reform. They provide grants on such key focusareas as education, Mindanao peace and conflict, climate change and service delivery.


Equity financing and investments do not directly fall within its charter. However AusAIDexpressed openness to eventually invest in ADB’s debt facility. In addition AusAID wasinterested to partner in the TA facility, eventually together with CIDA. .

6.2.5 United States Agency for International Development (USAID)

Objectives

USAID is tasked with the twofold purpose of furthering America’s interest while improving livesin the developing world.

Background

USAID works to promote broadly shared economic prosperity, strengthen democracy and goodgovernance, protect human rights, improve global health, advance food security and agriculture,improve environmental sustainability, further education, help societies prevent and recover fromconflicts and provide humanitarian assistance in the wake of natural and man-made disasters.They focus on economic development through partnerships for growth to improvecompetitiveness, trade facilitation, supporting start-ups and incubators and credit targeting

specific sectors. They encourage private sector resource flow in the agricultural sector throughagri-link agencies and foundations and the Department of Agriculture. They assist in the flow of private credit into local government units (LGUs) through LGU GCs.


The local representative did not show interest to directly support the proposed TA facility for IB.However, USAID could support some definite activities which are in line with their Philippineactivities

6.2.6 International Finance Corporation (IFC)

Objectives

IFC helps people to have the opportunity to escape poverty and improve their lives.

Background

With the values of excellence, commitment, integrity, teamwork and diversity, IFC createsopportunities by mobilizing other sources of finance for private enterprise development,promoting open and competitive markets in developing countries, supporting companies and



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other private sector partners where there is a gap, helping generate productive jobs and deliver essential services to the poor and the vulnerable. IFC offers developmental impact solutionsthru firm-level interventions (direct investments, advisory services and the IFC AssetManagement Company); by promoting global collective action; by strengthening governanceand standard-setting; and thru business-enabling-environment work. IFC has undertakenvarious IB investments, such as in BPI and Manila Water. It is planning to expand the inclusive

investment program in the Philippines.

Ability to assist in inclusive business

IFC expressed potential interest to study the opportunity of co-investing in the ADB IB fund.

6.2.7 Deutsche Gesellschaft für International Zusammenarbeit (GIZ) GmbH

Objectives

GIZ’ vision is to be the world’s leading provider of international cooperation services for

sustainable development. It is wholly owned by the German government and offers a widerange of services to government, companies, international institutions and privatefoundations. GIZ's main client is still the Federal Ministry for Economic Cooperation andDevelopment (BMZ), but GIZ is successful with its strategy to diversify its client base.

Background

GIZ in the Philippines is mainly active in the areas of crisis prevention and conflicttransformation, the environment, rural development and climate change, decentralisation andsustainable economic development. With regard to CSR and inclusive business models, there isa long standing cooperation with the Asian Institute of Management (AIM) and the PhilippineBusiness for Social Progress (PBSP).

The topics are housed in the GIZ Business Unit Private Sector Cooperation where alsothe Development Partnerships with the Private Sector (develoPPP.de) is situated. Byestablishing Responsible and Inclusive Business Hubs (RIBHs) in Latin America, the MiddleEast/North Africa and South-East Asia, GIZ is intensifying its work in relation to CSR andinclusive business models for sustainable development. Adopting an advisory role, the hubs willpromote the development and refinement of inclusive business models. Bringing together relevant actors from public, private and citizen sectors, they will facilitate the initiation anddesign of inclusive business initiatives.


Equity financing and bigger investments is not part GIZ’s mandate which concentrates onHuman Capacity Development and technical assistance for international cooperation.Cooperation with the RIBH can be envisaged in the context of the ADB TA. The German publicprivate partnership initiative develoPPP.de might be tapped as well as GIZ’s strategic alliancesprogram to fund IB related activities by German companies.



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6.2.8 World Bank (WB)

Objectives

The World Bank is a source of financial and technical assistance to developing countries aroundthe world.

Background

While The World Bank is mostly involved in financing governments, it has a private sector department which has recently been reinforced in the Philippines. Its main aim is to promote acredit guarantee facility to unlock and leverage additional capital for the private sector.Discussions with the Philippine government are ongoing about setting up such an instrument.


The World Bank refers to its sister organization IFC for private sector investment. Collaborationin the area of a credit guarantee facility depends on the outcome of the discussions with thePhilippine government. World Bank could also envisage working with ADB on the TA facility.



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Section 7: Conclusions The Philippines IB space is characterized by its nascent state in all dimensions: companies,financial markets, donor agencies and the public sector. An IB fund has to be supported by anextensive TA facility to support the establishment of an enabling eco-system for inclusive

businesses. During the study period from April 2011 to March 2012 a positive development inthe direction of recognition of the potential of inclusive business for the development of thecountry and the growth of the companies could be seen.

Companies are becoming more aware of the IB concept and its value through the adoption of the theme of “inclusiveness” by major business organizations in the country such as PhilippineBusiness for Social Progress (PBSP), the Management Association of the Philippines and theLeague of Corporate Foundations. The ADB Philippine Forum and ADB Regional Forum, aswell as fora organised by PBSP indicate a growing interest in the topic.

The establishment of a IB financing facility will spur this positive development but needs to beaccompanied by a strong TA facility supporting the eco system building

It is recommended that the TA facility works closely with local partners, especially PBSP whichhas taken the lead among the Philippine organizations in the promotion of IB and which is mostaligned to IB in their strategic outlook.

Partnerships with UNDP, Rockefeller, CIDA and AusAID should be further explored to enhancethe TA facility.

Among the major topics which should be covered by the TA facility are:

- Focus area 1: Private Sector – Company SpecficThe TA facility should actively promote the development form CSR to IB in the

Philippines..

It is also recommended that a small funding facility should be set up within the TA facilityto support businesses with convincing IB business model concepts to further developthem by piloting, the conduct of a feasibility study or community support mechanisms.

- Focus area 2: Private Sector – Sector SpecificThe most promising sectors for IB in the Philippines according to the study are agri-business, urban services, especially housing, health and education. Sectoral marketstudies identifying the potentials and setting of targets can develop these sectors for IBsupported by case study writing, workshops and sectoral roundtables

- Focus area 3: Finance Sector Raise awareness and develop financing opportunities with the private and public financesector ranging from MFIs to rural banks, private banks to the public development banksand government spending through stakeholder consultation.

- Focus area 4: Public Sector The Philippine government is strongly pursuing it’s Inclusive Growth agenda andrequires support in executing the private sector participation of this strategy. Workshopswith public and private sector stakeholders will align the individual strategies.



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- Focus area 5: Knowledge sharing As the IB concept is still nascent the development and distribution of knowledgeproducts should constitute a key cornerstone of the TA facility.

The IB funding facility together with the TA facility has the potential to develop a vibrant IBsector in the Philippines. Aligned with government initiatives it can lead to inclusive growth in thecountry.



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Annex 1 Inclusive Business Case Studies

Out of the 70 companies in the sample of the IB market scoping study, ASEI selected 16companies to represent the Philippine inclusive business landscape.

The case studies provide a snapshot at the company’s business model and current stage of development. It is not meant to be an in-depth case study nor a due diligence in any form.

The ratings are based on the “IB Impact Assessment” methodology developed by ASEI and ADB for the Philippines. The maximum rating is 4 stars ()



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Electronic Network Cash Tellers, Inc.

ENCASH AUTOMATED TELLER MACHINES (ATM)

Key Features

Enabling access to cash by installing ATMs in far-flung, rural areas for a fraction of a cost Partnership with local and rural banks and enabling them to issue ATM cards Lowers travel costs and eliminates risks of consumers

Electronic Network Cash Tellers, Inc. (ENCASH) is the first independent ATM deployer in the Philippines.The company provides ATM services to rural banks, cooperatives, and microfinance institutions.ENCASH has made great inroads in providing ATM service to the Philippine countryside. At least 220ENCASH ATMs may be found in over 143 partner rural banks, cooperatives, tourist destinations, townhalls, and other partner entities in more than 55 provinces all over the country. The company has alsopartnered with 30 Cooperatives throughout the country.

ENCASH products enable partner institutions to provide commercial bank-grade ATM services to the BoPin rural and far-flung areas, allowing users to conveniently obtain access to their finances. Many peoplearound the Philippines still have significant challenges acquiring easy access to despite having savingsand/or credit lines in local financial institutions. By deploying ATM machines in remote areas, access tocash is made available to the BoP with lesser costs. Instead of paying (estimated) PhP 500 for transportation to withdraw in banks, the low-income segment only needs to pay PhP 29 to PhP 99(depending on the distance) as transaction cost, on top of their withdrawal as ENCASH ATMs are moreaccessible. Aside from lower transaction costs, these ATMs also eliminate travel risks. The goal is toincrease the number of ATMs significantly and thereby give more people in the rural areas access tofinance. The transaction costs that are charged are lower than estimated costs for transportation in order for the BoP to make withdrawals. The ENCASH system is also used by the government to distribute CCTbeneficiary funds.

In addition to the direct impact on users of the ATM, it was also observed that small businesses in thevicinity of the ATM are profiting from the ATM, as cash is available for customers. Thereby the moneystays in the community and is not taken to the next city, providing an opportunity for economic

development of the area.

Most rural banks that ENCASH aims to partner with do not offer ATM cards, mainly because of outdatedcore banking software. The company is currently developing a business model to allow rural banks toautomate their systems and issue cards for their members. Through the development of Savant, the corebanking software, rural banks will become enabled to issue ATM cards thereby increasing the number of beneficiaries exponentially.

The company would need support for third-party components, such as the distribution of a core bankingsystem as well as in capacity building for rural banks in using this technology. ENCASH is dependent onrural bank automation to increase end users at the BoP, and automation of rural banks to allow them toissue ATM cards is crucial. Further working capital will be needed to finance the ATMs, as the fee for service model requires considerable capex spending upfront.

Rating

Profitability BoP Reach BoP Depth Innovativeness

BoP Engagement Model: BoP as consumers Sector: Information Technology BoP engaged: 2012 (current) – 450,000 people

2016 (potential) – 2,000,000 people Investment Required: Received investment in 2012 Technical Assistance Required: Yes



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IPVG Corporation

FAMILY VACCINE AND SPECIALTY CLINICS

Key Features:

Affordable and quality vaccination Offers vaccines not provided by the government for free Accessible, operating in 40 centers in covering 14 provinces

IPVG is an investment company that is heavily involved in their ventures' management and operations.The company provides strategic guidance and support to each of its subsidiaries. Three of IPVG venturesin the information technology, health, and financial sectors engage the BoP in their operations. Each of IPVG's business subsidiaries is paired with key partners, allowing the Company to offer establishedproduct and proprietary business knowledge to the Philippine market. This has accelerated marketpenetration, and provided tangible, bottom line value.

IPVG Corporation engages in the distribution and administration of vaccines through Family Vaccine andSpecialty Clinics (FVSC). FVSC’s mission is to make quality and essential vaccines affordable, accessibleand available to Filipinos through a network of public and private partnerships, in an effort to lower theprices of immunization in the Philippines. As of December 2012, there are 23 clinics in the Philippines andhas served more than 40,000 Filipinos in rural areas for the past six years of operation.

Family Vaccine clinics are located at public hospitals and offer vaccines at 70% lower than most clinics.Initially a CSR activity of the company, the company successfully launched a pilot clinic in 2006 with theaim of providing vaccines that are usually inaccessible and expensive for the BoP. In non-Family Vaccineclinics, the injection process costs PhP1,200 to 1,800 for each of the 8-shot required regimen.Vaccinations done at FVSC clinics cost only PhP2,250 for the whole vaccination process, with 2 of theshots provided for free (cost not included in the payment). Vaccines that are offered include those that arenot given by the government for free, such as vaccine for rabies, flu, hepatitis, and cervical cancer.

FVSC clinics require minimal investment per clinic and have the potential to expand by establishing themin more locations and expanding inventory. The company aims to add 1,000 locations per year and add

more vaccines in their inventory. Lower prices and a wider product range will attract the BoP to avail of the services, which can drive growth. This is expected to bring vaccine services to at least 75,000Filipinos by 2016. IPVG expects to make target return upon the listing of IPCV, and the listing of FVSC.The nature of how IPVG calculates investment returns from a parent holding company stand-point is"marked to market" or based on market value of IPVG investments.

Rating


BoP Engagement Model: BoP as consumers Sector: Health BoP engaged: 2012 (current) – 450,000 people

2016 (potential) – 2,000,000 people Investment Required: Yes Technical Assistance Required: Yes



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The PowerSource Group LLC

POWERSOURCE COMMUNITY ENERGIZER PLATFORM ™

Key Features: Profitable and inclusive business model for access to energy

and community development through rural electrification Affordable energy prices for rural areas

PowerSource specializes in the application of hybrid distributed generation solutions for corporateinstitutional energy management (Energy Services) and rural electrification and community development(Micro-Grid Operations). In each sector, PowerSource plans to deploy hybrid power generation platformsdrawing on a customized mix of biogasification, photovoltaic, wind, exhaust heat recovery cogenerationand conventional diesel and/or natural gas generation. Each sector is highly scalable and producessubstantial carbon credits from avoided carbon dioxide emissions.

PowerSource’s business model, the Community Energizer Platform ™ or CEP™, is an application of distributed generation solutions for corporate institutional energy management. Currently operating inPalawan and the Central Vizayan region, operations encompassing rural electrification and communitydevelopment have proved to be both profitable and inclusive to the low-income segment.

CEP™ facilities provide energy services through their Micro-Grid Operations business activities, whilealso helping alleviate poverty. The platform focuses on rural electrification and development that center on a combined livelihood and infrastructure services built around a hybrid micro-grid electrificationsystem. Capital investment is recovered from the sale of electricity and development services over the lifeof the franchise. Micro-Grid Operations encompass distributed generation applications in ruralelectrification and development. Facilities are currently operating successfully in Palawan and the centralVizayan region of the Philippines. Additional development is underway throughout the Philippines andIndonesia.

PowerSource seeks 10-15 year exclusive franchise to generate and distribute power in a specified rural

area. In the Philippines, the company has secured the Philippines Department of Energy’s first QualifiedThird Party certification pursuant to the recently enacted Electric Power Industry Reform Act. The CEP™pilot project in southern Palawan , Philippines , has been in operation for over three years and is solidlyprofitable.

By experience, PowerSource has realized that rural communities are able and willing to pay for electricity.The provision of basic, sound, and reliable infrastructure will kick-start growth. The installation of CEPTM facilities have allowed community enterprises and businesses to operate, helping alleviate poverty andproviding livelihood to the community. In this context, electricity in rural areas were put into productive useand resulted in measurable growth in per capita GDP.

Rating


BoP Engagement Model: BoP as consumers

Sector: Renewable Energy BoP engaged: 2012 (current) – 10,000 people2016 (potential) – 90,000 people

Investment Required: Yes Technical Assistance Required: Yes



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MCPI Corporation

ENGAGING THE POOR AS SEAWEED SUPPLIERS

Key Features:

Contracts seaweed farmers for exporting of raw seaweed andmanufacturing of processed seaweed, buying at fair prices Operates a research and development center for training of farmers Provides credit for farmers who cannot afford equipment

MCPI is a pioneer in seaweed cultivation in the Philippines and also one of the major suppliers of seaweed raw materials to worldwide carrageenan processors. MCPI owns and operates to full capacity, amodern plant facility in a 3-hectare area Consolacion,Cebu which produces carrageenan at an annualrate of 1,500 MT with provisions for expansion to 3,000 MT yearly. MCPI has an aggressive and strongraw material buying network complemented with continuing farmer development program in many areasof the Philippine Archipelago. The company also maintains the only ocean farming research and trainingcenter in its seaweed farm concession in in Central Visayas.

MCPI is committed to help alleviate poverty by providing the BoP an alternative source of livelihood whilealso earning substantial returns for the business. Aside from its farm, the company also sourcescarrageenan from small farmers all over the Philippines and operates a plant in Cebu for processing. Byrounding up communities of farmers and trains them in their Ocean Farming and Research Center wherethey are trained to grow carrageenan, the farmers are then contracted as suppliers, an arrangementwherein MCPI is guaranteed to a first-rate seaweed supply.

The outgrower initiative starts with the selection of a farmer community, recommended by theDatingbayan Foundation which is the community arm of MCPI. The company loans these farmersequipment, start-up capital, equipment, and seeds if they cannot afford the initial cost of small scalefarming (PhP 20,000 to 25,000 pesos). The farmers then undergo training and capacity building onfarming and quality control. The farmers also undergo a Socio-Economic and Environmental AwarenessSeminar to familiarize them with greening of the supply chain, sustainable and environmental-friendly

farming methodologies, and poverty reduction through livelihood. These farmers are then engaged ascontract growers/suppliers of MCPI, who buys seaweed at a price that is fair for the farmers. Currentlyengaging over 7000 farmers, MCPI plans to expand production in the next five years, and is looking intoinvolving around 20,000 farmers in their supply chain. Through this set-up, supply availability and qualityof raw materials are assured which in turn earns substantial returns for the company.

The application of carrageenan (for both food and non-food), is still underutilized. If properly promoted,growth prospects are very good as carrageenan can be used/processed for a wide range of products.Seaweed production is also possible in most areas of the Philippines, so that expansion potential is highand a lot of seaweed farmers can be contracted as suppliers in various parts of the country. MCPI hasalso developed a method to farm seaweeds in deep waters (seaweed is mainly farmed in shallow areas),which increases the opportunity for growth. MCPI continuously invests in research and development tofind out various applications for carrageenan and for other potential products. As bigger market share

translates into a bigger demand, MCPI involves LGUs and industry associations in promoting seaweeduse in various products. Through these initiatives, MCPI market share and client portfolio are expanded,resulting to increase in demand for seaweed and further increase in income for suppliers.

Rating


BoP Engagement Model: BoP as suppliers Sector: Agriculture BoP engaged: 2012 (current) – 7,500 farmers

2016 (potential) – 30,000 farmers Investment Required: Yes Technical Assistance Required: Yes



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Jollibee Foods Corporation

FARMER ENTREPRENEURSHIP PROGRAM

Key Features:

Contract farming of onions and raw ingredients Provides training on farming and quality assurance to farmers

“We believe that sustainability is achieved by providing communities with the tools for progress and self -sufficiency. Whether its livelihood or housing, we don’t merely pour in resources but invest in humancapital - the fuel that drives community development.”

Jollibee Foods Corporation is the market leader in the fast food retail industry in the Philippines and isadmired worldwide not only for having initiated a presence in several countries within Asia but also inNorth Americas and Middle East through its brands or through investments in other similar food-retailformat corporations. Its daily requirement for raw ingredients such as rice and vegetables enabled thecompany convert this opportunity to assist small farmers achieve a more sustainable livelihood.

Jollibee’s inclusive business is initiated by the Jollibee Foundation, which was set up in 2005 with thespecific goal of creating shared corporate value among its chain participants and oversees this goal byharnessing the strengths of Jollibee for community development. The Farmer Entrepreneurship Programaims to improve small farmers' income by linking them to the supply chain of institutional markets likeJollibee. The business model employs a practical clustering approach to assisting the vegetable farmersin production and management while partners have initiated linkages with Alay sa Kaunlaran, Inc. (ASKI)which provided credit need of farmers. After piloting the program in 2008, this partnership has assistedand improved the welfare of more than 400 farmers in 6 communities nationwide.

The Foundation is JFC’s unit that manages the company’s relationship with the BoP. The Foundation isconsidering a number of options on how the ADB facility can be utilized to impact communitydevelopment through the Farmer Entrepreneurship Program model, among them:

1) The Foundation would like to train the trainers on agri-enterprise in order to benefit more farmer

entrepreneurs who can eventually supply not only JFC but possibly other large institutionalbuyers. After piloting and learning from the best practices of their Farmer EntrepreneurshipProgram, this can now be replicated and the immediate need seems to be for more trainers onagri-enterprise. At an average of 20 farmers benefited by each trainer then training an additional30 trainers would have the potential to reach out to an additional 600 farmers.

2) The Foundation can also be used as a “special purpose vehicle” that can provide farmers’ creditneeds at much lower interests i.e. similar rates offered to large establishments by commercialbanks by guaranteeing creditworthiness of farmers with purchase order guarantees. TheFoundation would like to pioneer this model in order to encourage other large establishments inactively participating in community development through identified opportunities in their supplychain.

Rating


BoP Engagement Model: BoP as suppliers Sector: Food and beverage products BoP engaged: 2012 (current) – 700 farmers




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Gandang Kalikasan, Inc.

A 100% ALL NATURAL COMPANY HELPING COMMUNITIES AND THE COUNTRY

Key features:

Manufacturing of the cosmetic product Human

Nature by sourcing all raw materials from localfarmers Provides regular employment for BoP employees

“… we will give the best of ourselves to urgently and sustainably build a global company which will showcase the best of the Philippines and uplift all our people, especially the poor through providing affordable, quality, natural products. We will be the gold standard of a globally successful enterprise witha heart that will embolden all businesses to better serve society.” – Mission-Vision

Human Nature is a cosmetics manufacturing brand by the company Gandang Kalikasan, Inc. that uses allnatural ingredients sourced directly from farmer communities and Gawad Kalinga* communitiesnationwide. Officially launched in November 2008, the company now has 23 branches nationwide, over 30,000 dealers, over 36,000 online followers, and has been strengthening its presence in retail withplacements in large cosmetics chain nationwide i.e. Beauty Bar, Rustans, Shopwise, Landmark,Robinsons, Sesou and Gaisano.

A unique platform of this manufacturing company is to partner with social enterprises, develop BoPcommunities and maintain a “no firing policy” in growing their business. With service level standards atalmost 100%, productivity is relatively high and social impact returns i.e. increased income, improvedstandards of living, employment opportunities, etc. in the communities they are involved in is large.

Poised for more triple-digit annual growth in terms of market reach, financial returns are still slow with thelarge investments required in manufacturing their products. A debt-free company, it is ready to expand if offered soft loans that will enable them to invest in (1) more research and development for naturalingredients, (2) a larger manufacturing facility to catch up with market demand and (3) more extensivefarmer community development activities for their manufacturing needs.

Currently partnering with only 10 of the 2,000 GK communities nationwide, the company can easilydevelop livelihood options for more GK communities to supply their manufacturing requirements. With aminimum of 50 families in a GK community, the potential for assisting more than 100,000 families withregular income sources is immediate. Through their Social Enterprise Development Department (a teamof 3 multi-sectoral experts), farmer communities in Mindanao have also been developed to grow their agricultural produce requirements. At a low (less than 1%) market share vis-à-vis large multinationals inthe cosmetics industry, Human Nature is exponentially increasing its loyal market segment of environment and natural product advocates in the domestic and international markets. The company’ssocial commitment is also unparalleled in the industry with its foundation as a pioneering social enterpriseevolving into an Inclusive Business organization.

*Gawad Kalinga (translated as “to give care”) started in 1995 and has since become an Asian model for poverty alleviation targeted to be through community development, partnerships, volunteerism and

spiritual and values formation.

Rating


BoP Engagement Model: BoP as suppliers Sector: Manufacturing BoP engaged: 2012 (current) – 500 farmers




76

SL Agritech Corporation

AGRI-TECHNOLOGY FOR RICE FARMERS

Key Features:

Development of minimal fertilizer use, high-yield, and pest resistant variety of rice seedsthat are sold at an affordable price to farmers

Micro-credit for farmers who cannot afford to buy

“Our strength comes from our product excellence and our paramount goal is to be an instrument inimproving the lives of our farmers. Though our market reach has gone beyond Philippine borders, yet our foremost objec tive is to be of service to our country and fellow Filipino farmers.” – Henry Lim Bon Liong,Chairman and CEO of SL Agritech

SL Agritech Corporation (SLAC), a subsidiary of Sterling Paper Group of Companies, started in 1998performing research on hybrid rice and was eventually incorporated in 2001 with the primary purpose of promoting the development, commercialization and growth of hybrid rice technology. Their underlyingobjective is a commitment to bring employment and entrepreneurship to rural areas and stimulateeconomic growth. SLAC’s seed division developed a minimal fertilizer -use, high-yield, pest resistantvariety of rice seeds (SL8 and SL-8 Super Hybrid) that enabled farmers to increase their income and netprofit. SLAC emphasizes that hybrid rice is not genetically modified.

With testimonials of those converting to SLAC’s rice seeds, farmers were able to increase yield by 36% or an additional income of about P30,000. Despite the seeds being more expensive than traditional seedvarieties, the farmers were able to earn an additional net profit of Php20,000 per hectare per season for their SL8 variety. For the SL-8 Super Hybrid rice seed variety, some of the highest yielders were able torealize net profits of Php130,000 per hectare per season. The main concern of farmers however, was thehigher input costs which they had to loan from high-interest sources. SLAC initially offered some micro-credit at the request of farmers interested in their rice seeds but the company had difficulty sustaining thisactivity.

The best potential for IB for SLAC would be in increasing farmer reach for their SL8 varieties which maycome in the form of (1) micro-credit for farmers, (2) purchasing additional vehicles for field personnel, (3)hiring more agriculturists or field technicians to reach out to farmers, (4) increasing seed production intheir production base in Davao Oriental and (5) and immediate need to conduct information campaignsfor farmers to patronize this Philippine-developed hybrid rice. As estimated, their seeds are currentlybeing used by about 200,000 farmers and would like to double its reach of rice farmers to 400,000farmers nationwide within the next few years.

Rating

Profitability BoP Reach

BoP Depth Innovativeness

BoP Engagement Model: BoP as consumers Sector: Agriculture BoP engaged: 2012 (current) – 200,000 farmers

2016 (potential) – 400,000 farmers

Investment Required: Yes Technical Assistance Required: No



77

Julie’s Franchise Corporation (JFC)

Bulilit (Tiny) Kiosks Program

Key Features:

Modular bakeshop franchise program that requiresminimal investment Sources raw materials from local suppliers

“The Franchisees are responsible for making Julie’s Bakeshop that big, so many. I would like to thank theFranchisees for their support, their loyalty to the Company. They are like my family.” – Julie Gandionco,founder and owner, on the occasion of the 2011 JFC National Conference

Established in January 1981, Julie’s bakeshop was established in Cebu City to address the ever -increasing need for bread for Julie Gandionco’s canteen operations. Julie’s provides a variety of affordable bread and other bakeshop products which are affordable by the “masa” (common people or those in lower to middle socio-eco classes). The demand for bread in this first bakeshop increased andrapid initial expansion in Cebu required the setting up of a logistics arm and central warehouse in 3 yearsto service the 10 branches. Further expanding nationwide through franchising, the company had over 210 branches nationwide in 1998 and was now the country’s largest bakeshop chain. Currently, Julie’sBakeshop has a continually growing corporate family of numerous employees along with some 140Julie’s Franchise Corporation’s vision is to have a strong presence in Southeast Asia in the next 5 years.

The “Bulilit Kiosks Program” is a modular bakeshop that is envisioned to be located in areas not reachedby the standard stores. These modular bakeshops which may be offered to franchisees for investment or for operational management has the potential not only to reach and feed more Filipinos but also toprovide alternative sources of income among residents in the community.

As envisioned, the company will partner with interested franchisees (individuals or groups) who willprovide an initial working capital of P20,000 (mostly in merchandise inventory) to run the modular bakeshop estimated at a cost of P300,000 per unit to be provided by Julie’s. In this IB model, the BoP isengaged either as suppliers or distributors. Aside from being a regular outlet, the “Bulilit bakeshop” will be

the commissary for interested micro-entrepreneurs in the community. This model integrates a successfulactivity initiated by JFC in partnership with the church in some communities to provide alternativelivelihood for women and “downsizes” their successful franchising operations through smaller outlets thatare able to reach non-commercial areas as they require small and non-permanent areas to locate.

Pending a more detailed feasibility study, a USD4million investment by the company in the modular unitswill enable at least 500 new franchisees, perhaps in rural areas, to have their own bakeshop business.The P20,000 working capital may be contributed by the franchisee or offered as a loan by the company.The franchisee or bakeshop owner is expected to experience returns on their investment within one year while the investments on the “Bulitlit Kiosk Program” is expected to have a payback period of about 3years. Potentially, aside from the 500 individuals or groups who will “own” the bakeshop, a minimum of 12,500 small business owners (at 25 distributors per kiosk) and their households will be benefited throughincreased incomes and better options for nutrition within the first few years of the program.

Rating


BoP Engagement Model: BoP as distributors Sector: Food and beverage products BoP engaged: 2012 (current) – 10 families

2016 (potential) – 12,500 families Investment Required: Yes Technical Assistance Required: No



78

All Homes (AH) Designs, Inc.

REACHING OUT TO THE GIFT, TOYS, HOUSEWARES (GTH) VALUECHAIN

Key Features: Sub-contracting basket weaving activities as an alternative

livelihood to the BoP in rural areas at higher wages Direct sourcing of raw materials from the BoP

“Ituring niyo ito na negosyo niyo” (Treat this as your own business.) – Joel Osorio, President and General Manager

All Homes (AH) Designs, Inc. is an exporter of baskets and other woven GTH products to large chains inthe US such as TJ Maxx, Crate & Barrel, Pier 1 Imports, etc. During the height of the export business for GTH, the company was exporting about 30 containers of woven baskets averaging USD4Million monthly.The economic crisis of 2008 resulted to a big drop in sales to about 8 to 10 containers a month whichrequired major changes within the organization. Currently, business is starting to pick up with a 30%increase from the previous year to about 12 containers monthly. These fluctuations impacted thecompany’s employees and suppliers drastically.

With 2 factories in Cebu, AH Designs has 22 regular employees and 60 non-regular employees(seasonal) who are all from rural BoP communities in Cebu. Currently, they subcontract basket weavingto about 580 weavers who weave as alternative livelihood. With adequate financing assistance, it isexpected that they can go back to tapping at least 2,200 weavers who were full-time weavers in 2005when they were regularly shipping export orders as the demand for woven baskets cannot be filled by theexisting GTH exporters in Cebu. Weavers are able to earn about P240/day vis-à-vis the P35/day incomethey get from manual labor such as weeding farmlands.

The company also sources raw materials direct from BoP communities who live near these sustainablecrops i.e. abaca, cogon, water hyacinth, rattan, etc. Suppliers may either sell the materials in natural form

or in semi-processed form i.e. twined, roped, bundled, etc. which is taught by the company. Rawmaterials are then dropped off in their satellite offices near their weaver’s home where leaders overseeabout 10 to 30 weavers in their community. Continuous training of weavers from basic to advancedweaving is conducted by the company to ensure regular availability of weavers.

Despite the tightening of contribution margins (from 15% to 5%), the company is optimistic that growth of the export market will enable sustainable livelihood for weavers and raw material suppliers whileproviding adequate profit for the company. Their business model of managing the value chain fromsupply to end products, which are designed in-home, for export has proven to be efficient andsustainable. Financing is needed primarily for the import of quality raw materials which are not availablelocally i.e. wires for basket frames which is a substantial initial outlay once purchase orders are received.Currently, business loans from commercial banks are not exporter-friendly as they are high-interest andshort-term. Additional investments on logistical i.e. better transportation units requirements as well as

training of more leaders, weavers and raw material suppliers also need to be financed.

Rating


BoP Engagement Model: BoP as suppliers Sector: Manufacturing BoP engaged: 2012 (current) – 2,500 farmers




79

The Islands Group, Inc.

THE ISLANDS BANCA (BOAT) CRUISES

Key Features:

Engages BoP as suppliers of tourism activities, particularlybanca-operators Provides training and equipment to the BoP for tourism

activities

“All Islands Group efforts have always been strongly rooted in advocacy for the environment and entrepreneurship. We do our best to employ people in local communities and educate them to help preserve the environment, while enabling them to make a positive difference with sustainable tourisminitiative.” – Jay Aldeguer, President and CEO (SME Entrepreneur Awardee of Ernest & Young and International Young Design Entrepreneur Awardee for the Philippines of the British Council)

As a recognized pioneer and trailblazer in the travel industry not only in Cebu but in the whole Philippines,Island’s Souvenirs set the stage for travel-related souvenir items in a retail format that evolved into aprofitable franchise operation. Initially offering souvenir items such as t-shirts, bags, gift items, thebusiness evolved into Banca Cruises (boat tours), Islands Stay (hotel), Talima Adventure and Water Park(resort) and several other travel-related products and services under The Islands Group of Companiesbrand.

One of the more interesting concepts developed by the company is The Islands Banca Cruises in whichboat (banca) tours were professionalized and upgraded for a better travel experience. The Islands BancaCruises can be expanded to involve other banca operators to be employed directly by the companyand/or offer franchisees to operate the banca cruises in their area. While the banca owners may notreally be BoP as a boat will cost about P100,000, all employees and workers i.e. rowers, fish spotters,lifeguards, attendants, etc. of the cruises are BoP. The company provides, training, uniforms, operationalguidelines directly to the workers to start-up the operations and assist their partner operators.

Currently, the company works with 12 banca tour operators have been trained and who employ about 3 to

5 workers each or about 40 to 50 workers in the pilot year of the project. This involves only one “islandcommunity” which is in Mactan, Cebu. This BoP involvement does not include the additional livelihoodopportunities i.e. sales of food and souvenir items, etc. for the areas they visit within the islands of MactanCebu. As envisioned, this same model can be replicated in several islands (at least 100 larger islands) inthe Philippines i.e. Palawan, Bohol, Davao, Surigao, etc. A lone franchise in Davao in southernPhilippines is also reporting high success rates thus making this IB initiative a potentially good IBinvestment. Workers for this travel-related service are usually fishermen who fish for sustenance rather than for business.

The company has consistently advocated entrepreneurship and environmental sustainability and theIslands Banca Cruises is an excellent merger of these two advocacies in the tourism industry.

Rating


BoP Engagement Model: BoP as suppliers Sector: Tourism and hospitality BoP engaged: 2012 (current) – 40 families

2016 (potential) – 4,000 families Investment Required: Yes Technical Assistance Required: Yes



80

Nestle Philippines, Inc.

NESCAFE PLAN FOR SMALL FARMERS IN THE PHILIPPINES

Key Features: Sourcing of coffee from local farmers in the Philippines Providing training on farming and quality assurance for coffee farmers

Creating Shared Value is the way we do business, which states that in order tocreate long-term value for shareholders, we must also create value for society. It goes beyond compliance and sustainability.

With nearly a hundred years in existence, Nestle Philippines, Inc. (NPI) employs more than 3,200 menand women all over the country and is now among the top companies in the entire Nestlé world, and isamong the country’s Top 10 Corporations in the country. Its products are No. 1 or strong No. 2 brands in their respective categories. It manufactures Nescafe, the leading brand in instant coffee with severalvariants continuously being offered to the market.

NPI is the biggest buyer of green coffee beans and purchases majority of the entrie Philippine coffeeproduce from local farmers and continuously explores all possible means to help farmers improve thequality and quantity of their yield. In 1994, the Nestle Experimental and Demonstration Farm (NEDF) wasset up in Davao to assist small farmers in increasing their yield and improving quality of coffee byproviding access to better farming technologies, propagating coffee planting materials, promotingsustainable practices, directly buying from farmers and linking with government.

In 2011, 2,500 farmers were formally trained by NEDF. For 2012, NPI is targeting 4,500 farmers for training in order to fill the Php6billion gap in raw material procurement. Currently, this coffee program canonly supply 25% of the volume of coffee required by NPI and would like to increase this level of supply to75%. The following IB opportunities are considered:

1) Assisting farmer groups in postharvest facilities for dehulling and drying which may include

intervention in grouping small-scale individual farmers into cooperatives or farmer groups todirectly investing in the as a common facility to be made available for fees for coffee farmers toassisting farmer groups in availing of a bank loan to purchase the equipment.

2) Increasing the number of buying stations nationwide where farmer’s produce can be gradednearer their farms. These buying stations can also offer new coffee seedlings at much lower prices because of lowered transportation costs i.e. bring seedlings during return trips.

3) Replicating the demo farm set-up in other areas of the Philippines. Immediately, a number of farmers in Northern Luzon has expressed interest in growing coffee but is hindered by thetransportation and trucking costs in the various components of the coffee supply chain systempresent in Davao i.e. seedling nursery, training facility, buying stations, etc..

4) To a limited extent, defray some expenses during intercropping time to assist farmers inalternative income generating opportunities in their farm.

The number of coffee farmers benefited by NPI’s coffee program, currently at 2,500 has the potential toincrease by 2,000 annually. Aside from this, farmers of other produce can also be trained to grow coffeethus increasing the number of farmers impacted.

Rating


BoP Engagement Model: BoP as suppliers Sector: Agribusiness BoP engaged: 2012 (current) – 2,500 families




81

Coco Technologies Corporation

EMPOWERING COCONUT FARMERS ON COCO FIBERPRODUCTION AND USE

Key Features:

Trains and engages farmers in producing coconut fiber Utilizes coconut husks in production, the biggest volume of farm waste in the Philippines

As part of its goal of economic empowerment for marginalized communities and households, more than60% of revenues go directly to producer-families and/or communities while 50% of after-tax income willsupport sustainable enterprise projects – i.e. projects that are ecologically sound, economically viable andcommunity oriented.

The company engages in the manufacture and marketing of coconut husk derived and related products.Specific products manufactured are baled decorticated fiber, soil erosion control products, horticulturalproducts and coconut fiber pads. The company also designs and implements bioengineering erosioncontrol installation and river bank and shoreline rehabilitation.

Coconut fiber production addresses the two major problems of (1) increasing the incomes of coconutfarmers who are considered as the biggest poverty group in the country and (2) utilizing the biggestvolume of farm wastes in the Philippines which are coconut husks. Coco fiber production has hugepotential in the country and Cocotech is interested in propagating the process of decorticating i.e. turningthe coco husk waste into twine or bales and in developing uses for this fiber.

Currently engaging 2,000 farmers in 20 barangays in Bicol who have increased their income substantiallyby producing coconut fiber, Cocotech is interested in training more farmers in eventually 600 barangaysin the province thereby increasing their supply of raw materials. Abaca farmers who converted to coconutfiber production increased their income by 300%. The company cannot fill up demand for the product inboth domestic and international markets and would like to expand operations. Cocotech is consideringthe following IB opportunities:

1) The government of the Philippines has issued a mandate to use soil-erosion nets made of cocofiber in an estimated 1.2km of highways in order to prevent or minimize flooding. Thisrequirement from the Department of Public Works and highways has the potential to double theincome of at least 36,000 farmers for the project duration.

2) A skills building program on twine production including investments in twine production facilitiesthat can extend the number of beneficiaries to families of their current 2,000 coconut farmers andother families in their communities (initially 5,000 individuals in the community).

3) Technology and equipment for a competitive mat manufacturing process at USD1Million that willenable the company to produce and market high quality mats for commercial buildings at pricesmuch lower than the leading brand. They invested in a project feasibility study to assessprofitability of this proposed investment and would be interested in requesting funds for this

manufacturing line which has the potential to engage at least 1,000 farmers.

Rating


BoP Engagement Model: BoP as suppliers Sector: Agribusiness BoP engaged: 2012 (current) – 2,000 families




82

CLIMBS Life and General Insurance Cooperative

LIFE AND NON-LIFE COOPERATIVE INSURANCE SERVICE FORTHE BoP

Key Features:

Affordable insurance products for the BoP Fast claim processing

“With just a small percentage of ‘uninsured’ cooperatives that are now covered, CLIMBS is poised to aggressively capture more” – FerminGonzales, CEO

CLIMBS Life and General Insurance provides life insurance, mutual benefit, and non-life insurance, aswell as underwriting non-life insurance contracts. These products are offered to cooperatives, cooperativemembers as well as private individuals and institutions which require the security but are otherwiseconsidered uninsurable because they fall out of the standards for insurability. The insurance company stillrequires $1.67 million in patient capital to complete the institute. CLIMBS estimates that the institute willbenefit in the next few years, hundreds of cooperatives with membership of over a million low-incomeindividuals.

As the pioneer and largest insurance cooperative, it is aggressively pursuing growth from its currentcoverage of around ten per cent in a market of more than twenty thousand cooperatives. It provides anumber of services which include group and individual life and property insurances as well as coverage of damages from natural catastrophes. CLIMBS is one hundred percent inclusive of the BoP. It aims tocreate a strong financial ecosystem for its cooperative members who are otherwise marginalized andexcluded because of their perceived risk and uninsurability.

The cooperative’s business model leverages on the extensive coop experience and strength of its boardof directors and management team who represent the member-cooperatives. As the largest and pioneer insurance cooperative in the country, it offers group and individual life and non-life insurance productsthat are affordable and tailored to the needs of cooperatives and their members. One such product is theNATCAT or the National Catastrophe Insurance product (in partnership with the German insurer,

MunichRE) which covers cooperatives against catastrophes and calamities, all too common to thecountry. The insurance product provides direct payout to members of insured cooperatives in coveredcalamities and catastrophes. CLIMBS prides itself for its excellent insurance servicing and pay-outdelivery, ensuring that documents are clear, straightforward, and transparent to its clients (no fine-prints – what you see is what you get) and fast claims processing from as short as one day to a maximum of seven days.

The key risk as well as the critical success factor for CLIMBS is the strength and stability of its member cooperatives. Hence it is investing a lot in the financial education, training and capacity-building of cooperative managers and executives. Capital investment will be used to fully capitalize the operations of the institute in conducting financial training and education to cooperative managers and executives allover the Philippines. In doing so, these professionalized managers should be able to lead and managetheir cooperatives as well as strengthen and maintain stability. These cooperatives then can join CLIMBS

and afford to insure their group and their members and benefit from the insurance cooperative model.CLIMBS believes that the strong cooperative insurance ecosystem it strives to achieve is a winningstrategy that benefits all the members and contributes to nation-building.

Rating


BoP Engagement Model: BoP as consumers Sector: Agribusiness BoP engaged: 2012 (current) – 1,000,000 people




83

Agrinurture Inc.

FARM-TO-FORK STRATEGY

Key Features: Capacity building of farmers on farming and quality assurance Sourcing of agricultural supplies from farmers Provides credit for farmers who are lacking equipment

Agrinurture is a publicly-listed agriculture-focused company engaged inthe production, distribution and retail of agricultural products. It uses an integrated value-chain approachfrom production, to processing, and to the retail of food products through its various brands (Big Chill,Nikka, La Natural, SunGrown, SuperFresh, Chantilly Cane Concoctions and Tully's). It also has two sister companies, Greenergy (development of renewable energy through biomass) and Agricultural Bank of thePhilippines (a rural bank). This integrated approach allows it to leverage economies of scale and profitsfrom each part of the value chain. The company is developing the capacity of its farmer-partners tobecome qualified suppliers to the company, giving them farmers a way out of poverty, and at the sametime secure the supply of agricultural products for the company. The company is looking at sourcing long-term debt at current market rates of around PhP100 million (US$ 2.38 million) for its expansion plans.However, it has yet to determine the expected financial returns since the company is still at a steepgrowth path.

The company utilizes cutting-edge biotechnology to significantly increase yields in its experimental farmsin Pampanga that serves us a demonstration farm for its partner farmers. By using the same technologyin their farms, these partner farmers increase their own yields improve production and result to higher incomes. In return, Agrinurture is able to secure quality produce in larger volumes. On the other hand, thecompany’s investment in rural banking, through the Agriculture Bank of the Philippines, shows another strategy in supporting agricultural production by addressing the lack of financing to small farmers. Their foray into agriculture finance supports their partner farmers by providing agricultural loans and ensuresloyalty of the farmers to the company. Lastly, establishing branded retail outlets allows for theconsumption of the company’s agriculture food products by the consumer market. It also secures better

pricing and profit for both the company and the farmers.

A major critical success and risk factor is the ability of the company to coordinate and manage thedifferent actors along the value chain to work in harmony so that goods are produce distributed and soldto the end consumer in a systematic and organized manner. The founders have intimate knowledge of the rural food production economy because of their long experience in selling agricultural inputs tofarmers. Another critical success factor is their capability to raise significant amounts of capital from thepublic through the stock exchange, brought about by their aggressive expansion posture and their abilityto quickly deploy resources towards productive endeavors. This witnessed the acquisition or establishment of companies such as Agricultural Bank of the Philippines, renewable energy companyGreenergy, juice outlet Big Chill, and coffee shop Tully’s. Lastly, a major risk factor is climate-relateddisturbances that affect agricultural productivity.

There is an opportunity to fund the agricultural production side of the value chain as the company’s owninternal resources are deployed towards the marketing and retailing side. In terms of social impact, thecompany’s activities are expected to benefit more than 30,000 farmers and their households by 2016.

Rating


BoP Engagement Model: BoP as suppliers Sector: Agribusiness BoP engaged: 2012 (current) – 10,000 people

2016 (potential) – 30,000 people Investment Required: Yes Technical Assistance Required: Yes



84

Country Bankers Life Insurance Corporation

MICRO-INSURANCE FOR THE MASSES

Key Features: Affordable insurance products for the BoP

Fast-claim processing

Country Bankers Life is expanding its operations in the rural bank marketand retail life insurance market through its aggressive promotion of its micro-insurance product. It has thepotential to serve a market of at least 40 million Filipinos that are not covered with life insurance. Tofurther penetrate this market, the company will have to ramp up its organization and establish moremarketing channels to reach out to this segment.

The company is a medium-sized player in the insurance industry, but with a more than 45-year history of providing for the insurance needs of rural banks and their clients. Country Bankers has a comprehensivearray of whole life insurance plans with limited paying periods which are ideal for estate conservation;mortgage redemption insurance and creditor's group life insurance. Products include Classic BenefitPlan, a limited payment whole life insurance with five, seven or 10 years to pay options; Creditor's GroupLife (CGL) insurance that protects lending institutions from lending losses. The regular insuranceproducts are most profitable as margins are high and remain the company's main business. The Micro-insurance is still new and has not yet reached the volume to make significant profits.

To continue boosting its share in this market and uphold its social mission of providing protection for ruralcommunities, it became the first life insurer to provide micro-insurance in the Philippines. It has developeda micro-insurance product that is approved by the Insurance Commission (IC) and aggressively marketedto its rural bank clients. Its microfinance Alalay sa Buhay and CB Kalinga Plans have an annual premiumof only P250 and P280, respectively.

The insurance company plans to expand its foothold in the micro-insurance market by leveraging itsleadership position in the rural bank market. It already sells micro-insurance through its partner banks,which in turn serve more than 4.5 million clients nationwide. The company will also expand its sales forceto penetrate cooperatives and microfinance institutions. By executing this strategy, they will have a

national distribution system that covers more than 85% of Philippine municipalities.

The company requires an increase in paid-up capital by 2020 to satisfy increasing minimum capitalrequirements by the Insurance Commission (IC). Given the thin margins in this market, they expect a 5%-8% return on equity. It is believed that an exit mechanism for this is the sale of shares to the stockexchange or a private equity group.

On track to serve more than 300,000 insured clients and their families for 2012, the company is expectedto serve more than 1.5 million clients and their household by 2016. This will allow the company to supportmore them in times of death, disability, or accident.

Rating


BoP Engagement Model: BoP as consumers Sector: Banking and financial services BoP engaged: 2012 (current) – 300,000 people




85

GENERIKA INC.

GENERIC MEDICINES FOR ALL

Key Features: Affordable generic medicine to the BoP

Educates consumer on medicine use and application Provides free basic check-ups to the BoP in its centers

Generika has pharmacy chains all over the Philippines, providing access to low-cost, generic medicine aswell as diagnostic health education/services to the BoP. Through active education and marketing,Generika reduces the costs of heath for the BoP by convincing customers on how to properly use andswitch to non-branded medicines which are just as effective. The company’s drugstore chain providesquality affordable generic medicines to consumers that are Food Drug Administration-approved andcompliant to Current Good Manufacturing Practices (CGMP) standards. The drugstore also carriesbranded medicines, hospital supplies, galenicals, and selected consumer goods all at competitive prices.The drugstore also offers value-added services through patient counseling, providing knowledgeableadvice about their medicines, free BP monitoring services, and professional and friendly customer service.

There is an increasing number of small players who are competing to gain a share of the estimatedPhp120 billion (US$ 2.86 billion) generic medicine market in the Philippines. New business opportunitieshave been opened up by Generika through partnerships with selected suppliers and other companies tohelp develop the branch network. Franchising is seen as the main engine of growth for Generika. Thetarget is to grow 350 to 400 outlets nationwide by year-end with a significant presence in the Visayas andMindanao. From thereon, the objective is to grow by 200 stores every year. This rapid but measuredexpansion will continue in the years to come as it strives to achieve its vision to become one of theleading national chain of drugstores in the country. This translates to doubling of its customer base every1.5 years reaching 3 million customers in 4 years.

The company would require financing from a combination of its own capital and external debt. Thecompany has not yet made a determination of the IRR of the investment over the next 5 years since its

recent financial history shows negative returns and only achieved positive returns recently. For debt, theyestimate an 8%-9% interest rate over a term of 5 years. With store expansion of 200 stores per year, thistranslates to doubling of its customer base every 1.5 years reaching 3 million customers in 4 years. Eachstore has payback periods of at most 2 years, thereby also supporting more than 800 new entrepreneursin the same period.

Rating


BoP Engagement Model: BoP as consumers Sector: Health and pharmaceuticals BoP engaged: 2012 (current) – 45,000 people

2016 (potential) – 125,000 people Investment Required: Yes Technical Assistance Required: Yes



86

Annex 2 Methodology “Inclusive Business Impact Assessment”

ASEI and ADB developed a methodology to measure the impact of inclusive businesses in the

Philippines through a preliminary IB impact assessment tool. This methodology is expected to

be improved over time.

This methodology was used to assess IB companies as well as a form of companies’ self -

assessment during the IB Forum last November 26, 2013.



87

Indicator Very high High Intermediate LowProfitability and returns 13% and higher

IRR9-12% IRR 5-8% IRR 0-4% IRR

Depth of impact on systemicpoverty reduction andcontribution to inclusive

growth: IB Supplier Model

Measured through income increase per household, labor relations, stability of income, share in company's profit, others

Depth of impact on systemicpoverty reduction andcontribution to inclusivegrowth: IB Distributor Model

Measured through income increase per household, payment and commercialrelations, relevance of product for reducing poverty and improving standards of living

Depth of impact on systemicpoverty reduction andcontribution to inclusivegrowth: IB Employee Model

Measured through income increase per individual, labor relations, stability of income and job, share in company's profit, others

Depth of impact on systemicpoverty reduction andcontribution to inclusive

growth: IB Consumer Model

Measured through in clients per year, relevance of product, pricing for the BoP,payment relations, supply of products, ability to pay, others

Relevance for poverty reductionand inclusive growth:Innovation

Measured by the novelty and proliferation of IB model

Relevance for poverty reductionand inclusive growth: Scalability

Measured by IB model’s ability to be scaled up within the company

Relevance for poverty reductionand inclusive growth:Replicability

Measured by IB model’s ability to be replicated by other companies

Relevance for poverty reductionand inclusive growth: RelevanceFor the Country

Measured by relevance of the IB model to alleviate the country’s systemicpoverty issues

Relevance for poverty reductionand inclusive growth:Sustainable profitability for thefirm

Measured by profitability of the IB model itself generating sufficient funds toachieve sustainability

Reach: IB as supplier or distributor model

more than 50,000households

10,001-50,000households

2,000-10,000households

1,000households

Reach: IB as employee model more than 10,000employees

2,001-10,000employees

500-2,000employees

500employees



88

Reach: IB as consumer model

If IB as consumer model Agribusiness Food & Beverage Banking & financial services IT

clients per year

Very high >30,000 >1,000,000 >1,000,000 >1,000,000

High 30,000 1,000,000 1,000,000 1,000,000

Intermediate 10,000 200,000 200,000 200,000

Low 3,000 50,000 50,000 50,000

If IB as consumer model Water Housing Energy Transport & Logistics

clients per year

Very high >100,000 >30,000 >100,000 >100,000

High 100,000 30,000 100,000 100,000

Intermediate 50,000 10,000 50,000 50,000

Low 10,000 3,000 10,000 10,000

If IB as consumer model Health Education Consumer products Retail

clients per year

Very high >50,000 >50,000 >1,000,000 >1,000,000

High 50,000 50,000 1,000,000 1,000,000

Intermediate 20,000 20,000 200,000 200,000

Low 5,000 5,000 50,000 50,000



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Annex 3 List of Participating Companies

The 70 companies that participated in the Philippine Inclusive Business Market Study are listedin this section. These companies were identified through desk research.



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Company Name

1. Adtel2. Agrinurture Inc.3. All Homes Design, Inc4. Art N Nature, Inc.

5. Asia United Bank6. B-MIRK7. Bounty AgroVentures Inc.8. CADP Roxas Holdings9. CARD MRI10. Central Seafoods11. Cinco Corporation12. CLIMBS13. Coco Technologies14. Coffee For Peace15. Country Bankers Insurance16. Creamline

17. Del Monte18. Dizon Farms19. East-West Seed Company, Inc.20. EnCash21. Gaisano Metro22. Gandang Kalikasan, Inc.23. Generika Inc.24. Globe BanKo25. Gourmet Farms26. Green Future Innovations, Inc.27. G-Xchange Inc.28. Hapinoy

29. HBC30. Hedcor Inc.31. Holcim32. InterAsia Bank33. IPVG - Family Vaccine34. IPVG - iPay Ventures / Western

Union35. IVPG Corporation - Digital Paradise,

Inc.36. Jollibee Foods Corporation

37. Julie's Bakeshop FranchisingCorporation

38. La Frutera39. La Salle

40. LAC Farms41. Land Bank of the Philippines42. Lapanday Holdings43. L'oreal44. Mapua Institute of Technology45. Marsman Drysdale Agribusiness46. Marsse Tropical Timber 47. MCPI Corporation48. Medicard49. My Solid Technologies & Devices

Corporation50. Nature's Legacy

51. NCCC Supermarket52. Nestle Philipines53. Novartis54. Orchard Property Marketing

Corporation55. Phinma Properties56. Pioneer Insurance57. RFM Corporation58. Robinsons Supermarket59. SL Agritech Corporation60. SMART Communications, Inc.61. Solutions Using Renewable Energy,

Inc. (SURE)62. Southwind Travel and Tours63. STI64. Tao Corporation65. The Islands Group66. The Power Source Group67. Truly Natural Food Corporation68. Unilab69. Work Asia70. World Partners Bank



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Annex 4 Survey Instruments

The Philippine Inclusive Business Market Survey used three separate questionnaires for IB

companies, fund managers, and donors. These questionnaires were tailored-fit to match the

Philippine setting.

While the questionnaires were used as interview guides only, completion of answers were

ensured by the project team by sending follow-up questions to the respondents to fill in the

details overlooked during the discussion.



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PRIVATE SECTOR MAPPING SURVEY

The Asian Development Bank (ADB) is developing a comprehensive feasibility study for the ADB to establish a proposed US$100 million private equity fund in The Philippines that willinvest in business ventures which include the low income segment (BoP) within their valuechain as consumers, suppliers, distributors and/or employees (called “inclusive businesses”).Preliminary due diligence developed by the ADB suggests the fund would include the followingcharacteristics:

- Fund Size: USD80 – 100 million- Investment Period and Duration: 5 years until final closing, duration of 10 years- Number and Size of Deals: 15 – 20 deals with deal size between USD0.5m and USD10

million- Investment Strategy: Focus on investments with high social returns (10-20% gross) and

a fund´s net financial returns of targeted 10-12% (on USD basis). The portfolio canfocus on a variety of industries that include the low-income segment as consumers --such as transportation, health services and insurance, and renewable energy; suppliers

– such as agribusiness including specialty products (fair trade, organic, etc); employees – ensuring decent work; and as distributors – through which income and value can begenerated

- Structure: Blended – both debt and equity- Preliminary Fee Structure: 2.5% with a bonus for successful high social impact/return

ventures included in the investment portfolio consistent with the fund´s financial andsocial objectives.

This private sector mapping survey is focused on better understanding the a) interest and

experience of private sector companies in meaningfully engaging the BoP within their valuechain in The Philippines; b) assessing the current opportunities for and challenges in developinginclusive business ventures in The Philippines; c) understanding possible financing needs inorder to develop a preliminary investment pipeline, d) the scope of activities in The Philippinesrelated to CSR, social entrepreneurship and inclusive business; and e) developing case studiesof the most representative experiences on inclusive business development in The Philippines.The result of this study will consist of aggregate and systematized information from 80 to 100companies, which will be used to determine their interest and compatibility with this new kind of business model and investment opportunity while identifying companies who may be interestedin being considered for potential investment if and when an inclusive business venture fund isestablished in The Philippines with support from the Asian Development Bank.

As part of the private sector mapping study, we will interview companies relevant to inclusivebusiness (some may be social enterprises) from a cross-section of The Philippines´s economy.This information will be critical is determining if the private sector in The Philippines in interestedin pursuing new and innovative models with the BoP and if these models require additionalinvestment to accelerate growth for the company and measurable benefits on the livelihoods of the low-income segment. All information provided will be kept strictly confidential and will bepresented in aggregate (except if otherwise agreed with the company). Any detailed andconfidential information will be for the sole use of the Asian Development Bank. If you would



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prefer that we sign a non-disclosure agreement with you before providing information, we arehappy to do so. Thank you in advance for your cooperation.

General Information for the Company and Interviewee

1. Company Contact Informationa. Name of the Company:b. Main Telephone Number:c. Address:d. Website:2. Company Informationa. Company Industry/Core Business:b. Domestic, Regional, Global, All of the above:c. Number of Employees:d. Legal Form:e. Annual Turn-Over 2010 and est. 2011 in USD 2010 in USD 2011 in USD

f. CAGR 2010 and est. 2011 2010 % 2011 %g. Net Profit 2010 and est. 2011 2010 in USD 2011 in USD3. Interviewee Contact Information a. Name:b. Position:c. Telephone:d. Email:

ABOUT THE COMPANY´S CORE BUSINESS1. From the list below, please select the industry sector that best describes the core business

of your company. Please also note the estimated % market share your company has within

the industry sector selected.

Sector Specify % MarketShare

Education

Banking and Financial Services(including microfinance)Real Estate/Property/Construction(including low cost housing)

Pharmaceuticals and Biotechnology

Retail

Hospitality and Leisure/Tourism

Food and Beverage Products

Transportation and Logistics

Oil, Gas and Natural Resources

Manufacturing

Agriculture

Forestry and Forest Products



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Information Technology

Energy (including renewables)

Textiles and Garments

Water and Sanitation

Health Insurance (including micro-

insurance)

2. What is the legal status of your company? Select one of the two types in each pair below.

SOE Private ListedCompany

Unlisted Company

3. Please provide a brief description of your core business. What are its core products and/or services?

4. Please provide a brief overview of your main product/service lines and their relativecontribution to your company´s annual turnover.

Product and/or Service

Annual Sales (in USD) %Contribution

<1m 1-10m 10-30m 30-100m >100m1.2.3.4.5.

4a. Which of these products/services are the most profitable? Why?

5.

Please describe any significant changes in strategy, customer base, supplier base,distribution channels or other changes that contributed to the improvements in your marketposition (if any)



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6. Do you think your company´s prospects for growth are good? what new businesssopportunities do you see? What do you expect your rate of growth will be over the coming 3years? What will drive your company´s growth?

7. What do you see as the 5 main barriers to the growth of your company? Please rank thetop 5 with 1 being the most significant barrier.

Obstacle Select 5 Obstacles ONLY Rank (1-5) 1= HighestPoor business climate andregulatory environment

Lack of Access to Capital

Poor Infrastructure

High cost of inputs

High labor costs

Saturated customer base

Competition from internationalcompaniesCompetition from domesticcompanies

Lack of government incentives

Lack of access to competitivetechnology

Poor corporate governance

8. What do you see as the 5 main opportunities to accelerate the growth of your company?Please rank the top 5 from highest to lowest.

Opportunity Select 5 Opps ONLY Rank (1-5) 1= Highest

Favorable business climate

Growing consumer confidence

Increasing export opportunities

Rise in domestic consumption

Company Innovation

New customer segments in the BoPGovernment incentives/reducedtaxesM&A Opportunities for company toexpand

Increased access to capital

Increased access to technology



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9. What are the most significant risks facing your company? please provide examples.

ABOUT WORKING WITH THE LOW-INCOME SEGMENT (BoP)

10. What is your definition of the low-income segment? Someone who earns:

$1.25/day

$2/day

$3/day

$4/day

$10/day

11. Has or does your company work with the Low-Income Segment? If so, pleasecharacterize the manner through which your company actively engaged this segment of the population (as consumers, suppliers, distributors, employees?)

TYPE Approximate number of individuals

as consumers

as suppliers

as distributors

as employees

12. Does your company have a specific business strategy and/or goal to engage the low-income segment? If so, please describe the strategy and/or the goal.

13. What would be the main reason for you to more actively incorporate the low-incomesegment within your company´s business strategy? Please select and rank the top 5.

Reason Select 5Reasons ONLY

Rank (1-5) 1=Highest

Comments

Increase company growth and profitability 1

Strengthen company reputation/brand

Comply with Corporate SocialResponsibility Strategy/internalrequirements



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14. Doesyour com

panycurr entlyhaveacommitmenttocorporate social responsibility (CSR) and what is your approximate CSR Budget? Pleasedescribe your csr program in more detail.

15. Does your company have a Corporate Foundation through which you finance charitableinitiatives? If so, please describe it in more detail.

POTENTIAL OR CURRENT ENGAGEMENT WITH THE LOW INCOME SEGMENT

Please complete questions 20 – 29 if your company is currently engaged or plans toengage (next 18 months)with the BoP.

CURRENT/PLANNED ENGAGEMENT WITH THE LOW INCOME SEGMENT

ALREADY ENGAGING PLANNING TO ENGAGE

16. How does your company currently engage with the low-income segment? How manypeople are current being impacts by your company using this approach? Please checkall that apply.

Comply with government regulations

To gain first mover advantage in thismarket segmentTo localize my company´s supply chainand reduce associated costs

To secure a long-term license to operateTo appeal to company shareholders

To mitigate local stakeholder risks

To attract additional capital to the company

Improve product quality

Contribute to a charitable cause

Comply with management directive

Innovation/Research and Development

Inclusive Business Model CurrentlyEngaged

Number of beneficiaries

BoP as employees

BoP as suppliers of raw materials

BoP as distributors of goods and/or services



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17. How will these numbers change over the next 5 years?

18. In your company´s engagement with the BoP, what have been the benefits to the BOP?Please rank the top 5 benefits.

19. In your company´s is engagement with the BoP, what have been the benefits to theCompany? Please rank the top 5 benefits.

BoP as consumers of your company´s products and/or services

Inclusive Business Model CurrentlyEngage

2012 2013 2014 2015 2016

BoP as employees

BoP as suppliers of raw materials

BoP as distributors of goods and/or servicesBoP as consumers of your company´sproducts and/or services

Reason Select 5Reasons ONLY

Rank (1-5)1=greatest benefit

Increased income for suppliers or distributors

Access to new products and services tailor made to their needs that contribute to their livelihoods

Access to credit

Access to technical assistance, know-how,vocational training

Access to basic services like water,sanitation, health and education

Access to new markets

Secure and long-term buyer of goods andservices

Access to technology

Employment opportunities

Improved nutrition

Access to financial services

Access to housing

Other: Please specify:Lower transaction costs for the populationliving in far-flung areas

Reason Select 5 Rank (1-5) 1=



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20. What do you expect to invest in your IB-related activities over the next 5 years and whatis the source of the investment (own capital , debt, equity, etcetera

21. What Percentage of your overall business is related to the Bop?

Benefits ONLY greatest benefit

Cheap labor supply

New, highly profitable (high volume, lowmargin) consumer marketStable supply of critical inputs in supply

chainLower transaction costs in supply and/or distributionImproved reputation/brand equity in localand international market

To create shared value

To contribute to sustainable development

Improved results for CSR Report

Favorable engagement with nationalgovernment

Improved sales

Improved profitsInnovation

Other: Please specify:

Types of Investment Plan toInvest

2012 2013 2014 2015 2016

Own Capital $ $ $ $ $

Debt from Local Banks $ $ $ $ $

Private Equity Investment $ $ $ $ $

ADB Investment $ $ $ $ $

Patient Capital/Grant from Donor $ $ $ $ $

In-kind contribution from NGOs $ $ $ $ $



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22. Please provide the percentages through which you involve the BoP in any of the folloingways:

As suppliers As Consumers AsEmployees

As distributors

% 100 % % %

23. What is the management structure you use to manage your relationships with the BoP?

24. What are the unique pro-poor design features you integrated into your business strategyand value chains where appropriate?

25. Please describe two initiatives (the most successful or with the best potential) throughwhich you are actively engaging in a Bop-focused business venture/project? How didyou identify and develop the opportunity? what was the business need you identified?why did you engage the Bop? what has been the impact to your company and to thelow-income participants involved? what have been the lessons learned? did you partner with any organizations to achieve your objectives? did you require additional capital todevelop the initiative?

26. What obstacles have you encountered when developing an inclusive business iniativewith the BoP?

Obstacle Select allthat Apply

Rank them (1=greatest obstacle)

Lack of information about the BoP (i.e. consumer behavior, needs, productive capacity, etc)Lack of access to relevant technology critical to theinclusive business initiative

Lack of appropriate distribution channels

Lack of skilled and qualified participants from theBoP to make project a success



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Start-up costs for the inclusive business initiativewere too high

Lack of management buy-in and company support

Lack of organizational capacity and organizationamong supplier (if applicable)

Insufficient volume with sufficient margins to makebusiness viable

Lack of finance to kick-start the project

Lack of trust between the company and the BoP

Lack of company capacity to effectively develop theinclusive business projectNegative perceptions about the value of theopportunity with the BoP



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27. Considering the risks involved, would there be a need for a technical assistance facilitythat could provide patient capital (grants) to mitigate pre-investment and/or post-investment risks of working with the BoP? If so, how would you see it helping your inclusive business initiative succeed?

ABOUT FINANCIALS and FINANCING INCLUSIVE BUSINESS

28. Can you disclose your last three year´s annual financial statements and annual reports?are there specific sections or additional financial reports relevant to your planned or existing inclusive business?

29. What sources of financing have you used in the past? What amounts and under whatconditions? Please check all that apply and list them individually.

30. Have the investor(s) made the anticipated return? if not, why not?

31. What role did the investors take in the management of the company if any (i.e. GeneralPartner, Limited Partner, Shareholder, etc)

Financing in use or used

Terms (Rate/currency/ period) Amount

Equity Investment

Debt

Guarantee

Grant

Other:



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32. Is your company interested in receiving financing designed to support the developmentof inclusive business initiatives within your company?



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33. Can you describe the opportunity in more detail? How large is the opportunity? Howquickly can it make money?

34. If so how much financing would your company require (in USD) for this initiative? Whatwould the funds be used for primarily (i.e. working capital, marketing, capitalinvestments, etc)

35. What type of financing would you consider? Debt? Equity? guarantees?

36. Under what terms would you consider financing? within what time frame?

37. What would you consider to be the IRR for the investment made and over what period?What would you anticipate would be the potential benefits to the BoP (number of peopleimpacted by increased income, employment opportunities, standard of living, etc)?

38. Does your company currently have a source of financing that supports your BoPactivities? If so, please describe the type of financing, terms, amounts and returns

provided where possible.



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FOLLOW-UP

39. Would you like to receive further information about financing opportunities from the ADBand/or SNV to support inlusve business development in your company?

40. Would you like to receive additional inforation about inclusvie business and be added toour newsletter through which you can receive regular updates as to inclusive businessactivities worldwide?



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PRIVATE EQUITY FUND MAPPING SURVEY

The Asian Development Bank (ADB) is developing a comprehensive feasibility study for the ADB to establish a proposed US$100 million private equity fund in the Philippines that will investin business ventures which include the low income segment (BoP) within their value chain as

consumers, suppliers, distributors and/or employees (called “inclusive businesses”).Preliminary due diligence developed by the ADB suggests the fund would include the followingcharacteristics:

- Fund Size: USD 80 – 100 million- Investment Period and Duration: 5 years until final closing, duration of 10 years- Number and Size of Deals: 15 – 20 deals with deal size between USD0.5m and USD10

million- Investment Strategy: Focus on investments with high social returns and net financial

returns of at least 10-12%. The portfolio can focus on a variety of industries that includethe low-income segment as consumers -- such as transportation, health services andinsurance, and renewable energy; suppliers – such as agribusiness including specialty

products (fair trade, organic, etc); employees – ensuring decent work; and as distributors – through which income and value can be generated

- Structure: Blended – both debt and equity- Preliminary Fee Structure: 2.5% with a bonus for successful high social impact/return

ventures included in the investment portfolio consistent with the fund´s financial andsocial objectives.

This survey is focused on better understanding the a) capital markets environment, risks,opportunities and trends in the Philippines and b) assess the viability and potential, includingexisting and future opportunities, of creating a blended private equity fund focused specificallyon these inclusive business ventures. The result of this study will consist of aggregate andsystematized information from selected funds, which will be used to determine their compatibility

with this new kind of investment opportunity while identifying funds that may be interested inbeing considered a fund manager for this inclusive business venture fund.

Your opinion and input are very important for this study and we would appreciate if you couldanswer the following questions as completely and accurately as possible fund manager-specific information will only be presented in aggregate – detailed information will be for the solepurposes of the Asian Development Bank. THANK YOU.

General Information for the Fund and Interviewee

1. Fund Informationa. Name of Fund Management Company:b. Geographic Focus:c. Website:d. Sector Focus:2. Fund Manager (Company)a. Name of Fund:b. Address:c. Province:



107

d. District:e. Specific Fund website (if any):3. Interviewee Contact Informationa. Name:b. Position:c. Telephone:

d. Email:

1. Please describe your fund´s investment strategy. What are the kinds of investments youare looking for? What has gone well so Far? What challenges have you faced so far?Can you give one of your success stories so far?

2. Have you considered investing in companies who might have focus on or might want toengage with the low income segment for business reasons? would you consider this asimportant criteria now or in the future and why?

Investment Climate and Economic Outlook

3. What is your general outlook for the economy of The Philippines over the next 12months? Why?

Positive Neutral Negative

4. What is your general outlook for the economy of The Philippines over the next 5 Years?Why?

Positive Neutral Negative



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5. Of the following issues, please rate the degree to which the following are Obstacles toinvestment in The Philippines. Please rate them as A) Major Obstacle; B) Obstacle; or C) Not an Obstacle:

Issue Major

Obstacle

Obstacle Not an

Obstacle Government Bureaucracy

Rule of Law

Regulatory Environment

Corruption

Currency Controls

Lack of Access to Finance (debt and/or equity)including commercial lending

Government Subsidies

Political Instability

Social Conflict/InstabilityCompetition with State-owned Enterprises

Real Estate Ownership Laws

Private Equity Regulation or Lack Thereof

Other (please specify):


6. What are the Main reasons for Investors to Invest in The Philippines? Please rate theDegree to which the Reasons are Important.

Issue VeryImportant

Important NotImportant

Positive Investment Climate

Diverse and Attractive Investment Opportunities

Medium Term Real GDP Growth

Potential for High Returns

Tax Incentives and Administrative Burdens

Effective Corporate Governance

Attractive Regulatory Environment

Quality of Legal Enforcement

Political Stability

Security of Property Rights

Entrepreneurial Culture and Innovation

Labor Market Rigidities

Low Unemployment Rate




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7. How attractive do you think The Philippines would be for private equity investments vis-à-vis other countries in South Asia? Why?

ExtremelyAttractive

Very Attractive Neutral LessAttractive

NotAttractive

8. How attractive do you think The Philippines would be for Social Investments vis-à-visother countries in South Asia? Why?

ExtremelyAttractive

Very Attractive Neutral LessAttractive

NotAttractive

Industry/Sector Investment/Company Attractiveness

9. Please provide your Investment attractiveness rating for the following Industry Sectors inThe Philippines for both General Business AND Inclusive Business. Please rate themas a) Very Attractive; B) Attractive; C) Neutral; or D) Negative.

Sector VeryAttractive

Attractive Neutral Negative

Education

IB: Education

Banking and Financial Services(including microfinance)IB: Banking and Financial Services(including microfinance)

RealEstate/Property/Construction/HousingIB: RealEstate/Property/Construction/HousingPharmaceuticals andBiotechnology



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IB: Pharmaceuticals andBiotechnology

Retail

IB: Retail


IB: Hospitality andLeisure/Tourism


IB: Food and Beverage Products

Transport and Logistics

IB: Transport and Logistics

Manufacturing

IB: Manufacturing

Agriculture

IB: Agriculture

Forestry and Forest Products andFishingIB: Forestry, Forest Products andFishing


IB: Information Technology


IB: Energy (including renewables)


IB: Textiles and Garments

Water and SanitationIB: Water and Sanitation

Health (including micro-insurance)

IB: Health (including micro-insurance)

Other Basic Services

IB: Other Basic Services

9a. Why have you rated some of these Inclusive Business industries as Very Attractive?

9b. Why have you rated the other IB industries as Negative?10. Of these sectors, which ones do you invest in actively and what is the distribution (in

percentage of assets under management) within these sectors in your investment



111

portfolio? Please mark the sector(s) and the estimated percentage (note: totalpercentage cannot exceed 100%)? Please do this for both general and IB Investments.

Sector In Portfolio Percentage

Education %

IB: Education %

Banking and Financial Services (including microfinance) %

IB: Banking and Financial Services (including microfinance) %

Real Estate/Property/Construction/Housing %

IB: Real Estate/Property/Construction/Housing %

Pharmaceuticals and Biotechnology %

IB: Pharmaceuticals and Biotechnology %

Retail %

IB: Retail %

Hospitality and Leisure/Tourism %

IB: Hospitality and Leisure/Tourism %Food and Beverage Products %

IB: Food and Beverage Products %

Transport and Logistics %

IB: Transport and Logistics %

Manufacturing %

IB: Manufacturing %

Agriculture %

IB: Agriculture %

Forestry and Forest Products and Fishing %

IB: Forestry, Forest Products and Fishing %

Information Technology %

IB: Information Technology %

Energy (including renewables) %

IB: Energy (including renewables) %

Textiles and Garments %

IB: Textiles and Garments %

Water and Sanitation %

IB: Water and Sanitation %

Health (including micro-insurance) %IB: Health (including micro-insurance) %

Other Basic Services %

IB: Other Basic Services %

11. Of the following industries, please rate which ones may present the best and mostprofitable opportunities for businesses to integrate the low income segment asconsumers, suppliers, distributors and/or employees within their business model.



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Sector Highlyprofitable

(IRR > 15%)

Profitable(IRR between

5 -15%)

Viable (IRRbetween 0and 5%)

Not abusiness

case

Education

Banking and Financial Services(including microfinance)

Real Estate/Property/Construction

Pharmaceuticals andBiotechnology

Retail



Transportation and Logistics

Oil, Gas and Natural Resources

Manufacturing

Agriculture

Forestry and Forest Products




Water and Sanitation

Health Insurance (including micro-insurance)

12. Why are the industries you selected most viable for investment in business models withthe low-income segment? Please explain.

13. From your Investment experience, please select and rate (1-6 with 1 being MostPreferred) the financial instruments preferred by your investees, indicate whatpercentage of your investment portfolio is currently allocated per instrument and the

average deal size and returns obtained?



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Financial InstrumentCheck if part of

portfolio

Rank (1-6)1 = mostpreferred

% of Portfolio

AverageDeal Size

AverageReturns

Equity % $ %

Debt % $ %

Credit Guarantee % $ %

Blended (Debt+Equity) % $ %

Grant (i.e. TA facility) % $ %

Other, please specify: % $ %

14. If you were to consider developing a social investment fund to finance business modelsthat target the low-income segment, please indicate the financial instruments that arelikely to be preferred by investees, their ranked preference, potential % of the fundsportfolio, and the average deal size and returns you would expect per financialinstrument.

FinancialInstrumentin a social

investment fund

Check if part of

portfolio

Rank (1-6)1 = mostpreferred

% of PortfolioExpected

AverageDeal SizeExpected

Averager eturns

expectedCurrency

Termin

years

Equity % $ %

Debt % $ %

Credit Guarantee % $ %

Blended(Debt+Equity)

% $ %

Grant % $ %

Other: Pleasespecify:

% $ %

15. Please explain why you would expect the aforementioned portfolio structure andexpected returns in a Social Investment Fund?



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Key Factors in Investment Strategy

16. When considering the following most important factors in making a private equity or related investment in The Philippines, please select and rank the top three below (1being the most imporant):

Factor Select the 3 most

important factors ONLY(rank them 1, 2 and 3)

Select the 3 mostimportant secondary

factors(rank them 4, 5 and 6)

Transparency in Business ActivitiesGrowth history and projectionsQuality of the Management TeamCompany TrackRecord/PerformanceCash flowSpeed at which value can be

createdOperational/Cultural Fit withFund´s GoalsBrands/ProductsStrategic Fit with Fund´s StrategyCorporate Responsibility/EthicalReputationOther Reputable Investors

Anticipated Return

17. Why are these the most important factors?

18. Conversely, what would make you not invest? Why?

19. Conversely, what would be the most important concerns/risks when making investmentsin the Philippines? Please select up to 3 of the following concerns/risks and rate them interms of their degree of importance (1 being the most important) degree of importance:



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Factor Select 3

Factors ONLYRank (1-3) 1= most

important

Lack of Transparency

Poor Corporate Governance

Lack of Skills/Experience in CurrentManagement

Limited or No Company Track Record

Poor business strategy/business plan

Lack of other investors/finance streams

Significant reputational issues

No CSR/Stakeholder management strategy

Unclear/opaque financial reporting

Issues with current shareholders

Conflict of Interest

Difficulty to exit

20. Why have you selected these three concerns as the most important?

21. What are the current opportunites for private equity fund development in ThePhilippines? Why are these opportunities most promising?

22. What are the greatest challenges to starting a private equity fund in The Philippines andwhy?

23. What are the best performing private equity funds in The Philippines and why do youthink these funds are the best performing?

24. What do you consider the most attractive exit strategy for your investments?

IPO Trade Sale Secondary Sale Refinancing



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25. Please explain why.

KEY FACTORS WHEN CONSIDERING THE LOW-INCOME SEGMENT

(Please answer these questions even if you have not made prior investments in businessmodels serving the low income segment.)

26. When considering (or if you wered to consider) the most important factors in making aprivate equity investment in an Inclusive Business venture in The Philippines, pleaseselect and rank the top 3 most important factors.

Factor Select 3 FactorsONLY

Rank (1-3,1= most important)

Viability of Business Model

Company Track Record with the BoP

Potential for Social Returns (>5,000 peopleimpacted)

Potential for Financial Returns (>15%)

Innovation Potential

Strategic Alignment with InvestmentStrategy

Prospects for Growth

% contribution of inclusive business tooverall company growth/bottom line

Quality of product/service being proposed

Presence of other reputable investors

Overall company reputation/brand

Clear pathway to exit

27. Please explain why these 3 factors are the most important.

28. Conversely, which of the following issues would you consider the top 3 greatestconcerns when making inclusive business investments in The Philippines?

ConcernSelect and the 3most important

Select and Rank themost important



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ONLY (rankthem 1, 2 and 3)

secondary concerns(Rank them 4, 5 and 6)

Lack of Skills/Experience in CurrentManagement especially with the BoPLack of Grant Funds/Technical Assistance tomitigate BoP associated risks

Weak prospects for social returns/impacts onthe BoPLimited or No Company Track Record with theBoPPoor business strategy/business plan to createvalue for the BoPLack of other investors/finance streamsSignificant reputational issuesNo CSR/Stakeholder management strategyUnclear/opaque financial reportingWeak prospects for significant financial returnsRisks associated with proposed BoP suppliers,

distributors and/or employeesDifficulty to exit

29. Please explain why you selected the aforementioned concerns?

Obstacles To Starting An Inclusive Business Private Equity Fund In The Philippines

30. What would be the greatest challenges, obstacles or barriers to starting a private equityfund focused on inclusive business in The Philippines and why? Do you think there is areal opportunity? Why or why not?



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31. If you were to create an Inclusive Business-Focused Private Equity Fund in ThePhilippines, what would be the greatest obstacles to effectively capitalzing andmanaging a successful fund (please select and rate the top 3 obstacles)?

Obstacle Select 3 Obstacles

ONLY

Rank (1-3) 1= greatest

obstacleLack of a viable pipeline of inclusive business opportunitiesLack of investor interest tocapitalize an Inclusive BusinessPrivate Equity FundLack of Technical Assistancesupport to Mitigate InclusiveBusiness-related risksNegative perception regardingpossible returns of a privateequity fund targeting the BoP

Lack of fund managers withrequired expertise and/or motivation to manage such a fundPerceived Risks far outweighreturnsLack of Government Incentives tosupport BoP-related investmentsLack of standard metrics bywhich to assess social/financialreturnsLack of bi-lateral/multi-lateralfunder interest to complement

fund managersEthical Reasons

32. Please explain why you selected these top 3 obstacles?

33. Can all of these obstacles be overcome? If yes, how would you overcome these

obstacles?



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34. Considering the risks involved, would there be a need for a technical assistance facilitythat could provide patient capital (grants) to mitigate pre-investment and/or post-investment risks of working with the BoP? If so, how would you structure the ta facility?

35. If the ADB Investment is capped at US$10 - 20 million for this Fund in The Philippines,do you think you would have difficulty raising the remaining US$80 - 90 million? Why or Why not? what challenges you think you could face when trying to raise the remainingUS$80 – 90 million?

36. Would you be interested in managing such a fund? Why or why not?

37. Please describe the kind of investors you would target for this fund (i.e. other fundmanagers, donors, multilateral financial institutions, etc) What is their risk profile andwhat kind of financial and/or returns do you think they might expect?

FACTORS TO MEASURE SUCCESS IN PRIVATE EQUITY INVESTMENTS

38. Other than the IRR, How would you define success for a private equity fund? What arethe current metrics you use?

39. Are you aware of and/or do you use any established metrics systems to assess thefinancial and social impact of your fund like GIIRS? Do you think it is necessary todevelop an ex-ante impact assessment tool?



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40. If you are currently managing or were to manage a portfolio of private equity investmentsfocused on creating value for the BoP, what would be the kinds of metrics you would useto measure the success of the fund?

SOCIAL INVESTMENT STRATEGIES AND CONSIDERATIONS

41. Do you currently make investments based on their potential for social impact? If so, whatare the kinds of investments you have made of this type?

42. What would be the average deal size were you to manage a social investment fund? And what would be the returns you would want to have?

43. What is your preferred term for the investments you could make in the social investmentmarketplace?

44. If the investment were to be debt rather than equity, what would you consider to becompetitive terms in the current market in The Philippines?

45. If the investment were to be equity, what position would you normally take (Stake andRole)? Please provide an example.



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46. What incentives would you integrate into the design of the Inclusive Business PrivateEquity Fund to attract investors/Fund Managers? What would be the critical successfactors in your opinion?

47. What kind of real and/or perceived benefits, if any, does the anchor investment by ADBin this type of fund provide?



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DONOR INTEREST SURVEY

The Asian Development Bank (ADB) is developing a comprehensive feasibility study for the ADB to establish a proposed US$100 Million private equity fund in the Philippines that willinvest in business ventures which include the low income segment (BoP) within their valuechain as consumers, suppliers, distributors, and/or employees (called “inclusive businesses”).Preliminary due diligence developed by the ADB suggests the fund would include the followingcharacteristics:

Fund size: $80-100 million USD Investment period and duration: 5 years until final closing, duration of 10 years Number and size of deals: 15-20 deals with deal size between $0.5 million and $10

million USD Investment Strategy: Focus on investments with high social returns and net financial

returns o at least 10-12%. The portfolio can focus on a variety of industries that includethe low-income segment as consumers – such as agribusiness including specialtyproducts (fair trade, organic, etc.); employees –ensuring decent work; and as distributors

– through which income and value can be generated. Structure: blended – both debt and equity Preliminary fee structure: 2.5% with a bonus for successful high social impact/return

ventures included in the investment portfolio consistent with the fund’s financial andsocial objectives.

This donor interest survey is focused on better understanding the a) interest and experience of bilateral, multilateral, and international finance institutions in meaningfully supporting initiativesin the Philippines that engage the BoP within their value chain; b) assessing donor perspectiveson current opportunities for and challenges in developing inclusive business ventures in thePhilippines; c) documenting current donor-supported financing initiatives for these kinds of ventures including brief case studies; d) assessing donor interest in collaborating in theestablishment of the inclusive business private equity fund and/or related technical assistancefacility in the Philippines. The result of this study will consist of aggregate and systematizedinformation from 10-15 donors, which will be used to determine their interest with this new kindof business model and investment opportunity to be established in the Philippines with supportfrom the Asian Development Bank.

As part of the donor interest survey, we will interview donors who have had a track recordfinancing activities related to private sector development and market-based solutions for thelow-income segment. This information will be critical in determining if the donor community in

the Philippines would be interested in supporting efforts to promote new and innovative modelswith the BoP that can accelerate growth for the company and measurable benefits of on thelivelihoods of the low-income segment. All information provided will be kept strictly confidentialand will be presented in aggregate. Any detailed and confidential information will be for the soleuse of the Asian Development Bank.



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GENERAL INFORMATION ABOUT THE DONOR

1. Donor Information a. Name of Donor:b. Geographic Focus in Country:

c. Website:

2. Donor a. Name of Donor Program:b. Address:c. Specific Program Website (if any):

3. Interview Contact Information a. Name:b. Position:c. Telephone:d. Email:

4. Please provide an overview of your current activities and donor priorities in thePhilippines. What is the size ($) of your current portfolio of projects? Which programareas are allocated the most funding and what percentage of resources do they receive?

5. Do you have a private sector development focus? If so, how would you characterize your

efforts to date in this area? What have been your lessons learned, successes, andfailures? Do you have any case studies and/or publications in this regard?

6. Have you taken an active position in market-based solutions for the poor within your private sector development strategy? If yes, what have been your results to date? If not,why have you not engaged in supporting market-based solutions that integrate the BoPinto the value chain of larger companies? What are the risks you perceive?

7. If you have taken an active position in market-based solutions for the poor, pleasedescribe your current experience. Can you provide some concrete examples of projects



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and/or programs that could be emblematic of your wider donor efforts in this field in thePhilippines?

8. Have you used your donor resources to support an investment fund? Can you describethat experience?

9. Would you be interested in supporting an inclusive business venture fund and leverage ADB’s anchor investment in such a fund?

10. In your experience, under what condition have inclusive business programs succeededin the Philippines? Under what conditions have they failed?

11. Many argue that successful inclusive business initiatives require patient capital tosupport technical assistance requirements that arise during the development of such aninitiative. Would you consider providing grant support for an accompanying technicalassistance facility for the private equity fund?

12. If you were interested in a technical assistance facility, under what conditions would yoube able to provide support? If the private equity fund is about $60 to $100 million, in your opinion, what would be the funding requirements for such a TA facility?

13. How would you characterize the role of the public sector in supporting private sector-ledinitiatives to promote economic development (i.e., inclusive business initiatives)? Please



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provide concrete examples of government incentives and/or disincentives for thepromotion of inclusive business in the Philippines.

14. Beyond the possibility of your donor organization providing support to this initiative, whatother donor agencies and/or departments within your own government/internationalfinance institution would you consider relevant for this activity?

15. What are the most serious risks to developing inclusive business ventures in the

Philippines? How would you overcome these risks?



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Annex 5 Summary of the Philippine Inclusive Business Forum Company Assessments

The Asian Development Bank organized the Philippine Inclusive Business Forum lastNovember 26, 2012. The forum included round-table groups where companies were distributed

by sector.

The participants were asked to assess the “IB-ness” of their companies, which are summarizedin this section.



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The objective of the Inclusive Business Forum was to discuss the results of that study, andcome up with proposed suggestions to support inclusive business in the Philippines. The Forumhighlighted inclusive business models through thematic discussions and sectoral roundtablediscussions.37 Participating inclusive businesses were asked to evaluate their respective sectorsusing the IB assessment tool used to evaluate the 70 companies of the market scoping studyand described in section 4.2.

Energy.

The energy sector (includes renewable and alternative energy inclusive businesses) wasgenerally optimistic in assessment of their sector, rating most of the categories as “very high.”However, companies in the sector raised concerns about the difficulties in finding resources andacquiring financing. Regulatory issues, such as feed-in tariffs and political dynamics, were alsoidentified as a major obstacle for the inclusive businesses.

Energy Sector Profitability and returns / IRR 9-12% IRRReach: IB as supplier 2,000 to 10,000 households

Reach: IB as consumer 100,000+ clients per year Depth of impact on poverty: IB as supplier HighDepth of impact on poverty: IB as consumer Very highInnovation HighScalability HighReplicability HighRelevance for country Very relevantSustainability for firm Very high

Housing

Only one company represented the housing sector in the IB forum. All indicators are ranked

either high or very high. Barriers to business include political dynamics and poor businessenvironment for real estate developers.

Housing Sector Profitability and returns / IRR 9-12% IRRReach: IB as consumer Up to 30,000 clients per year Depth of impact on poverty: IB as consumer HighInnovation HighScalability HighReplicability HighRelevance for country Very relevantSustainability for firm Very high

37 http://www.adb.org/news/events/inclusive-business-forum-philippines

http://www.adb.org/news/events/inclusive-business-forum-philippines






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Health

The sector is considered to be BoP-oriented (has a strong social orientation) and is veryprofitable due to the volume of Filipinos needing inexpensive health services, giving a very highrank to all of the indicators. Most of the inclusive businesses engaged in the health sector arealso working with local government units as well as PhilHealth, the national insurance program

of the Philippines.

Health Sector Profitability and returns / IRR 13% and higher IRRReach: IB as consumer More than 50,000 clients per year Depth of impact on poverty: IB as consumer Very highInnovation Very highScalability Very highReplicability Very highRelevance for country Very relevantSustainability for firm Very high

Agribusiness

While most indicators are optimistic (high or very high), replicability was ranked intermediate asthere is only limited supply of agricultural land available in the Philippines. Further to this, muchresearch and development is required to be able to produce efficient agribusiness consumer goods, as with one of the participating inclusive businesses.

Agribusiness Sector Profitability and returns / IRR 13% and higher IRRReach: IB as supplier More than 50,000 householdsReach: IB as consumer More than 30,000 clients per year

Depth of impact on poverty: IB as supplier HighDepth of impact on poverty: IB as consumer Very highInnovation HighScalability HighReplicability IntermediateRelevance for country Very relevantSustainability for firm Very high



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Food and beverage

The concept of inclusive business is not prevalent in this sector; therefore, all indicators wereranked to be intermediate. However, the very high rank of the scalability and replicabilityindicators suggests the potential of the food and beverage sector. Difficulties in organizingsuppliers was a major obstacle to inclusive business models in the sector.

Food and beverage sector Profitability and returns / IRR 5-8% IRRReach: IB as supplier 2,000-10,000 householdsDepth of impact on poverty: IB as supplier IntermediateInnovation IntermediateScalability Very highReplicability Very highRelevance for country IntermediateSustainability for firm Intermediate

Banking and finance

The concept of inclusive business in the banking and finance sector is at its onset. Mostindicators are at the intermediate level, while potential (scalability and replicability) is high.

Access to financing is very difficult in the Philippines, so that these inclusive business modelsthat provide loans and insurance (however, in small amounts) is beneficial for the BoP. It wasrecognized that the sector needs more innovative business models to maximize its potential.

Banking and finance sector Profitability and returns / IRR 0-4% IRRReach: IB as consumer Up to 50,000 clients per year Depth of impact on poverty: IB as consumer Intermediate

Innovation IntermediateScalability HighReplicability HighRelevance for country HighSustainability for firm Intermediate



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Inclusive business involving the consumption of information technology is very robust in thePhilippines. This is attributed to the Filipino culture of staying connected. The sector engagesthe BoP either as a consumer or as a distributor. Due to high investment needs, replicability isonly at the intermediate ranking.

Information technology sector Profitability and returns / IRR 13% and higher IRRReach: IB as distributor 2,000-10,000 householdsReach: IB as consumer At least 1 million clients per year Depth of impact on poverty: IB as distributor IntermediateDepth of impact on poverty: IB as consumer Very highInnovation HighScalability HighReplicability IntermediateRelevance for country HighSustainability for firm Very high

Education

The sector has voiced out the need for more innovative inclusive business models. Rankingintermediate in most of the sectors but has very high potential, inclusive education is veryrelevant for the Philippines and would be beneficial for the BoP.

Education sector Profitability and returns / IRR 5-8% IRRReach: IB as consumer At least 20,000 clients per year Depth of impact on poverty: IB as consumer Intermediate

Innovation IntermediateScalability Very highReplicability Very highRelevance for country Very highSustainability for firm Intermediate



Manufacturing

Most of the manufacturing sector still employs traditional business models; however, forumparticipants included business models that engage the BoP either as suppliers of raw materialsor as employees. While profit and sustainability are both high, other indicators have ranked low.This can be attributed to (i) high investment needs, and/or (ii) inclusive businesses are still on

pilot stage.

Manufacturing sector Profitability and returns / IRR 13% and higher IRRReach: IB as employee 500 to 2,000 employeesReach: IB as supplier Up to 1,000 householdsDepth of impact on poverty: IB as employee HighDepth of impact on poverty: IB as supplier HighInnovation IntermediateScalability IntermediateReplicability IntermediateRelevance for country Intermediate

Sustainability for firm Very High

ASEI (23 Apr 2013) IB in PHI - Final Report_with Disclamer

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