Investigating the potential of an Inclusive Business Fund...

Investigating the potential of an

Inclusive Business Fund in

Bangladesh

A Market Scoping Study

July 2013

Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 2

© 2013 Asian Development Bank and SNV

Written by Better Stories, Prime Finance and Asset Management Company and Don Taylor and Phil Harman, SNV

Netherlands Development Organisation

The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB), its Board of Governors, or the governments they represent or of SNV. ADB and SNV do not guarantee the accuracy of the data included in this publication and accept no responsibility for any consequence of their use.

By making any designation of our reference to a particular territory or geographic area, or by using the term “country” in this document, ADB and SNV do not intend to make any judgements as to the legal or other status of any territory or area. ADB and SNV encourage printing or copying exclusively for personal and noncommercial use with proper acknowledgement of ADB, SNV and the authors. Users are restricted from reselling, redistributing, or creating derivative works for commercial purposes without the express, written consent of ADB and SNV.

Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines Tel + 63 2 632 4444 Fax + 63 2 636 4444 www.adb.org

SNV Netherlands Development Organisation Dr. Kuyperstraat 5 2514 BA,The Hague, The Netherlands Tel +31 70 344 0244 Fax +31 70 385 5531 www.snvworld.org

or more information on the ADB s inclusi e usiness initiati e, lease isit http://www.adb.org/themes/poverty/inclusive-business-base-pyramid

or more information on the SNV’s inclusi e usiness a roach, lease isit http://www.snvworld.org/en/inclusive-business.


Table of contents

List of figures ........................................................................................................................................... 4 List of abbreviations ................................................................................................................................ 5 Executive summary ................................................................................................................................. 6

Background ........................................................................................................................................................................... 6 Approach ............................................................................................................................................................................... 7 Findings ................................................................................................................................................................................. 7

Background to the Study ...................................................................................................................... 11 ADB’s Inclusi e Business initiati e ...................................................................................................................................... 11 SNV and Inclusive Business ................................................................................................................................................. 14 Purpose and methodology of the study .............................................................................................................................. 15

I. Macro-economic environment .......................................................................................................... 19 Consistently strong economic growth ................................................................................................................................ 20 Foreign direct investment has picked up dramatically and has room to increase further .................................................. 21 Foreign direct investment is focused on industry and services .......................................................................................... 22 Financial stability and markets ............................................................................................................................................ 25 Financial markets have skewed allocation of capital .......................................................................................................... 26 Current institutional financing situation ............................................................................................................................. 26

II. Poverty, the BOP and the opportunity for Inclusive Business .......................................................... 30 Access to key goods and services ........................................................................................................................................ 31 Labour market ..................................................................................................................................................................... 31 Regional variation in poverty .............................................................................................................................................. 32 Distribution of companies by size ....................................................................................................................................... 33

III. Findings: Private sector interest in Inclusive Business in Bangladesh ............................................ 36 Current engagement with the BOP ..................................................................................................................................... 36 Perceived benefits of engaging the BOP for Inclusive Businesses ...................................................................................... 38 Benefits of engaging the BOP, for the BOP ......................................................................................................................... 41 Inclusive Business critical success factors ........................................................................................................................... 44 Key challenges to the growth of Inclusive Business ............................................................................................................ 47

IV. Financing Inclusive Business ............................................................................................................ 51 Analysis of findings of fund manager survey ...................................................................................................................... 55 Fund management obstacles and interest .......................................................................................................................... 61 Co-investor mapping ........................................................................................................................................................... 65 Donor mapping ................................................................................................................................................................... 66

Conclusions ........................................................................................................................................... 68 Need .................................................................................................................................................................................... 69 Interest................................................................................................................................................................................ 70 Readiness ............................................................................................................................................................................ 70

Strategy and recommendations ........................................................................................................... 72 Steps to be taken: ............................................................................................................................................................... 72 Size of investment and enterprise ...................................................................................................................................... 72 Priority sectors .................................................................................................................................................................... 73 Fund details ......................................................................................................................................................................... 73

Appendices ............................................................................................................................................ 74 Appendix 1: An important macro trend: Bangladesh's demographic dividend ................................................................. 74 Appendix 2: Business environment and economic progress............................................................................................... 76 Appendix 3: Analysis of company sample ........................................................................................................................... 77 Appendix 4. Case studies .................................................................................................................................................... 80 Appendix 5: Current engagement with the BOP ................................................................................................................ 86 Appendix 6: Fund managers ............................................................................................................................................... 95 Appendix 7: Co-investors .................................................................................................................................................... 99 Appendix 8: Overview of relevant donor partners........................................................................................................... 101 Appendix 9. Private sector mapping survey ...................................................................................................................... 104 Appendix 10. Fund manager & co-investor survey ........................................................................................................... 113


List of figures

Figure 1. GDP growth in Bangladesh from 1991 to 2011 .................................................................................... 19 Figure 2. GDP growth in Bangladesh from 1991 to 2011 .................................................................................... 20 Figure 3. Net FDI has soared since 2002 (needs fixing) ....................................................................................... 21 Figure 4. Ratio of FDI/GDP ................................................................................................................................... 22 Figure 5. Telecommunications investment has taken over as the major target of FDI ....................................... 23 Figure 6. Allocation of FDI 1996-2010 ................................................................................................................. 23 Figure 7. Trends in GDP at current price (million US$) in Bangladesh, by sector: 1981/82 to 2005/06 .............. 24 Figure 8. Bangladesh has a lower debt/GDP ratio than most comparable nations in the region ....................... 25 Figure 9. Loan defaults in percentage of outstanding loans ................................................................................ 27 Figure 10. Private credit growth, monthly, since February 2012 ....................................................................... 28 Figure 11. Representation of income levels and percentage population size .................................................... 30 Figure 12. Poverty headcount ratio has fallen significantly over the past 20 years ........................................... 30 Figure 13. Employment and growth by sector .................................................................................................... 32 Figure 14. Maps of Poverty Reduction in Bangladesh between 2000 and 2005: Old Zilla level .......................... 33 Figure 15. Distribution of employment by company size, 2003 .......................................................................... 34 Figure 16. Location of industries by division in Bangladesh 2001-03 .................................................................. 35 Figure 17. BOP models according to sector ......................................................................................................... 36 Figure 18. Benefits of engaging the BOP for Inclusive Businesses....................................................................... 38 Figure 19. Benefits of engaging the BOP, for the BOP ......................................................................................... 41 Figure 20. Drivers of business growth ................................................................................................................. 45 Figure 21. Key challenges to the growth of Inclusive Business ............................................................................ 48 Figure 22. Source of finance for Inclusive Business* ........................................................................................... 49 Figure 23. Current funding availability by BOP segment ..................................................................................... 50 Figure 24. Bangladesh stock market trends ......................................................................................................... 51 Figure 25. At 21% of GDP, Bangladesh's stock market is catching up to the BRIC nations ................................. 52 Figure 26. Bangladesh has a lower debt/GDP ratio than most comparable nations in the region ..................... 53 Figure 27. Economic expectations over the short- and medium-term ................................................................ 54 Figure 28. Very attractive vs. most viable industries to integrate low income segment .................................... 56 Figure 29. Most important factors when making a private equity investment in Bangladesh............................ 58 Figure 30. Most important concerns when investing in Bangladeshi companies ............................................... 59 Figure 31. Most important factors when making a private equity investment in a BOP venture ....................... 60 Figure 32. Concerns of fund managers in BOP focussed funds ........................................................................... 61 Figure 33. Obstacles in managing a BoP focused fund ........................................................................................ 62 Figure 34. Most important factor to measure the success of a BoP focused PE fund ......................................... 62 Figure 35. Most attractive exit option ................................................................................................................. 64 Figure 36. Fund manager interest in investing in potential ADB fund ................................................................. 64 Figure 37. Deposit interest rates at Bangkok Commerce Bank ........................................................................... 66 Figure 38. Bangladeshi population age groups in 2012 ....................................................................................... 75 Figure 39. Fertility rates over the past 50 years .................................................................................................. 75 Figure 40. Recent trends of macro-economic indicators ..................................................................................... 76 Figure 41. Global Competitiveness Index ............................................................................................................ 76 Figure 42. Wealth and health .............................................................................................................................. 77 Figure 43. Industry sectors of the market scoping company sample .................................................................. 78 Figure 44. Market scoping companies showing sector, size, growth potential & BOP model ............................ 79 Figure 45. BOP models according to sector ......................................................................................................... 86 Figure 46. Estimated deal sizes according to the different types of financial institutions in Bangladesh ........... 96 Figure 47. Current activities of key bilateral aid agencies and DFIs in private sector development ................. 101


List of abbreviations

ADB Asian Development Bank

BDT Bangladesh Thaka

BOP Base of the economic Pyramid

CSR Corporate Social Responsibility

EC European Commission

EU European Union

FDI Foreign Direct Investment

GDP Gross domestic product

IB Inclusive business

IPO Initial Public Offering

IRR Internal Rate of Return

IT Information Technology

NGO Non Government Organisation

R&D Research and Development

SME Small and Medium Enterprises

SNV Netherlands Development Organization

SOE State-Owned Enterprises

UNDP United Nations Development Programme


Executive summary

This market scoping study examines the potential of setting up an Inclusive Business Fund in

Bangladesh. The study answers three questions:

1. Is there private sector interest and are there viable opportunities to support Inclusive

Business development in Bangladesh?

2. Is there sufficient capacity and readiness of social, political, and business stakeholders to

invest and develop Inclusive Business in Bangladesh?

3. What would be the most appropriate investment strategy to catalyse and further unlock the

potential for Inclusive Business in Bangladesh?

The answers to the first two questions are yes, with conditions. The answer to the third questions

requires separate interventions.

These are summarized below and detailed at the end of the body of this report.

Background

Bangladesh is poor country (on the list of the UN's least developed nations) has a large population (142

million in 2011), and rapid economic growth (forecast at around 6.3 percent for the five years to 2016).

Around 43 percent of the population lives below the international poverty line.

The combination of high economic growth and widespread poverty create potential for projects to have

a high impact on the living standards of the poor. In particular, well directed and sustainable

interventions can potentially direct the economic growth to both help business and help those at the

bottom of the pyramid, and have a positive impact on economic growth rather than a negative one.

Businesses that make money and make a positive contribution to the bottom of the pyramid are

commonly referred to as "inclusive businesses."

Within this context, the Asian Development Bank (ADB) in conjunction with SNV Netherlands

Development Organisation (SNV) commissioned this market scoping study to assess the relevance,

o ortunity and strategy required to de elo a usiness case for “Inclusi e Business” de elo ment and

investment in Bangladesh – in other words, business opportunities that deliver market- or above-market

returns while making a meaningful and substantial contribution to improving the livelihoods of the poor.


Approach

The analysis used a four-tiered approach that assessed the following: i) the opportunity to develop

inclusive business approaches in Bangladesh; ii) the presence or absence of an enabling environment for

inclusive business development; iii) the level of interest from the private sector in making their

businesses more inclusive of the poor; and, iv) the current state of the private equity market in

Bangladesh and potential interest and expectations of institutional investors in financing inclusive

business ventures.

During the course of this study, 55 private sector businesses and 12 fund managers were interviewed

along these lines to answer the three questions of the study.

Findings

The information gathered and analysed for this study confirmed that there is a distinct opportunity for

Inclusive Business development and related financing in Bangladesh. Whilst the Bangladesh political,

economic and social environment has been characterised by political turmoil, weak governance, energy

shortages, and the costs of unplanned urbanisation, the country has shown significant resilience and

made significant progress in economic development since its independence in 1971. With proper

planning for such potential risks coupled with commensurate pricing, ADB could feasibly deploy a fund

of around US$ 50 million within a 5-year time frame potentially as part of a broader regional fund. In

short, for the ADB, financing a portfolio of inclusive businesses in Bangladesh is distinctly plausible but

with a range of conditions that need to be accounted for.

Opportunity to develop inclusive business approaches in Bangladesh:

The economy is in transition. Bangladesh's economy is transforming from a primary industry

Jute-exporting economy to a manufacturing economy based on textiles. While this has been

caused in part by the scarcity of land, high population density and infrastructure constraints, the

significance of the manufacturing and services sector is unusually high compared to countries in

a similar stage of development.

Widespread poverty offers high impact social returns. About 43 percent of the Bangladeshi

population (more than 60 million people) earn an income of less than US$ 1.25 per day placing

them below the international poverty line, and about 48 percent of the population (68 million)

earn an income of less than US$ 3 per day making them vulnerable to poverty. The BOP

therefore represents the majority of the Bangladeshi population;

Based upon the Multidimensional Poverty Index (MPI), 58% percent of Bangladeshi households

suffer from multiple dimensions of poverty (and a further 21 percent are vulnerable to multiple

dimensions within education, health and other living conditions.


Enabling environment for inclusive business development:

Significant policy reforms in the last three decades have created a more market-based economy,

mostly due to a gradual deregulation and liberalisation process aimed at fostering private

sector-led development.

Bangladeshis have an existing general awareness of Inclusive Business models providing an

excellent foundation for further expansion in the sector. This is partially because NGOs helped

drive development by filling gaps in service delivery. This is something that is particular to

Bangladesh which has spurred development innovation including micro-finance. There is further

potential for the business models developed by some of these NGOs that have borne fruit to be

used by the private sector.

The legal structure of foreign investment is well established in Bangladesh. Growth in foreign

direct investment over the past ten years has averaged 37.4 percent (albeit from a low base)

and is outperforming India (35.7 percent), Pakistan (11.4 percent), Sri Lanka (12.8 percent),

Nepal (20.6 percent) and Vietnam (17.5 percent). Textile and clothing manufacturing are the

key contributors to expansion in industrial output -- a result of Bangladesh’s referential

European Union (EU) import rules.

Bangladesh has a “low cost edge” o er its com etitors articularly in terms of wages.

Competitor countries such as China are increasingly seeing upward pressure on wages.

Companies that engage the BOP strongly felt that a poor business climate and regulatory

environment, poor infrastructure, and lack of access to capital were the most critical challenges

to the growth of their businesses.

Companies engaged in Inclusive Business identify growing consumer confidence, increased

domestic consumption and increased access to technology as the three most critical factors to

their usiness’ success in Bangladesh.

Private Sector Interest:

There is considerable interest and engagement in Inclusive Business. About 85 percent of firms

surveyed recognize the importance of the BOP in their respective business models, whilst 72

percent are also implementing a specific business strategy and / or goal to engage the low-

income segment. Companies engage the BOP most notably as a supply of skilled and unskilled

labour (43 percent), as a consumer base (39 percent), as then as either suppliers or distributors

within their value chain (22 percent, and 15 percent respectively).

A significant majority of companies (76 percent) expressed an interest in accessing financing. In

order to accelerate their growth into these low-income market opportunities debt was the most


preferred form of financing (58 percent) followed by equity (37 percent), and then guarantee (5

percent).

67 percent of companies requested financial assistance of US$ 1 million to US$ 10 million, which

is fairly evenly distributed between those who require between US$ 1 million to US$ 5 million

(32 percent), and those who require between US$ 6 million to US$ 10 million (35 percent). An

average Internal Rate of Return (IRR) of 16 percent was projected.

Capital Markets and Private Equity Market:

Private equity is a relatively new concept in Bangladesh reflected in the fact that there are only

two private equity fund managers operating businesses in Bangladesh (both relatively new

entrants), and country’s first enture ca ital company has only just started up. There are,

however, a number companies that invest their own funds in private companies.

Fund managers and co-investors had heterogeneous expectations on the performance of the

Bangladeshi economy in the short-term, with nearly half holding positive outlooks for the

economy over the next 12 months, and the rest holding a negative or neutral position. This

negativity may be due to issues such as a recent currency depreciation, liquidity shortage, rate

hikes, and uncertainty over the upcoming national election. Over the next 5 years however,

respondents were unanimously positive about the economy;

Fund managers and co-investors strongly view Energy and Agriculture as the most attractive

sectors to integrate the low income segment. The power demand-supply gap and government

incentives are possible reasons for this. The significant involvement of the Bangladeshi

population in Agriculture (most of whom are BOP) is a likely reason for it to be identified as an

attractive sector for the low income segment.

The quality of the management team is seen as the most important factor when making private

equity investment in Bangladesh. Cash flow, company track record and transparency in business

activities are also key factors when investing private equity. With regard to BOP ventures, fund

managers consider the viability of the business model and the potential for financial return as

the most important factors when making a private equity investment -- just as they would for a

non-BOP venture.

The lack of transparency and the lack of existing management skills are seen as the major

problems. Poor business strategy and business plan are also key concerns. In Bangladesh

business plans are rarely developed, and if done, are often superficial, thereby making it difficult

for companies to materialize goals. In BOP focused funds a lack of skills and management

experience are seen as the most critical issues.


Recommendations

Inclusive business fund: There is strong demand for companies for financing both from smaller

companies in the growth phase and larger companies. A fund size of up to $50 million could be

deployed. The fund could be either funded in tranches of be part of a regional fund.

Technical assistance: A tailored technical assistance facility is critical. This could include support

with innovative business models as well as pre-investment services.

ADB role: The role of the ADB to anchor any fund is important as it provides credibility to other

investors. ADB’s leadershi on inclusi e usiness can hel assuage concerns of other in estors

who may perceive that companies working with the BOP have increased investment risk.

Staged approach: A staged approach could be considered where companies are initially

provided Technical Assistance to improve or establish inclusive business models. This could

increase the pipeline for a fund that is established in two to three years.

Deal size: Opportunities range from $1 million to $10 million

Sector: Sector agnostic with a skew to agriculture, textile & garments, food & beverage and

Manufacturing.

Currency: The fund should be denominated in US dollars with a currency swap agreement in

Bangladesh to allow local currency investments without taking on any currency risk.


Background to the Study

Over the past two decades, the Asia and the Pacific region has sharply reduced its share of population

living in poverty to 21% ($1.25 per capita income/expenditure at purchasing power parity of 2005) and

47% ($2), as of 2008.

However, poverty and the vulnerabilities associated with it remain entrenched. When a wider definition

of poverty is applied (less than US$ 4 per day), almost 3 billion people, roughly 82 percent of the Asian

population is considered part of the Base of the Pyramid (BOP) as defined by the World Resources

Institute.1

The private sector is the key contributor to the economic boom in Asia. However, it is clear that it has

yet to fully realize its potential in creating shared value, which is to promote business models that

integrate the low-income segment in unique and innovative ways that generate company growth while

creating value for the low-income segment and directly contributing to poverty reduction.

ADB’s Inclusive Business initiative

Inclusive growth is one of the three strategic pillars of ADB's Strategy 2020, which aims to broaden

economic and social opportunities for lower-income and excluded groups. Inclusive business

For the purpose of this scoping study, Inclusive Business is defined by the ADB as follows:

Profit making companies that bring systemic impact at scale to the poor and vulnerable

people under the US$ 3 international poverty line. These Inclusive Businesses are

focused on making a reasonable profit (an IRR of 10-20%), while contributing to systemic

impact on the lives of the poor. This can by specifically including the poor as consumers

(new markets for affordable goods and services), distributors (new distribution

networks), suppliers (new sources of supply / inputs); and employees (previously

untapped sourced of skilled and unskilled labour coupled with improvements in labour

conditions beyond local labour law compliance).

In the Bangladesh scenario, we redefine "reasonable profit" as 10-20% above available interest rates, or

17-37%:

The current prime rate (overnight cash rate offered to banks by the central bank) is 7.25%, and

has ranged between 4.5% in 2009 and 8.87% in 2008.

While the "prime rate" set by the central bank is currently 7.25%, lending rates for private

businesses start at around 17% (lower for trade finance) and extend to well above the "ceiling

1 World Resources Institute & International Finance Corporation 2007

http://www.tradingeconomics.com/bangladesh/interest-rate


rate" set by the government of 37%. We therefore used an IRR of 17-37% as a reasonable target

profit rate for SMEs.

Inclusive Businesses, are often medium-sized, well-established, viable businesses who are seeking to

accelerate growth by pursuing new market segments and / or distribution channels, and / or are focused

on mitigating supply chain, labour and reputational risks whilst at the same time actively pursuing

market opportunities. They can also be successful social enterprises with a proven business model that

are seeking scale. Inclusive businesses maximize these opportunities and address these risks by

integrating the low-income segment into their value chain in such a way that they contribute

meaningfully to a com any’s ottom line y increasing rofits and reducing costs on the one hand, and

on the other, they provide income and employment opportunities for the low-income segment and / or

access to goods and services that improve their livelihoods in a sustainable manner. As such, Inclusive

Businesses aim to contribute to systemic impact on the lives of the poor by including the poor as

consumers, distributors, suppliers, and employees.

Inclusive Businesses differ from social enterprises and corporate social responsibility activities in their

realized profit making motive / ability to offer market returns, as well as the scale of positive

externalities generated. Many Inclusive Businesses, particularly those that have attained scale in

operations, deliver market returns or above market returns on par with commercial businesses enabling

them to access a large spectrum of commercially-oriented funding sources including stock markets.


Characteristics of Inclusive Businesses

Inclusive Businesses tend to have the following characteristics that integrate both definitional and strategic /

tactical considerations:

1. Strictly for-profit;

2. Core business is strictly Inclusive Business;

3. Must include the low-income segment within their business model through one or more of the

following ways: as suppliers, as consumers, workers / employees and as distributors;

4. Must generate financial returns (amount depends on either investment criteria set by an impact

investor, company ambition, strategy and business model or a combination of both).

5. Must generate social returns (scale and scope depends on the investment criteria set by an impact

investor, company ambition, strategy and business model, or a combination of both).

6. Designed from the start with scale in mind to maximize and optimize their route to impact and to

maximize the creation of company value.

7. Do not seek trade-offs between financial and social returns. Rather, they continuously seek solutions

through which both can be optimized simultaneously.

8. Often require blended capital priced for their level of risk and relevant stage of development.

9. Actively assess and measure both social and economic performance in a standardized manner.

10. Normally evolve from social enterprises seeking to scale their proven (social purpose) business model

or mid- to large-sized established companies seeking to create shared value through supply chain,

labor-related and/or product innovation.

Beyond these standard attributes, for the purpose of a potential fund ADB is seeking to identify Inclusive

Businesses that:

11. Achieve a gross financial return in line with the market

12. Measurably and meaningfully impact at least 5,000 people during the investment period.2

13. timi e their usinesse alue ro osition in such a way that it also addresses a systemic and rele ant

poverty-related issue in a specific geographic context.

14. Demonstrate a clear route to impact.

15. Identify and manage pre- and post-investment risks.

The above criteria has important implications in terms of selecting companies – particularly in terms of

the maturity of the investment opportunity and investee, the potential depth and breadth of the social

impact, the financial return, and risk.

2 Total impact is case dependent. The number of beneficiaries may vary based on the local context, business model

and opportunity


SNV and Inclusive Business

SNV (the Netherlands Development Agency) is a partner of the ADB in this initiative and is managing the

studies in Vietnam, Pakistan, Indonesia and Bangladesh. SNV is an international development

organisation of Dutch origin committed to eliminating poverty and inequity in emerging markets

worldwide. With more than 1,300 staff located in more than 100 offices in 35 countries across Asia,

Africa, the Balkans and Latin America, SNV provides a unique blend of integrated services and solutions

tailor-made to the specific needs of our public and private sector clients that are critical to their

sustainable growth and performance. In Asia, SNV has country offices in Laos, Vietnam, Bhutan,

Cambodia, Nepal, Indonesia and Bangladesh.

For decades, SNV has developed and leveraged market-based solutions and innovations to accelerate

economic development opportunities for the low-income population. One such innovation SNV has up-

scaled, in partnership with the World Business Council for Sustainable Development is called Inclusive

Business.

SNV has aggressively positioned, leveraged and up-scaled Inclusive Business in Latin America with a

range of strategic partners. These include the WBCSD, Inter-American Development Bank, Andean

Development Corporation, and more than 150 national and multi-national companies and also

government actors. SNV is now advancing a similar approach in Asia and Africa.


Purpose and methodology of the study

The purpose of this study is to assess the potential for setting up an inclusive business fund focusing on

providing capital (debt and/or equity) to inclusive businesses.

The main objective of this study is to assess the potential for an Inclusive Business private equity fund in

Bangladesh. The analysis focused on exploring the following three topic areas:

The analysis used a three-tiered approach that assessed (1) the enabling macro-economic environment

for Inclusive Business development in Bangladesh: (2) the level of interest from the private sector in

making their businesses more inclusive of the poor; and (3) the current state of the private equity

market in Bangladesh and potential interest and expectations of institutional investors in financing

Inclusive Business ventures.

Need

•Do inclusive businesses have access to the capital they need to achieve their objectives?

•Are other financial organizations providing capital at rates below what could be considered a reasonable risk-weighted return?

Interest

•Are the companies in Bangladesh interested in Inclusive Business?

•Are they interested in Inclusive Business private equity funding?

•What terms and conditions the companies would prefer?

Readiness

•Is the macro-economic condition favourable to Inclusive Business?

•Are the companies ready for Inclusive Business?

•Are there enough skill sets in the market on Inclusive Business?

•What is the level of appetite of the key stakeholders?

Strategy

•What are the steps needed to be taken in response to the above?

•What size of enterprise and investment should the fund consider?

•What are the priority sectors?

•What type of instruments would be most suitable?


Approach

To successfully design and execute this project, the feasibility study focused on leveraging both primary

and secondary sources of information. Primary information (both qualitative and quantitative)

consisted of personal interviews with 55 companies (via the Private Sector Mapping component) in

Dhaka and the peri-urban area surrounding Dhaka from a cross-section of the Bangladeshi economy and

12 private equity funds, 4 co-investors, and other related stakeholders in Bangladesh. Secondary

research and information gathered was sourced from a mix of national government statistics and cross-

referenced with independent research and reports from established institutions such as the ADB, World

Bank, and World Economic Forum among others. The full questionnaires used can be found in Appendix

2 and Appendix 3.

Survey methodology

The study relied on primary information from a non-randomised selection of companies and investment

funds active in Bangladesh. The results show that opportunities exist, but the small sample size and

non-random selection do not lend themselves to meaningful statistical inference about the size of the

potential IB investment sector or number of investible companies in Bangladesh. The results presented

only refer to the firms involved in this study. On the other hand, most of the investment funds active in

Bangladesh were interviewed so the results are likely to be reflective of the broader sector.

Enabling Environment

Private sector interst

Private equity market viability

•Assess if the current economic, market, political conditions favour the development and growth of Inclusive Business in Bangladesh and the potential impact on the BOP

•Establish the degree to which companies are currently involved in or willing to be involved in Inclusive Business, what they consider to be the perceived benefits, and what they perceive to be the critical arriers to entry into this “emerging market”.

•Assess the current state of the private equity market in Bangladesh, determine the interest of institutional investors in an Inclusive Business private equity fund, and assess expectations for rates of return, risks, sector preferences, deal size, and term.


To define a viable pipeline of companies for the fund that are interested in and/or already practicing

Inclusive Business, an interview guide was developed to capture important information from the

inter iewees, with s ecific em hasis on two aria les (i) com anies’ interest and knowledge of

Inclusive Business, or business initiatives that incorporate low-income o ulations, and (ii) com anies’

interest in accessing debt and / or equity financing for the support and growth of their business

initiatives that include BOP populations. The interview guide included questions about specific aspects

of the companies (employees, size, revenues, market share, products / services); the com anies’

relationship with the BOP (business model, stage of implementation, rationale for working with low-

income o ulations, alliances esta lished for Inclusi e Business im lementation); the com anies’

financing (past and current financing, interest in financing specifically focused on Inclusive Business

development, specific characteristics of such financing); as well as whether or not the companies are

interested in follow-up information with regard to financial and / or technical assistance for their

Inclusive Business models.

Data collection instruments were also designed to accompany the interview guide. Considering that the

interview guide consisted of mainly close-ended questions, a core data collection instrument was used

for quantitative information, which was also utilised for subsequent analysis. An additional data

collection instrument was used for more qualitative data.

Company sample selection:

In order to define a company sample, selection criteria were first determined; these included:

Number: 55 firms interviewed

Size: Medium to large Bangladeshi or multinational companies

Legal criteria: Focus on joint stock and limited liability companies

Interest in the bottom of the pyramid: Companies should be already working, or have interest

in working with the BOP, and see profit potential in expanding in this area

Business model: Increased focus on business models with the poor as consumers and / or

distributors as well as producers and / or employees were included

Industry sectors: Sector diversity with an emphasis on including non-traditional sectors that

have the potential for innovation within the Inclusive Business marketplace

Interest in financing: As often as possible, these companies should be interested in financing to

support a business model that includes the low-income segment

For private equity funds: In order to assess the potential viability of an Inclusive Business focused private

equity fund in Bangladesh, interviews were held with 13 fund managers/ equity funds in Bangladesh.

The focus of the interviews was to capture important information about (i) industry attractiveness; (ii)

investment obstacles; (iii) Bangladeshi economic outlook, and (iv) social investing in Bangladesh.

Questions were focused both on the private equity market in general and private equity when applied to

BOP markets. The interview guide included questions about the investment criteria, sectoral prospects,

risks and opportunities, expected conditions and returns, in addition to interest in managing and


prospects for raising capital for an Inclusive Business Venture Fund. As with the case of the company

interviews, data collection instruments were also designed and used to accompany the standard

interview guide.

Investment fund sample collection:

In order to define the limited investment fund sample, criteria were determined as follows:

Number: 10 to 20 investment funds to be interviewed

Size: Medium to large Bangladeshi or multinational (foreign backed or regional) investment

funds – ranging from US$ 30 million to over US$ 1 billion under management (average US$ 100

million under management)

Legal criteria: Focus on private equity, asset management, and social investment funds

Interest in the poor: Funds operating in Bangladesh generally do not list the BOP as a central

focus of their investment portfolio – funds were selected based on potential interest and / or

experience with ventures that may consider investments in the BOP

Business model: A range of asset classes and risk profiles

Industry sector: Funds with either a diversified investment or focused sector approach

Interest in investing: Where possible, identify funds that have either shown or may be

interesting in considering BOP venture investments

Because private equity funds in Bangladesh are generally BOP-agnostic (they are focused on more

growth and risk related criteria), funds were also identified based on their perceived track record with

companies that engage with the BOP or companies who have or are considering sustainability criteria in

their investment strategy.


I. Macro-economic environment

Bangladesh, officially the People's Republic of Bangladesh, is

located in South Asia, bordering India and Myanmar.

It has a population of 161 million, making It the world's eighth-most

populous country.

After independence from Britain in 1947, the country because East

Pakistan, separated from the main country of Pakistan by 1,500km

of India.

This proved to be economically and politically unworkable, and the

country split from Pakistan in 1971 following a civil war.

After being established as its own country, Bangladesh adopted a secular constitution, despite being

89.5% Muslim.

The initial government proved to be unstable, with a series of coups from 1975 to 1981. From 1981 to

1991, the country was ruled by military backed rule. Democracy was restored in 1991 and apart from a

brief period of military rule in 2007-2008, has endured in relative stability.

The economy began expanding in the early 1980s and has growth has accelerated to around 6% per year

(nominal) for the last ten years, or about 4% on a purchasing power parity basis.

Figure 1. GDP growth in Bangladesh from 1991 to 2011

Despite rapid economic growth, Bangladesh remains one of the poorest countries in the world, ranked

152 out of 181 by the World Bank.


Consistently strong economic growth

The combination of high population and low income make Bangladesh a mid-ranking economy,

comparable to Vietnam, New Zealand, and Angola. For the moment.

The combination of stable government, open markets, and increasing foreign direct investment have

contributed to strong and accelerating economic growth.

The economy has been experiencing strong growth since the 1990s, with GDP averaging 4.4 percent

between 1991 and 1995, 5.2 percent from 1996 to 2000, 5.3 percent from 2001 to 2005, and 6.3

percent from 2006 to 2011. Moreover, the Bangladesh economy is expected to continue to expand with

three key factors underpinning GDP growth – labour, capital and technology – all favourable.

Figure 2. GDP growth in Bangladesh from 1991 to 2011

Source: World Bank 2012

At the end of 2011 the country’s er ca ita GDP was US$ 735, a significant increase from the US$ 287 at

the end of 1991. This represents a compound average per capita GDP growth rate of 4.8 percent.

This comes despite rampant corruption (Bangladesh ranks 144 in terms of corruption by Transparency

International -- behind Pakistan, Nigeria, and Russia) and a slow, inefficient bureaucracy. This is usually

a red flag for investors. However, Bangladesh has a good reputation for protecting investors is ranked

24th in terms of protecting investors by the World Bank DB Index.

This has helped attract foreign investment, which has picked up markedly over the past ten years.

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

1991 1996 2001 2006 2011


Foreign direct investment has picked up dramatically and has room to increase

further

Foreign direct investment was negligible 20 years ago. However, Bangladesh has become an attractive

place to invest, initially for light industry, and more recently in the telecommunications sector. Net

foreign direct investment soared from 2001, peaking in 2008 at the onset of the global financial crisis.

Even amid the ongoing crisis/slowdown, net foreign direct investment has stabilized at around the $800

million per year mark.

Foreign direct investment is an important source of foreign exchange. With a stock exchange

capitalization of just 1.1 billion as recently as 2001, indirect investments beyond a few million dollars

were nigh on impossible.

Figure 3. Net FDI has soared since 2002 (needs fixing)


Even with the markedly higher level of foreign direct investment since 2002, Bangladesh still has a lower

FDI as a percentage of gross domestic product. This suggests that an increase in FDI is both sustainable

and likely.


Figure 4. Ratio of FDI/GDP


This is an important consideration when developing and encouraging inclusive business, because if companies

successfully begin inclusive businesses ahead of the foreign direct investment they are more likely to reap the

rewards and share the benefits.

Foreign direct investment is focused on industry and services

The lion's share of FDI is directed into the growth and capital intensive area of telecommunications. This is

particularly pertinent to inclusive business because a lack of infrastructure has been cited as one of the key

reasons for not investing in inclusive businesses. In addition, improving education should expand the workforce of

skilled workers -- an important requirement for effective use of more sophisticated telecommunications and

internet service provision.

0.55%

0.91%

0.96%

1.14%

1.43%

7.52%

Nepal

Bangladesh

Sri Lanka

Pakistan

India

Vietnam

Bangladesh still attracts a relatively small amount of FDI as a ratio of its GDP


Figure 5. Telecommunications investment has taken over as the major target of FDI

Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign Direct Investment in

Bangladesh (1971-2010), Board of Investment.

Figure 6. Allocation of FDI 1996-2010

Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign Direct Investment in

Bangladesh (1971-2010), Board of Investment.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1996-2000 2001-2005 2006-2010

Telecommunication

Gas & Petroleum

Banking

Textiles & Weaving

Power

Other

9

13

40

61

80

135

677

1,333

1,357

1,571

2,339

Metal products

Computer software

Leather products

Insurance

Agriculture

Chemical/Pharmaceuticals

Power

Textiles & Weaving

Banking

Gas & Petroleum

Telecommunications

Millions of USD (15-year cumulative)

http://www.pmbf.ait.ac.th/www/images/pmbfdoc/research/report_afsanarahman.pdf





The combination of foreign direct investment and the stage of Bangladesh's economic development --

where economies typically move from an agrarian base to services and industry -- have contributed to

rapid economic growth in services and industry, while agrarian sectors such as agriculture, fisheries, and

forestry have grown at a much lower pace.

Rising wages in competing low cost countries (i.e. China) is likely to help continue to expand the light

manufacturing industries -- particularly textiles. In 2009, textile exports accounted for 80% of

Bangladesh merchandise exports.

The textile and clothing manufacturing will remain the largest contributor to expansion in industrial

output in part due to Bangladeshi textile exporters continuing to benefit from preferential EU import

rules (duty-free access to the EU is granted if imported components do not exceed 70 percent); an

advantage Bangladesh has over its main competitors, notably China, Pakistan, India and Sri Lanka,

whose goods are liable for duty in the EU because they are no longer classified by the UN as least-

developed nations. 3

The economy, like its neighbouring countries, was traditionally based on agriculture. Even now,

agriculture is an important part of the economy, contributing 17% of GDP and employing 45% of the

labour force.

Figure 7. Trends in GDP at current price (million US$) in Bangladesh, by sector: 1981/82 to 2005/06

Source: Deb, U. et al 2008

3 Deb, U. et al 2008

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1981/82 1991/92 1995/96 1999/00 2005/06

Services

Industry

Agriculture

Crop

Fisheries

Livestock

Forestry


Increased foreign direct investment, combined with export earnings and remittances from overseas

workers, has increased the pool of funds available for lending to companies. However, inefficiencies in

the capital markets have created significant distortions in terms of interest rates and capital allocation.

Financial stability and markets

In addition to GDP growth, which we can consider to be the equivalent of the top line of an income

statement, it is becoming increasingly important to consider the country's balance sheet -- sovereign

risk. This has been largely ignored in the past because the world has had a long period of economic

stability during which time only a few countries (such as Argentina) have gone bankrupt. This period is

coming to an end, in Europe at least, and it is becoming increasingly pertinent for investors to ask if they

will be able to get their money back out of the country.

In this respect, Bangladesh has an enviably low debt/GDP ratio of just 32 percent -- less than half India's

68% and well below the danger level of 100% where countries tend to default.

Figure 8. Bangladesh has a lower debt/GDP ratio than most comparable nations in the region

Source: World Bank estimates 2012 (except for Bangladesh: CIA World Factbook estimate 2012)

While the national government's balance sheet looks relatively strong, the same can't be said for banks

and other financial institutions due to significant distortions in terms of interest rates and capital

allocation.

0 50 100 150 200 250

China

Bangladesh

Thailand

Vietnam

Pakistan

India

USA

Japan

Debt to GDP ratio 2012


Financial markets have skewed allocation of capital

A combination of inefficiency, opacity, and corruption has created an unusually diverse spread in

interest rates. The current interbank rate of 7.5% provides the base rate for banks' cost of funds.

Developed markets tend to operate at an average spread of around 3-4%. That is, if banks borrow at

7.5%, they tend to lend at 10.5-11.5%, on average.

However, in Bangladesh, there is a significant spread between preferential loans (typically 10-12%) and

regular commercial loans (17% and up).

The unusually high spread of 6+ percentage points represents a combination of perceived risk and

skewed allocation of funds.

The problem with this high spread is that it makes access to capital particularly difficult for small and

medium sized enterprises (SMEs) that don't have a long track record or a close relationship with a bank.

The result of companies with good relationships with banks getting access to a limited pool of funds at

preferential rates is that companies that really should have access to the capital are shut out of the

capital markets (other than mortgage lending) or forced to pay prohibitively high interest rates.

Current institutional financing situation

The past ten years has seen a significant inflow of institutional financing into the SME sector, both

government banks and private banks, with further inflow from non-bank financial institutions and

foreign banks.


Source: Bangladesh Bank

More recently, since mid-2012, the government has been pushing commercial and private banks to

increase their lending to SMEs, asking them to allocate 10% of their loan portfolio to SME lending.

This resulted in better access to credit for some SMEs, higher loan default rates for government and

private local banks, and a number of banking scandals. This has led to a significant misallocation of

capital, which is now manifesting itself in loan defaults.

Figure 9. Loan defaults in percentage of outstanding loans

Private local banks 53%

State Owned Banks 35%

Specialised banks 7%

Non bank financial

institutions 3%

Foreign banks 2%

Total: BDT434 billion = USD5.5 billion

3.2

4.9

17.7

24.1

Foreign banks

Private banks

State banks

Specialised banks



As of 31st December 2012, 10.03% of all bank loans were in default, up from 7.27% two years before.

The vast majority of these loans are from state banks.

Bangladesh Bank’s former De uty Go ernment I rahim Khaled ga e four reasons for the high default

rates: corruption, mismanagement in state-owned banks, dull business and high interest rates.

The reasons are not important to this report. But the results are.

Figure 10. Private credit growth, monthly, since February 2012


Reducing credit and increasing scrutiny is a typical knee-jerk reaction following a banking scandal

anywhere in the world. This could go three ways:

Improved risk management and the development of discounted cashflow lending,

Higher collateral requirements, or

A return to business as usual when the dust settles.

If this does indeed lead to improved risk management and cashflow lending (loans based on

expectations of future cash generation by the company), Bangladesh companies will be able to reap

19.6 19.5

18.2 18.4

19.7 20.3

19.9 19.9

18.4

17.4 16.6

14.8 14.0

year on year growth (%)

Growth in private sector credit slows down


significant benefits from improving their corporate governance and reporting. The impact on the fund

would be positive as this would expand the pool of companies with decent enough corporate

governance to lend to or invest in.

On the other hand, if this reverts to higher collateral and/or back to business as usual, the need for a

fund will increase.


II. Poverty, the BOP and the opportunity for Inclusive

Business

In Bangladesh, poverty, the BOP and the general population are closely related given the fact that about

43 percent of the Bangladeshi population (over 60 million people) may be identified as being under the

international poverty line of US$ 1.25 per day, and 48 percent of the population (68 million people) earn

an income of less than US$ 3 per day, making them vulnerable to poverty.

Figure 11. Representation of income levels and percentage population size

Bangladesh has made significant progress in poverty reduction over the past 20 years. One key reason

for is family planning empowering women. In 1975, eight percent of women of child-bearing age were

using contraception (or had partners who were), in 2010 the number was over 60 percent. Similarly, the

fertility rate has fallen from 6.3 In 1975 to 2.3 today. This is contributing to the "demographic dividend"

as outlined in the appendices .

Figure 12. Poverty headcount ratio has fallen significantly over the past 20 years

Source: World Bank

20

30

40

50

60

1992 1996 2000 2005 2010

millions of people below

the poverty line

Absolute poverty down by 44% in 18 years

52% More than

US$ 3 per day

48% Less than

US$ 3 per day

43% Less than

US$ 1.25 per day

http://data.worldbank.org/country/bangladesh


Access to key goods and services

The Bangladeshi quality of life can be gauged according to the quality of access to key goods and

services such as latrines, drinking water, electricity, and information and communication technology.

Some key findings from a 2010 Bangladesh Household Income and Expenditure Survey (HIES) include:4

At the national level most of the heads of households (38.5 percent) live in a house made of CI

sheet / wood in the walls, whilst 16.7 percent live with walls made of mud / brick / wood;

In 2010, 18.4 percent of households had access to a sanitary latrine, 17.1 percent with a pucca

(water sealed) toilet, 20 percent with a katcha (temporary) toilet, and 4.4 percent use open

space (this is a significant reduction from 11.3 percent in 2005);

Access to drinking water is mostly positive, with 85.4 percent of the population using tube well

water, 10.6 percent supply water, and only 4 percent using other sources of water such as

ponds, rivers, canals and wells;

The use of supply water increased by 3 percent in 2010 with respect to 2005;

In 2010, 55.2 percent of households reported to have access to electricity at the national level

(42.5 percent rural, 90.1 percent urban);

Households containing telephones total 2.1 percent nationally and 63.7 percent of households

use mobile phones;

3 percent of households nationally report to have ownership of a computer with use of e-mail

facility reported 1.4 percent of households.

The above data represent both challenges in increasing access to basic goods and services to a broader

cross section of the Bangladesh population and opportunities for companies with innovate business

models that better service the BOP.

Labour market

The Agriculture, Forestry & Fisheries Sector (26 million people in 2010) is still the most significant in

terms of employment, followed by Trade, Hotel & Restaurants (8.4 million people) and then

Manufacturing (6.7 million people). However, in terms of employment growth between 2002-03 and

2010, the largest percentage increases can be found in Finance and Business Services & Real Estate (70

percent increase), Construction (42.3 percent increase), and Manufacturing (35.8 percent increase). The

increase is the manufacturing base and the services sector such as retail and tourism offers

opportunities for the poor to move into the formal labour market.

In absolute terms, most of the employment is still coming from agriculture and manufacturing.

4 Bangladesh Bureau of Statistics 2010, Report of the Household Income & Expenditure Survey 2010, Bangladesh

Bureau of Statistics Division, Ministry of Planning, Bangladesh


Figure 13. Employment and growth by sector

Rural industries (agriculture, forestry, fisheries) continue to provide

the largest number of jobs

Source: Bangladesh Bureau of Statistics 2010

Regional variation in poverty

Poverty in Bangladesh is characterized by regional variation. According to a 2011 UNDP report,

Bangladesh ranks 112th in respect to human poverty. Of the 75 percent of the Bangladeshi population

that li e in rural areas, a out 18 ercent are also classified as “hard-core oor” on a daily calorie intake

asis ( elow 1,805 Kcal / erson), and a out 40 ercent as “ oor” ( elow 2,122 Kcal / erson).

Factors such as tendency to natural disasters, distribution and quality of land, access to education and

health facilities, level of infrastructure development, employment opportunities, and dietary and

hygiene practices are all determinants of geographical regions of poverty in Bangladesh.5

In general, the eastern part of Bangladesh has had the most significant reductions in poverty, which may

be largely attributed to its near proximity to Dhaka zilla (district), which is the economic hub of

Bangladesh and receives the lion's share of foreign direct investment. In contrast, the western part of

Bangladesh has seen a much smaller reduction in poverty, with no pattern of convergence among the 64

zillas (see Figure 11).

5 Bangladesh Bureau of Statistics & UN World Food Programme 2004


Figure 14. Maps of Poverty Reduction in Bangladesh between 2000 and 2005: Old Zilla level

Year 2000

Year 2005


At a national level, monthly household nominal income was estimated by the Ministry of Finance,

Government of Bangladesh at US$88.27, however in the rural areas it is estimated at US$74.70 and

US$128.21 in the urban areas. Average monthly household expenditure on the other hand, is estimated

at US$ 75.16 at the national level, US$ 65.18 in rural areas, and US$ 104.56 in urban areas. In 2005, per

capita nominal expenditure at the national level was US$ 70.40, US$ 63.29 in the rural areas, and US$

101.89 in the urban areas.

Whilst improvements are being made, they are often in the urban areas, and with Bangladesh

urbanising fast, a new suite of urban social problems arise. For example, Dhaka, capital of Bangladesh

has an estimated population of some 15 million people which makes it one of the 10 largest cities in the

world, however it remains highly poor and crowded, and many of its inhabitants live in slum areas.

Distribution of companies by size

The vast majority of companies in Bangladesh are micro to medium (less than 100 employees), focusing

on services. This is a particularly relevant factor with regards to the potential of different types of funds.

Rural-urban distribution and employment


Small manufacturing enterprises are almost evenly distributed between rural and urban areas both in

terms of number of establishments (52% and 48% respectively), and employment (51% and 49%

respectively). In the case of medium manufacturing enterprises, there is a higher incidence of both

urban establishments and urban employment (57% for both counts). Rural location for medium units

constitutes 43 per cent in terms of both establishments and employment.

As the vast majority of the population is rural, a focus solely on large companies is less likely to

contribute to improved welfare for the rural poor, even when the companies are considered to be

inclusive businesses.

85% of all employment is provided by small and medium sized companies. As these appear to be a

proxy for the rural poor, the potential impact of an integrated business fund will be directly related to

how well the businesses assisted with the fund can help the micro businesses.

Figure 15. Distribution of employment by company size, 2003

Source: A.K.M. Helal uz Zaman, Md. Jahirul Islam, Small and Medium Enterprises Development in

Bangladesh: Problems and Prospects, ASA University Review, Vol. 5 No. 1, January–June, 2011

8,272

1,317

1,680

Small (1-9)

Medium (10-99)

Large (100+)

Unit: thousands of employees


Figure 16. Location of industries by division in Bangladesh 2001-03

Note: Small is defined as 1-9 employees, Medium as 10-99, Large as 100+

Source: A.K.M. Helal uz Zaman, Md. Jahirul Islam, Small and Medium Enterprises Development in

Bangladesh: Problems and Prospects, ASA University Review, Vol. 5 No. 1, January–June, 2011

The Barisal Division, which covers the west delta region, is one of the poorest of Bangladesh's 7

administrative regions, and is a traditional rice basket -- it used to be known as the Crop house of

Bengal. Agriculture is still the dominant industry. Barisal also has the second highest literary rate of

Bangladesh's 7 administrative regions after Dhaka.

These three factors make it an obvious target for inclusive business. However, with only around 4% of

the population employed by large companies, engagement with SMEs will be critical to success.

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

Barisal

Sylhet

Khulna

Rajshashi

Chittagong

Dhaka

Even in Dhaka, the vast majority of people are employed by small sized enterprises

Small Medium Large


III. Findings: Private sector interest in Inclusive Business

in Bangladesh

Incor orating the oor into a com any’s usiness with new and sometimes untraditional usiness

models presents challenges, which, when overcome, can open opportunities for the businesses and the

communities in and with which they work. This section discusses the benefits and challenges of working

with the BOP, as identified by the companies which were interviewed. Given this BOP market

opportunity and context, a market scoping exercise was undertaken to assess and validate if and how

the private sector are taking advantage of this BOP market opportunity in Bangladesh, and the

perceived benefits and obstacles.

The 55 companies included both private and listed companies as well as local affiliates of multinational

corporations as well as social enterprises. The range of industries was selected based on potential

growth in these sectors at the BOP. Growth industries were considered the primary focus as these are

the industries where companies will require capital infusion.

A detailed analysis of the company sample is included in the appendices.

Current engagement with the BOP

Whilst all four modes of engaging the BOP – as consumers, distributors, suppliers, or employees are

evident across multiple sectors, the employee and consumer models are most strongly represented.

Figure 17. BOP models according to sector

Source: SNV & BetterStories Private Sector Interviews 2012

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

Agriculture/Agribusiness

Banking & Finance

Consumer products/retail

Energy

Pharma/Biotech

Other

Manufacturing

Employee Supplier Distributor Consumer


The type and range of BOP engagement models vary considerably from sector to sector. In banking and

finance for example, the BOP is primarily engaged in just two ways; as consumers of the financial

services, or within micro-finance organisations, also as employees. Such microfinance companies are

spread throughout the country and may typically employ between 5 to 100 staff often directly from the

BOP in district offices, although the salary level of such micro-finance employees may be a matter of

contention in consideration of Inclusive Business principles of engagement with BOP employees.

Beyond micro-finance, which isn't strictly IB, financial institutions are also expanding their mobile

networks, which potentially bring more useful payment solutions and other banking solutions to the

rural communities.

In comparison to the more limited BOP engagement models seen in banking and finance, within the

consumer products and retail sector the full range of BOP models are engaged – as suppliers of goods,

deliverers of goods, employees, and as product consumers.

An analysis of each of the four observed modes of engaging the BOP – as consumers, distributors,

suppliers, or employees is provided in the appendix.


Perceived benefits of engaging the BOP for Inclusive Businesses

For most businesses that we interviewed, engaging the bottom of the pyramid is akin to corporate social

responsibility (CSR). Most of the companies don't even consider normal business priorities of profit,

costs, and market, at least according to the survey results. Rather, they see engaging with the BOP as an

opportunity to improve the company's reputation while helping out one's fellow man.

For most Inclusive Businesses that engage the BOP population a range of benefits are identified that

include broad social gains such as being able to play a part in contributing to sustainable development

and creating shared value, through to specific company benefits such as improving company reputation

and brand, and offering a cheap labour force.

Figure 18. Benefits of engaging the BOP for Inclusive Businesses


Contribute to sustainable development

The majority of Inclusive Businesses surveyed who are engaging with the BOP population believed that

the overriding benefit was to be able to contribute to sustainable development. Whilst this is a core

objective of most non-profits, for most private sector companies it is more likely to be connected to

ancillary CSR objectives enacted by management.

0 5 10 15 20 25 30

Lower transaction costs in supply/distribution

Other

Improved profits

Favourable engagement with national gov't

Improved results for CSR report

Stable supply of critical inputs in supply chain

New, highly profitable consumer market

Improved sales

Cheap labour supply

NR

Create shared value

Improved reputation/brand equity

Contribute to sustainable development

From the company's standpoint, the main reasons for engaging the BOP is to look better, or seem like a better global citizen

rank 1 rank 2 rank 3

If your company is planning to engage with the BOP, what are the benefits to the company? Please rank the top 3 benefits.

Normal business priorities


Despite their answers, however, we found that several companies engage the BOP as a part of their core

business:

• Singer Bangladesh focuses on being involved with projects that have a good long term

ision. Its own “Singer Sewing Academy” for exam le, em owers rural and im o erished

women in the early stage of life as well as students through the provision of training in

sewing skills. This not only benefits the BOP population who receive skills training and an

potential income stream, but also the company who benefits through the sale of their

products back to the BOP population as consumers.

• Lal Teer manufactures innovative hybrid varieties of seeds for BOP farmers that are resistant

or tolerant to pests, diseases, drought and salinity and suited to the climate and soil of

tropical countries. The company is also undertaking research increasing the milk giving

capacity and higher yield of meat of cattle and buffalo. The company has a strict

environmental guidelines governing the use of chemicals, waste management, and water

and energy use, and offers a range of education and literacy initiatives such as the provision

of scholarships through to the operation of a college.

• Advanced Chemical Industries (ACI) has also integrated the ideals of sustainable

development into its business ethos. Identifying food security as a basic issue affecting the

people of Bangladesh, ACI went into business with the goal of ensuring the people have

access to food by working to ensure the farmer producers can grow their crops and manage

their farms with the best agricultural products available.

Improved reputation

Whilst providing a quality product or service is typically considered to be the overriding criteria to

develop a good brand reputation, Inclusive Businesses also feel that they are able to gain an improved

reputation in the eyes of the consumers by making specific efforts to engage with the BOP population.

By hiring and looking after the BOP as employees, and proactively engaging with the BOP in the supply

and distribution chain, and by developing highly tailored products and services that directly meet the

needs of the BOP consumer, Inclusive Businesses believe their reputation is enhanced within the

marketplace which will in turn create brand equity.

Engaging the BOP helps to build acceptance of a company amongst that sector of the population as it is

seen as aligning with their specific needs rather than just seeking to make profit out of them which in

turn leads to more sales of their product to target BOP consumers.

Genuine and deep engagement with the BOP that leads to the development of a reputation of a

usiness that is committed to caring for the country’s most needy can also assist usinesses to gain the

buy-in from regulators and value chain partners to help further business development or expansion

aspirations.


Some companies such as BD Food, also recognise the return benefits of including the BOP in the

production system as they become conscious about good quality food and then become converted

consumers of the com any’s own roducts, whilst also informing others of the com any’s quality

products.

Create shared value

Creating shared value doesn't actually sound like business, but in the business of caring and curing, the

perception of shared value can be better marketing than paid advertising. Inclusive Businesses in

Bangladesh believe that caring about the low income group is not only beneficial for the BOP population

but is also good for their own businesses.

GlaxoSmithKline (GSK) for exam le, has a glo al strategy called “Action for Access” that hel s im ro e

access to medicine, accines, and healthcare infrastructure in “de elo ing” countries. Under the

programme, medicine can typically be 25 percent cheaper than prices paid elsewhere. Whilst the

com any’s rofit margins might e reduced in com arison to “de elo ed” countries, the com any gains

access to a significantly large and growing marketplace of consumers. Some 20 percent of profits made

in Bangladesh are re-invested into healthcare infrastructure projects; essential for effective healthcare

delivery, with educational support programmes, medicine donations, healthcare projects, and

community olunteering days (“ range Days”) other rojects acti ely ursued y the com any to

benefit the BOP.

Cheap labour supply

It is perhaps not surprising that many Inclusive Businesses consider the BOP population who are by

definition low-income earners, as a cheap supply of labour for their companies both as employees and

through the supply chain. Whilst most Inclusive Businesses specifically pointed out that they paid

minimum wage or the average industry award wage, the benefit of employing a cheap labour force was

acknowledged by many, and often seen as critical to the success of the business.

Many companies such as Lanka Bangla Finance and Panna Group identify strong domestic competition

as a major challenge to their success. Keeping wages low is therefore one way in the company can

remain competitive in the marketplace.

For many Inclusive Businesses that employ the BOP a trade-off needs to be made; whilst companies can

obtain a cheaper labour force, companies such as Viyellatex Limited acknowledge that additional

training and capacity building is required due to the BOP population that they are engaging typically

possessing more limited education and skills compared to other segments of the population. For

Inclusive Businesses, engaging the BOP as employees is typically not about automatic wage increases,

but about improvement of capacities, performance, productivity, and loyalty thereby leading to a higher

potential income as a result of the improved worker performance, improved quality, higher productivity,

and minimisation of costs (e.g. from recruitment, reduced production, percentage of losses or errors

etc).


New market, improved sales, stable supply of critical inputs in supply chain

New market access interest, improved sales and critical inputs in supply chain were other strongly cited

benefits for Inclusive Businesses in engaging the BOP. For companies, the 68 million low-income earners

represent a considerable consumer market for their products and services who can potentially drive

sales growth if tapped into effectively. Moreover, the BOP are suppliers of critical inputs into company

products and services; not surprising given some 26 million Bangladeshis working in agriculture, forestry

and fisheries, for example, and most of whom also represent the BOP. Without access to the products

supplied by the BOP Inclusive Businesses would be paying higher prices for the same locally made

products or alternatively have to import them at a higher cost, which is many cases may also make the

business unviable.

Benefits of engaging the BOP, for the BOP

Inclusive Businesses see a range of benefits for the BOP that range from employment and income

enefits through to the B P o ulation’s a ility to access roducts and ser ices that are tailor-made to

their needs. Many Inclusive Businesses indicated that they are also contributing to sustainable

development commonly through CSR activities, access to technical assistance, know-how and vocational

training.

Figure 19. Benefits of engaging the BOP, for the BOP


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Other

Access to housing

Secure and long-term customer

No response

Access to financial services

Access to technology

Access to new markets

Improved nutrition

Access to credit

Access to basic services

Access to new products and services

Access to technical assistance/training

Increased income for suppliers/distributors

Employment opportunities

Employment benefits, income, and services seen as key benefits for BOP

Rank 1 Rank 2 Rank 3

Question: If your company is plans to engage with the BOP, what benefits to the BOP do you aim to achieve? Please rank the top 3 benefits.



Due to a range of factors the BOP population face a number of challenges to successfully gaining

employment in the formal labour market, these might include cultural barriers such as women

traditionally being required to not leave the family home, through to limited education and skills

qualifications, or geographical barriers such as rural isolation. With a majority of Inclusive Businesses

engaging the BOP population as employees through a range of innovative strategies, the BOP is able to

obtain employment when they ordinarily might not be able.

Fashion and lifestyle product retailer, Aarong, engages a BOP population of some 65,000 people through

its 13 production centres that have been specifically located in areas accessible to the BOP population.

Fair Price International (FPI) trains underprivileged rural girls who have not been able to complete their

studies or ha e oor li ing conditions as “Info Ladies” who tra el from door-to-door by bicycle to

communicate general information to the many of the women of the BOP who are unable to leave the

house.

Inclusive Businesses who prioritise the employment of the BOP population such as Apex Adelchi

Footwear Limited will typically provide in-house technical skills development training to enable the

people to work in their company when they ordinarily would not be able.

Case study: Grameen Shakti

Background: ounded y Professor Mohammad Younus, Grameen Shakti is one Bangladesh’s most successful market-based renewable energy social development programmes, reaching millions of rural villagers across the country. Based upon the development of Solar Home Systems and other renewable energy technologies, Grameen Shakti claims to be one of the largest and fastest growing rural-based renewable energy companies in the world. As of December 2009, Grameen Shakti has installed more than 320,000 Solar Home Systems in Bangladesh’s rural areas, equating to almost 9,000 Solar Home Systems installed per month. The company has also introduced Improved Cooking Stoves and Bio-gas to rural households, identifying a need for a fuel efficient and cost effective source of energy for simple purposes such as home cooking. Waste from the Bio-gas process can also be used as fertilizer to assist indirectly in food security. The company attributes its success to its unique approach which blends market and social forces together in order to ring the world’s most u -to-date technology to the impoverished rural people of Bangladesh.

Serving the BOP: Grameen Shakti aims to bring green energy, improved health, income and green jobs to the rural BOP population of Bangladesh. Grameen Shakti works directly with the low income segment as consumers of their renewable energy products. The company estimates that they have accessed at least 1,000,000 families with their Solar Home System up to 2012. An integral part of the company sales strategy to the BOP is to offer soft credit and step-by-step installments of payment to make their products more affordable to their customer base. Product pricing is extensively researched in order to ensure the average family will have the capacity to make the installment payments without significantly impacting on their household budget. The technology offers villagers a permanent and clean source of energy for their basic power requirements that is cost-effective.

Growth potential: Due to the high cost of research and development, Grameen Shakti initially had conservative expectations for growth, selling only 228 Solar House Systems from 1996 to 1997. Since then the volume of Solar House Systems installed has skyrocketed, taking the company three years to reach four digit sales of their product, four years to reach five digit sales, and a subsequent four years to reach six digit sales. By the end of 2012 the company had installed 1,000,000 Solar Home Systems. The company has had similar success with its Bio-gas


plants; installing only 30 units in 2005, the company has since installed 24,206 Bio-gas units by 2012. The company is expecting similar growth with its Improved Cooking Stoves. Whilst there is considerable demand for all three of Grameen Shakti’s renewable energy products, the company has expressed that it is experiencing supply chain management setbacks. The company also identified insufficient skilled manpower as an obstacle to serving the level of demand. Access to finance is also seen as an obstacle to growth due to the prohibitively high interest rates offered by commercial banks.

Financial needs: Whilst Grameen Shakti claims to be financially self-sufficient, they are seeking a low interest loan of around $600,000 for use in training field workers and labourers.

Increased income for suppliers or distributors

Intrinsically linked to employment (frequently for women), Inclusive Businesses also identify increased

income for BOP suppliers and distributors as a key benefit of their engagement. Due to efforts made by

the Inclusive Businesses these suppliers and distributors are able to earn a higher income than they

would otherwise typically be able to obtain from a non-inclusive business.

Rahim Afrooz Superstore for example, has increased the income of its suppliers by building the capacity

of small and medium suppliers in ways to increase the volume of production, thereby leading to an

increased, steady and more reliable income for the BOP suppliers. This may equally be achieved by

working with the BOP to improve the scale, productivity, quality and variety of the goods or services

supplied.

Many companies that employ door-to-door distribution strategies take in previously unemployed

members of the BOP population thereby not only providing them with a job, but also a new source of

income.

FPI on the other hand contributes to increasing the income of suppliers by purchasing products directly

from B P su liers such as farmers through their many “telecentres” at fair rices. By remo ing the

middle men, FPI is able to ensure a higher price is paid to the farmer, and the consumer gets a lower

price for the good. Moreover, because FPI also provides farmers with information about the mechanics

of the supply chain including market price updates, suppliers are better protected from exploitative

middle men.

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

The provision of new products and services specifically tailored to BOP consumers is commonly seen by

Inclusive Businesses as a core benefit. Renata Limited, a company with a core business in medicine,

develops inexpensive products that can be accessed by BOP consumers such as antibiotics and birth

control ills. The com any’s successful a y s rinkles product was also specifically designed to address

the nutritional needs of children at the base of the pyramid.

Likewise, financial institute INAFI has undertaken extensive research of the BOP population to ensure its

micro-insurance and remittance services specifically respond to the needs of the BOP population that

includes outpatient, inpatient and compensation at an affordable rate and a streamlined service that


ena les claims to e settled quickly. INA I’s strategy therefore ro ides the B P o ulation with access

to micro-insurance that they could not obtain elsewhere.

Access to technical assistance, know-how & vocational training

Identified as a benefit to the BOP population by a significant number of Inclusive Businesses is their

access to technical assistance, know-how and vocational training. With such training BOP employees,

distributors and suppliers are empowered with new livelihoods, more efficient ways of working that

result in increased productivity and potentially higher incomes.

GETCO Agro Vision for example, runs awareness raising, capacity building and training programmes for

BOP farmers relating to their products and services. In order to introduce new hybrid varieties of

different types of vegetables farmers are educated in routine training sessions in the field.

The training undertaken by FPI of underprivileged rural girls as “Info Ladies” to ro ide information to

BOP farmers and their families and also retail FPI products not only gives the Info Ladies a job and

income, but also builds their confidence, and increases their sales and entrepreneurial skills. In addition,

the farmer benefits with better know-how on how to use the product and ways in which to improve his

/ her farming practice, thereby achieving better results and a higher income.

TdK (Bangladesh) Limited, manufacturer and exporter of leather and jute products, specifically identifies

skills training of BOP employees in its business strategy in order to grow its number of suppliers and

employee base. This not only helps the company, but serves the BOP with skills and jobs that they may

not ordinarily have been able to access.

Access to basic services

Inclusive Businesses also strongly identified access to basic services as a key benefit that can companies

can help contribute to the BOP. As a whole, the BOP are typically characterised as having varying but

generally inadequate levels of access to basic services such as water, sanitation, health and education.

Typically Inclusive Businesses will customise these products and services in consideration of the

challenges and issues that are specific to the BOP, for example, the production of low-tech alternative

cook stoves, low cost solar cells, or low-priced micro-insurance with efficient turnaround with claims.

Inclusive Businesses who target the BOP, therefore identify these gaps as potential business

opportunities. By engaging the BOP, Inclusive Businesses are therefore not only helping to develop and

deliver goods and services based upon a strong business model for growth, but are also helping the BOP

to increase their quality of life.

Inclusive Business critical success factors

Inclusive Businesses see a growing consumer confidence as the largest opportunity for business

expansion. This is followed by rise in domestic consumption, increased access to technology, company

innovation, export opportunities, and new customer segments.


These can be roughly divided into:

Increased market size (growing consumer confidence and consumption, export opportunities,

and new customer segments in the base of the pyramid); and

Improved company operations (increased access to technology and Company innovation)

Breaking the critical success factors down in this way helps to prioritize assistance to companies

operating in the BOP.

Figure 20. Drivers of business growth


Increased market size

• Growing consumer confidence

Bangladesh’s consistently growing GDP that has a eraged a out 5 ercent o er the last 15 years has

carried with it a growing middle class and an increasing ability and interest to spend. Moreover, with

many local Bangladeshi companies maturing into competiti e ex orters, “Made in Bangladesh” has

never held so much acceptance, credibility and pride in the minds of local consumers than it does today.

0 5 10 15 20 25 30 35

M&A opportunities for company to expand

Government incentives

Lower input costs

Increased access to capital

Favourable business climate

New customer segments in the BOP

Increasing export opportunities

Company innovation

Increased access to technology

Rise in domestic consumption

Growing consumer confidence

Market size and company operations are seen as the main drivers of growth (or prerequisites for growth)


Increased market size

Improved company operations

What do you see as the 3 main opportunities to accelerate the growth of your company? Please rank the top 3 from highest to lowestbarrier.


Bangladeshi consumers are more willing to spend – and spend on locally made products – than they

have ever been before.

• Rise in domestic consumption

With the growing middle class and increasing purchasing capacity of people at the BOP, domestic

consum tion is rising strongly. Dhaka, the ca ital of Bangladesh was formally known as the “City of

Mosques” ut is erha s now etter known as the city of sho ing malls. The country is caught up in a

spending spree, with new restaurants, superstores, chain retail shops and markets seemingly being

opened up every day all over the country. With a rise in absolute income, the Bangladeshi people have

increased discretionary income and increasingly purchasing lifestyle products and experiences such as

domestic and overseas vacations.

Indeed, the economic trends are that this will not only continue, but will increase as the population

gradually shifts from a young age-group bracket (two-thirds of the population are under 35 years old) to

working age.

The rise in consumer confidence and spending, particularly on locally made products, creates natural

opportunities for Inclusive Business in employment, distribution, and consumption.

• Growing export opportunities

Bangladesh has also been enjoying a growth in exports. Whilst it still remains largely dependent on

remittances and ready-made garments, companies feel confident that there is a high potential for a

number of sectors including Information Technology, Pharmaceuticals, and Agro-processing to become

increasingly export oriented over the next few decades.

Whereas Bangladesh has traditionally been an importer of electronics until five years ago, typically

assembling parts to produce finished ones, companies such as Walton, have identified significant export

opportunities within the Middle East, whilst Pran Foods with their agro-processed products have found

export markets in India, Bhutan and Myanmar.


Bangladesh is fast moving to adopt all the latest technologies that it can get; it is estimated for example

that 85 percent of its population now owns a mobile phone -- 100 million active users -- and 20 percent

have internet access. For businesses, process automation is becoming increasingly popular and local

software developer companies are rising in number to help meet the challenge. Bangladeshi companies

increasingly see sourcing the latest technology as critical to doing businesses.

Technology is not only helping companies in Bangladesh to develop new products and increase sales,

but the rising pool of talent and technological know-how is also helping the country to build a reputation

in the region of being a new Research & Development Hu , attracting some of the world’s leading

innovative companies. Samsung, for example, has opened a Research and Development (R&D) centre in


Dhaka, and Google has started direct recruitment of Bangladeshi engineers. Local companies like

Incepta Pharmaceuticals are also investing hugely in new product development, technology transfer and

alternative medicine.

Com anies also see technology as a huge “leveller” for the B P who can access ser ices through

technology that would ordinarily be out of reach. Mobile money service bKash for example, utilises

mobile phones and mobile stalls to enable people to undertake financial transactions without having to

access a bank. The exponential growth of the company is testimony to the transformative power of

technology to the BOP and their willingness to adopt new approaches, as well as the clear economic

benefits that it can have for companies when used well to target a clear socio-economic gap.

Company innovation &

Whilst companies see innovation as integral to success and new ground is being broken, there are

considerable opportunities yet to be harnessed. With a little facilitation there is the opportunity for

significant gains. Technology company Onnorokom Group, for example, locally developed an electronic

voting machine that has helped save the government a huge amount of foreign currency by negating its

need to import the costly technology from overseas.

Key challenges to the growth of Inclusive Business

Inclusive Businesses identify a range of barriers to the growth of their companies that range from the

challenges of a poor business climate and regulatory environment, through to the effects of poor

infrastructure, and a lack of access to capital.

Most of these challenges are environmental and beyond the ability of a single company to address.

However, the third highest ranked barrier -- and equal highest priority -- was access to capital, which can

indeed be partially addressed by a fund.

The fourth highest ranked barrier -- high cost of inputs -- becomes a strong reason to engage in inclusive

business. Corporate governance will most likely be addressed to some extent through changes need to

access capital.


Figure 21. Key challenges to the growth of Inclusive Business


Poor business climate and regulatory environment

According to the Inclusive Businesses surveyed, there is significant room for improvement in terms of

the business climate. Companies are being held back by a lack of inclusive public policies addressing key

bottlenecks or alternatively policies that do not help create an enabling environment for Inclusive

Business investments to flourish. In Bangladesh national and local government bureaucracy and a

general lack of predictability or consistency in the application of regulations is constraining the

development of the private sector.

Government can attract much more direct foreign investment and encourage investment from local and

non-resident Bangladeshis alike by streamlining the bureaucracy an adopting a more consultative and

participatory approach to changes in regulations.

Poor infrastructure

Many Inclusive Businesses believe that the growth of their industries, in particular Manufacturing and

Real Estate, has been stalled over last few years largely due to a lack of sufficient power, energy and

good telecommunications.

0 5 10 15 20 25 30

High labor costs

Competition from international companies

Saturated customer base

Competition from domestic companies

Lack of access to competitive technology

Poor corporate governance

High cost of inputs

Lack of government incentives

Lack of Access to Capital

Poor Infrastructure

Poor business and regulatory climate

No. Respondents

Access to capital is a key challenge for growth, as is the cost of inputs; labour costs are not


What do you see as the 3 main barriers to the growth of your company? Please rank the top 3 with 1 being the most significant barrier


With sufficient electricity and gas to power new plants and factories Bangladesh would be able to make

significantly faster progress in terms of creation of new jobs and rising income, directly benefitting the

BOP population.

Lack of access to capital

Both the low-income population as well as companies have difficulty in accessing finance when entering

into Inclusive Business engagements. Alternatively, there may be limited flexibility in the terms of the

provision of capital making it difficult for companies to invest in Inclusive Business projects. For the

BOP, there can be difficulties in accessing secure loans and other forms of financing that would allow

them to participate in an Inclusive Business model or improve their livelihoods.

Companies have, on the one hand, complained about a lack of capital, but on the other stated that they

have always been able to find the money when needed. This may have been largely true for most of the

big-sized companies and as well as the relatively small ones.

Figure 22. Source of finance for Inclusive Business*

* Representative only of those who responded to the question


Banks and financial institutions in Bangladesh have traditionally favoured large companies with a strong

track record of performance making bank loans the most used source of capital. Smaller companies can

also access bank credit if they have real assets to use as collateral. Those that don't have collateral can't

access bank credit because banks don't offer cashflow based lending. These companies have usually

managed to obtain micro-finance from NGOs or credit from friends and families.

Equity

32%

Debt

45%

Guarantee

7%

Grant

16%


Innovative, fast-growing and medium-sized companies can therefore often suffer from a lack of capital

at the time of critical growth. Often, such as within the IT sector, banks do not have the capacity to

assess such companies, or on other occasions do not realise the sector potential, which was the case of

the Pharmaceuticals sector at the beginning.

The concept of equity capital is also far from being understood or hailed by companies in Bangladesh.

Many of the large family-run businesses have a lack of references to conceptualise the role of equity

capital which has hampered its widespread adoption. As a result, whist there is clearly great potential (a

number of big players are currently eyeing Bangladesh as the next market to explore), this has resulted

in fewer players in the Bangladeshi equity capital market.

Note on limitations of this study

This is a non-random sample of companies known to be engaging the BOP in some way. As a result,

many of them already have accessed funding from non-traditional sources, such as NGOs, government

grants, and funds.

Based on how these companies engaged the BOP, up to 63% of companies had access to funding for

their BOP ventures.

Figure 23. Current funding availability by BOP segment



IV. Financing Inclusive Business

Bangladesh has a robust equity market that can provide a useful guide to the potential opportunities

and risks of establishing such a fund in Bangladesh. At the same time, the latest research by JP Morgan

and the Global Impact Investment Network indicates an emerging industry around impact investing in

other parts of the world that provides useful information with regard to the establishment of an impact

investment fund in Bangladesh.

In addition, Bangladesh has a rapidly growing stock market which by itself isn't necessarily an avenue to

IB, but does provide a larger public database of companies operating in inclusive businesses.

Figure 24. Bangladesh stock market trends


As part of the market scoping effort, interviews were conducted with 13 fund managers / equity

investors in order to assess the viability of an ADB-anchored Inclusive Business fund in Bangladesh and

to identify key factors such as attractive industries in which to invest as well as possible constraints. An

additional four interviews of potential co- investors was also conducted with both corporate entities and

high net-worth individuals, in order to gain a further insight into interest in the Inclusive Business fund.

The full questionnaire can be found in the Appendix 3. Information imparted from participants was then

coupled with a review of relevant literature in order to build a broader picture of the Bangladeshi

private equity market and trends.

0

5

10

15

20

25

50

100

150

200

250

300

350

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Number of listed companies (left axis)

Market cap in $USD billion (right axis)

Market cap/GDP in percent (right axis)


Bangladesh has a robust and growing equity market

Like most emerging markets, the stock market of Bangladesh is dominated by equity securities. There

are only three listed bonds in the bourses of Bangladesh. Growth in the equity portion of the market is

strong with a compound average growth rate of 35.3 percent from 2001 to 2011. At the same time

market capitalization as a percentage of GDP has also increased from 2.4 percent in 2001 to 21.3

percent in 2011. The number of listed companies has increased each year from 2001 to 2009. This fell

dramatically in 2010 as small companies with poor transparency or corporate governance -- as well as

normal attrition -- were delisted by the listing authorities.. Listing authorities and the government of

Bangladesh have now prioritising transparency and corporate governance as key areas for

improvement. Market capitalization of 2009 increased by 122 percent as delisted companies

constituted only a small portion of total market capitalization of the country.

Figure 25. At 21% of GDP, Bangladesh's stock market is catching up to the BRIC nations

Sources: Bloomberg, IMF

Despite its rapid growth over the past ten years, Bangladesh stock markets are still in their infancy, with a market

capitalization to GDP ratio of just 21%% in 2011 -- about a quarter of that of slightly more advanced emerging

markets.

Sovereign risk is very low for an emerging market

Just a few years ago, investors hardly took sovereign risk into account -- checking out Standard & Poors'

or Moody's ratings was enough due diligence to suit most investors. Events in Europe have brought into

sharp relief the dangers of ignoring sovereign risk or depending on the guidance of ratings agencies.

55

63

95

21

27

38

40

Bangladesh 2011

China

Brazil

India

2004

2010

Ratio of stock market capitalization to GDP (percent)


One of the most important indicators of sovereign risk is the ratio of government debt to GDP. Given

that governments can typically tap into 10-30% of GDP as tax revenue and then save just a fraction of

that to pay down debt, a debt/GDP ratio begins to get become a concern at around 50% and is usually

out of control at 120%.

The public debt to GDP ratio in Bangladesh is 32 percent in contrast to India and Pakistan which have

ratios of 68 percent and 62 ercent res ecti ely. In addition, Bangladesh’s external de t to GDP ratio is

21.6 percent (less than 50 percent is typically considered safe), and the country has the capacity to

continue investing in infrastructure and industry without expanding its external debt thanks to its high

level of remittances from overseas workers. Low external debt and high level of remittances combine to

reduce the sovereign risk for fixed income investment in Bangladesh, increasing the availability of funds

with lower yields. This provides a strategic advantage for an Inclusive Business Fund in Bangladesh.

Infrastructure and industry investments in Bangladesh are likely to bridge the economic divide often

caused by geographic distances and lack of easy and affordable communications.

Figure 26. Bangladesh has a lower debt/GDP ratio than most comparable nations in the region

Source: World Bank estimates 2012 except for Bangladesh (CIA World Factbook estimate 2012)

Portfolio investment still in its infancy

A major issue with the Bangladeshi equity market is its high volatility -- typical of immature stock

markets -- which results in portfolio investment being very low. Equity research is also not well

established, being a minor market -- about 1% the size of Google in 2005. Nevertheless, as the market

capitalization continues to grow, it is reasonable to expect more in-depth market research and stock

market information to be developed.

0 50 100 150 200 250

China

Bangladesh

Thailand

Vietnam

Pakistan

India

USA

Japan

Debt to GDP ratio 2012


Positive economic expectations

Fund managers had mixed expectations on the performance of the Bangladeshi economy in the short-

term. Of the 12 interviewees, seven were positive about the economy for the next 12 months, five were

negative and four were neutral. The negativity may attributable to the current global economic

downturn and uncertainty over the upcoming national election.

With regard to the state of the economy over the next 5 years, all interviewees held positive views, with

a general belief that progress would be made in removing road blocks such as a lack of access to energy

for businesses.

Figure 27. Economic expectations over the short- and medium-term

Source: Fund Manager & Co-Investor Interviews 2012

Unlike many developing countries, private equity is a new concept in Bangladesh. Only two private

equity fund managers are operating businesses in Bangladesh, both of which are relatively new

entrants. There are also a number of other investment companies that invest their own funds in private

companies. Bangladesh has also only recently seen the establishment of its first venture capital

company ut this situation is likely to grow quickly gi en Bangladesh’s strong economic erformance.

A summary of the funds interviewed is included in the appendices.


Analysis of findings of fund manager survey

The 12 fund managers were asked to rank different sectors according to how attractive they considered

them and how viable they considered the sectors for investing in the BOP.

Fund managers were also polled about their concerns about investing in these companies and what they

considered the most important points to consider when making investments.

Our analysis shows that:

There was a direct correlation between what fund managers considered attractive investments

and what they considered to be viable for involving the bottom of the pyramid

Energy and agriculture are the most attractive sectors for both investment and involving the

bottom of the pyramid. IT, Hospitality & tourism, Manufacturing, Pharmaceuticals and

biotechnology, Education, Food & beverage, and Retail are also considered to be attractive.

Management team quality was the only thing more important than corporate governance when

making private equity investments in Bangladesh.

Corporate governance (transparency, clarity of financial reporting, board oversight) is fund

managers' number one concern when investing in Bangladeshi companies.

The two most important factors to consider when making private equity decisions in BOP

ventures were standard business investment decisions that apply to all companies: Viability of

the business model; and Financial returns.

At the end of the day, this is still a business decision and should be based first and foremost on

the viability of the business and potential for financial rewards.


Figure 28. Very attractive vs. most viable industries to integrate low income segment


With the single exception of Agriculture, fund managers ranked the attractiveness of the industry as an

investment within one vote of the viability of the industry for involving the bottom of the pyramid

through inclusive business.

Agriculture is the very unsurprising standout, being the largest employment segment in the country and

is generally associated with the bottom of the pyramid.

Energy and agriculture are the most attractive sectors

Nine out of twelve survey respondents identified the energy and agriculture sectors as the most

attractive for profitable investment.

Bangladesh has an acute energy shortage and much of the population -- mainly the BOP -- doesn't have

access to grid power. The power shortage is one reason why the Energy sector is seen as lucrative for

investment. According to the Bangladesh Power Development Board, the average demand for

electricity is 7,500 MW per day while electricity production is only 5,000 MW. The government of

0 2 4 6 8 10 12

Forestry

Life insurance

Oil, gas, and resources

Real estate

Textiles & garments

Water & sanitation

Banking & finance

Transport & logistics

Retail

Food & beverage

Education

Pharma & biotech

Manufacturing

Hospitality & tourism

IT

Energy

Agriculture

There is a clear correlation between industries that fund managers consider attractive and that are most viable for IB

Most viable to integrate BOP

Most attractive


Bangladesh is encouraging the establishment of power plants by guaranteeing fixed returns to power

companies and is also providing subsidies to power companies for fuel price and exchange rate

fluctuation risks.

IT, Hospitality & tourism, Manufacturing, Pharmaceuticals and biotechnology, Education, Food &

beverage, and Retail are also considered to be attractive industries for investment

Information Technology (IT) has enormous potential to involve the BOP thanks to the rapid spread of

mobile telephones and the build-out of the mobile network. As of June 2012, Bangladesh had 100

million mobile phone users, making it the 12th largest mobile phone market in the world.

The textiles & garment, manufacturing and food & beverage sectors are also voted as being viable

industries to integrate the low income segment. Manufacturing (including that of textiles & garments) is

a boom industry in Bangladesh, employing some 6.7 million people, and receiving preferential treatment

by EU countries. The selection of Food and Beverage Products as a viable industry for the low income

segment may e a least artly due to Bangladesh’s gains in GDP growth and increased a ility to s end

amongst other things.

Education and Pharmaceuticals & biotechnology are generally attractive in a country with the

demographics of Bangladesh -- reaping a demographic dividend -- where a combination of a young

population and markedly lower birth rate mean people can spend more on each member of their family

in terms of education and health.

Transparency second only to management team quality in importance when investing in private

equity in Bangladesh

The quality of the management team is generally considered to be the key factor when deciding to

invest in a company. This was reflected in the survey.

Importantly, transparency was ranked second. This is a very different result from what we would expect

to see in the developed markets of North America and Europe where transparency is expected.

Companies with less transparency in their business activities will require a higher level of due diligence

by the fund managers. This is a particular concern in Bangladesh.


Figure 29. Most important factors when making a private equity investment in Bangladesh


The same skills that are most important are also the key concerns: Management and Transparency

Fund managers viewed transparency and a lack of business skills as the main concern when making an

investment in Bangladeshi companies. Poor business strategy and planning can also be viewed as

business skills, while corporate governance and financial reporting are both closely related to

transparency.

The companies that can demonstrate good management and good corporate governance will clearly get

better access to capital as professional fund managers take over from state development banks. This

should result in positive outcomes through encouraging better corporate governance and merit-based

promotion.

0

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2

2

3

4

6

6

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13

Other reputable investors

Operational/Cultural fit

Speed at which value can be created

Brands/Products

Corporate responsibility

Strategic fit with fund

Anticipated return

Growth history & projections

Cashflow

Company track record

Transparency in business activities

Management team quality

Number of votes

Transparency second only to management team quality in importance when investing in private equity in Bangladesh

When considering the following most important factors in making a private equity or related investment in Bangladesh, please select and rank the top three below (1 being the most important):


Figure 30. Most important concerns when investing in Bangladeshi companies


At the end of the day, this is still a business decision and should be based first and foremost on the

viability of the business and potential for financial rewards.

While investing in the bottom of the pyramid may be beneficial to society, fund managers made it very

clear that it is still a financial investment in a company, which has to be viable and profitable. This works

heavily in favour of IB because companies that are providing a valuable product or service will gain

access to capital and be able to grow at an accelerated rate.

0

0

1

2

3

4

4

5

6

7

8

9

No CSR

Issues with current shareholders

Lack of other investors & finance streams

Limited or no company track record

Difficulty to exit

Unclear financial reporting

Conflict of interest

Significant reputational issues


Poor business strategy & plan

Lack of management skills

Lack of transparency

number of votes

Management skill and Transparency are the two biggest risks when investing in Bangladesh

What would be the most important concerns/risks when making investments in Bangladesh? Please select up to 3 of the following concerns/risks


Figure 31. Most important factors when making a private equity investment in a BOP venture


With the business models of Inclusive Businesses being different to the “ usiness as usual” a roach,

whereby companies work to create both social return and financial return, the challenge of achieving

both objectives is considered by fund managers to be difficult, and a concern when making an

investment decision into an Inclusive Business. There are also some difficulties in measuring social

returns (there is no universally accepted metrics in which to measure it), which make it all the more

challenging to meet a goal of generating social return when investing in an Inclusive Business. Finally,

the track record of the investee company is also seen as a significant consideration. If a company does

not have sufficient experience investing in inclusive businesses it will be difficult to generate a proper

mix of financial and social returns.

1

1

1

1

2

2

3

3

5

6

11

12

Prospects for growth

Presence of other reputable investors

Innovation potential

Percent contributinon of IB to company

Quality of product/service

Overall company reputation/brand

Strategic alignment with investment strategy

Clear pathway to exit

Track record of company with BOP

Potential for social returns

Potential for financial returns

Viability of the business model

number of votes

As with any investment, the viability of the business and financial returns are the most important factors to consider for investing in a BOP venture

When considering (or if you were to consider) the most important factors in making a private equity investment in an Inclusive Business venture in Bangladesh, please select and rank the top 3 most important factors.


At the bottom of the pyramid, management skills and experience are critical

Fund managers unanimously responded that a lack of skills and experience of management is a critical

issue when investing in Bangladeshi companies focused on the BOP. As Inclusive Business is first and

foremost a business, management skills and experience are critical for success. In Bangladesh however,

there is typically a deficit in the skills and knowledge required to manage an Inclusive Business.

Figure 32. Concerns of fund managers in BOP focussed funds


Fund management obstacles and interest

The investors surveyed were asked about their concerns about setting up a fund, what the obstacles

were, and whether they were interested in managing the fund.

Ten out of twelve investors believe that fund managers in Bangladesh do not have the required

experience to manage a BOP focused equity fund. That may be a potential obstacle. Given, though that

eight out of 15 fund managers and co-investors expressed an interest in running the fund, it may be

partly a case of self-interest determining the answer.

Nevertheless, this does highlight the fact that fund managers in a BOP focused fund will have to spend

significant amount of time researching the companies and getting to know the management.

0

1

2

2

3

3

3

4

5

5

5

12

No Corporate Social Responsibility

Lack of other investors & finance streams


Risks associate with BOP

Weak prospects for socail impact

Weak prospects for financial return

Difficulty to exit

Poor business strategy & plan

Unclear financial reporting

Limited company track record with BOP

Lack of grand funds/TA facility

Lack of management skills & experience

number of votes

Management skills and experience are fund managers' greatest concerns

Which of the following issues would you consider the top 3 greatest concerns when making inclusive business investments in Bangladesh?


In this regard, offering a combination of interventions and training prior to any investment would

increase the benefit to the fund managers, the fund principals, and the companies themselves.

A pipeline of companies will be critical success factors

In the chart below, we have highlighted the lack of viable pipeline companies, even though this is a

middle ranking item in the survey.

The point is that if a fund is put together and a management team put in place, then the first three

obstacles -- fund management expertise, negative perception, and investor interest -- become moot.

The first things the fund will need will be technical assistance support and a pipeline of viable

companies.

Figure 33. Obstacles in managing a BoP focused fund


Measures of success for a BOP focused private equity fund

In the survey, fund managers were asked how they would measure success of a BOP focused private

equity fund. The answer contrasted with that shown in Figure 31 on page 60 in which financial

returns and viability of the business were clearly ahead of social returns.

What we can conclude from this is that individual investments must be first and foremost financial

investments that provide a positive medium to long term financial return. However, the fund overall

should focus on those profitable companies that engage the BOP in socially positive ways.

Figure 34. Most important factor to measure the success of a BoP focused PE fund

0

2

2

4

4

4

4

7

9

10

Ethical reasons

Perceived risks far outweigh returns

Lack of multilateral funder interest

Lack of standard metrics


Lack of viable pipeline companies

Lack of techinical assistance support

Lack of investor interest

Negative perception on returns

Lack of fund management expertise

number of votes

Fund management expertise and perception on returns beat out investor interest as largest obstacles to setting up a fund

If you were to create an Inclusive Business-Focused Private Equity Fund in Bangladesh, what would be the greatest obstacles to effectively capitalizing and managing a successful fund (please select



Initial public offering the most attractive exit option

Forty percent of interviewed fund managers considered a stockmarket Initial Public Offering (IPO) as the

most attractive exit option. This provides a relatively straightforward way to exit from large investments

with a significant profit. The growing volume of publicly traded shares on the stock market makes this

option increasingly viable.

Twenty seven percent of fund managers thought secondary sale (i.e. selling the investee company to

another private equity fund), as the most attractive option. Trade sale (selling the investee company to

other strategic seller), was considered as the third most attractive way to divest from a company. As

there are only two private equity fund managers operating their business in Bangladesh and merger and

acquisition is not o ular, these two o tions are ehind IP in the fund managers’ choice. nly 13

percent of fund managers considered refinancing as an attractive way to exit from an investment.

Refinancing may not be a very good option for large investments.

The broad range of exit strategy preferences are as likely determined by the industry and type of

investment as the market or the company. For example. a small investment of $1 million

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

Social return only, 8

Greater Social return, 25 Equal social and

financial return, 50 Financial return only,

17

Most managers consider social returns to be at least as important as social returns


Figure 35. Most attractive exit option


Despite the perceived lack of fund management skills, most fund managers are interested in

managing the fund

Of the fund managers and co-investors interviewed, eight would be interested to manage a potential

ADB Inclusive Business fund, with a further two potentially interested based upon specific terms and

conditions. Five fund managers and co-investors were not interested to manage the fund.

Having an anchor investment by ADB was strongly identified as being required in order to provide

credibility and trust and attract further investors.

This is as one would expect: money is available to be made and fund managers want to make it.

Figure 36. Fund manager interest in investing in potential ADB fund


IPO

40%

Secondary sale

27%

Trade sale

20%

Refinancing

13%

Interested, 8 Uninterested, 5

Depends on terms &

conditions, 2


The key is not in finding someone to manage the fund for a 2-3% commission, however. While a good

fund manager is essential, it is significantly more important to ensure that the fund manager has access

to the right information.

In the world of Bangladeshi business, which is considered to be far less transparent than more

developed markets, it is going to be very useful -- and financially rewarding -- to be working with the

companies entering the inclusive business area well before they are ready to accept funding.

Co-investor mapping

As private equity and inclusive business are relatively new concepts in Bangladesh, it may be difficult to

raise funds within the country for this type of fund. However, some of the interviewed investors did

express interest in investing a portion of an ADB sponsored private equity fund, with some investors also

providing a conditional willingness to invest in the fund.

These four investors interviewed were:

• Industrial and Infrastructure Development Finance Company Limited

• Prime Prudential Fund Limited

• Caravel Management, LLC.

• Professor Mahbub Ahmed

Coinvestor details are summarized in the appendices.

Interviews with co-investors found that:

1. Investors generally expect a financial return of above the risk-free weight of 12.5% that can be

earned in a one year fixed deposit.

2. Business viability and potential for financial returns are the key reasons to invest in IB

1. Investors generally expect a financial return of above the risk-free weight of 12.5% that can be

earned in a one year fixed deposit.

In relation to financial return, 50 percent of co-investors are interested to invest in the fund only for

generating financial return. These investors are treating the fund as they would any other investment

opportunity and are not as interested in the social return created by the fund.

These investors expect to make a profit of well above the risk-free rate. The current commercial rate for

one year term deposits is 12.5% in Bangladeshi taka and 6.5% in US dollars.


Figure 37. Deposit interest rates at Bangkok Commerce Bank

Fixed Deposit Receipt Interest Rate

i) FDR for 01 (One) month. 12.00%

ii) FDR for 03 (Three) months. 12.50%

iii)FDR for 06 (Six) months. 12.50%

iv)FDR for 01 (One) year. 12.50%

v)FDR for above 01 (One) year. 12.00%

Source: Bangkok Commerce Bank website

A smaller portion of co-investors (25 percent), would however invest in the fund for social returns.

These investors have other businesses from where they generate their desired financial return and are

willing to invest in this solely to create a social impact. The remaining 25 percent of investors are

interested in counting both financial and social return. These investors do not mind to get a lower

financial return compared to the return of other investments. They will forgo financial return in order to

make a positive impact on society.

2. Business viability and potential for financial returns are the key reasons to invest in IB

Funds and fund managers consider that the investment itself should follow normal investment criteria -

- management, growth and profit, track record, etc.

This aligns closely with what potential co-investors are suggesting about the fund's targeted internal

rate of return.

Moreover, the discipline of investing in the most profitable companies helps avoid misallocation of

capital -- one of the drivers of high interest rates -- and rewards companies do business well.

It should be noted that while there are plenty of companies that work with the BOP in some form or

other, finding a company working with the BOP, making profit, and actually needing finance can be

difficult without partners or associates on the ground working closely with the inclusive businesses who

understand the business properly and has a good idea of the management capability.

Donor mapping

The donor scan section aims to provide a map of the activities and priorities that donors are engaged in

within private sector development in Bangladesh. The scan seeks to assess the current state of play and

interest of donors in partnering with a potential ADB Inclusive Business Fund as either a co-investor or in

the provision of a technical assistance facility.


A rapid assessment indicated that the donor landscape in Bangladesh is mature, with 21 multilateral

organizations, 26 international NGOs, and 61 embassies / country initiatives / bilateral missions, making

a total of more than 100 donor organisations in the country. There are also a significant number of

Bangladeshi NGOs.

In order to gain a detailed insight into the industry, eight key informant interviews were conducted

which focused on issues such as the viability of an Inclusive Business Fund in Bangladesh, the possible

sectors such a fund should focus on, obstacles to establishing an inclusive business fund, and the

likelihood of raising capital for the fund. These interviews were supplemented with desk research to

broaden the number of donors covered and to gain more in-depth information.

The overview of relevant donor partners is in the appendices.

Summary of findings

Donors are targeting Information, Communication & Technology (ICT), in addition to Agriculture and

Textiles. The ICT sector in Bangladesh has potential to develop due to comparative advantages like

cheap labour (the average wage for a programmer in Bangladesh is about half of that of an Indian

programmer). Bangladesh is producing about 7,000 ICT related graduates a year from 21 public

universities and 51 private universities. A large number of Bangladeshi students are also studying

overseas in computer related subjects, especially in India. As wage levels rise in India, Bangladesh has

an opportunity to attract more outsourcing of back office operations. In addition, Bangladeshis

generally have better English skills compared to Chinese and Vietnamese which is a significant

advantage for global companies.

Most donors saw a technical facility linked to the fund as essential. There was a general view that the

technical assistance needed to be flexible, and could range from marketing and helping to introduce

sustainable standards in agriculture and textiles, through to pre-investment support on corporate

governance. The needs of smaller firms are also likely to vary greatly form larger ones. As such, local

providers should be used to provide services whenever possible.

There is a growing interest in private sector engagement and inclusive business within the donor

community in Bangladesh. This is driven by the growing belief that market based solutions are more

sustainable and deliver at scale. The strong performance of the Bangladesh economy fuelled by a

growing business class also makes the investment landscape more promising.

A number of potential partner including DFID were very keen to learn more about the proposed fund

due to its potential alignment with their own country priorities, although it is too early for donors to

express commitment to supporting an Inclusive Business fund in Bangladesh.


Conclusions

Referring to our approach, we can make several broad conclusions about the environment, interest, and

viability.

Enabling Environment

Private sector interst

Private equity market viability

•The current market and business conditions favour the development and growth of Inclusive Business in Bangladesh and has a wide range of potential impacts on the BOP

•Companies currently have limited and selective involvement with inclusive business.

•Most see the benefit as largely soft benefits, such as reputation and creating shared value.

•Few saw involvement in IB as a direct path to improved profits.

• Critical barriers include understanding of IB and Corporate Governance

•The private equity market in Bangladesh is almost non-existant. However, the traded equity market is growing strongly and offers a clear exit strategy.

•Key concerns with investing in Bangladesh IB companies are the perceived lack of management skills and poor corporate governance.

•Returns should exceed the risk-free rate of 12.5% and deal sizes should be between $1-$10 million.


The detailed conclusions are based on the original questions to be answered by this study:

Need

Companies don't have access to the capital they need to achieve their objective, and consider this as

one of their key challenges to growth.

This stems from the fact that banks in Bangladesh don't offer cashflow based lending to small and

medium sized companies.

Limited funding is also available from a range of NGOs, based on specific sector and/or geographic

preferences.

Need

•Do inclusive businesses have access to the capital they need to achieve their objectives?

•Are other financial organizations providing capital at rates below what could be considered a reasonable risk-weighted return?

Interest

•Are the companies in Bangladesh interested in Inclusive Business?

•Are they interested in Inclusive Business private equity funding?

•What terms and conditions the companies would prefer?

Readiness

•Is the macro-economic condition favourable to Inclusive Business?

•Are the companies ready for Inclusive Business?

•Are there enough skill sets in the market on Inclusive Business?

•What is the level of appetite of the key stakeholders?

Strategy

•What are the steps needed to be taken in response to the above?

•What size of enterprise and investment should the fund consider?

•What are the priority sectors?

•What type of instruments would be most suitable?


Interest

The companies interviewed were all interested in engaging the BOP. However not many saw it as

Inclusive Business. Some saw it as corporate social responsibility, while others saw it as a function

of their core business. There wasn't a broad appreciation of precisely what Inclusive Business is.

A significant majority of companies (76 percent) expressed an interest in leveraging financing

streams in order to accelerate their growth into low-income market opportunities. Not all were

open to private equity financing -- most preferred debt to equity (58%) and some preferred a

guarantee (5%). As a rule, they preferred low interest soft loans at well below both the bank lending

rate of 17% and the risk free rate (bank deposit rate) of 12.5%. We can't criticise them for that --

any business in the world would prefer these terms.

These were open ended questions and didn't force companies to choose between market rate loans

and equity, which would change these findings.

Readiness

With the Bangladesh economy booming, a government supporting international financing, and the

explosion in telecommunications throughout the country, the macro economic conditions highly

0 5 10 15 20 25 30

High labor costs






High cost of inputs



Poor Infrastructure

Poor business and regulatory climate

No. Respondents

Access to capital is a key challenge for growth


What do you see as the 3 main barriers to the growth of your company? Please rank the top 3 with 1 being the most significant barrier


favour Inclusive Business. The main drawback is the high level of regulation and inefficiency within

the government.

In general, the companies interviewed were ready for Inclusive Business, all having some

involvement with the bottom of the pyramid already. However, one area where investors in

particular are concerned about the readiness of Bangladesh companies is with their corporate

governance. The companies surveyed for this study were drawn from a non-random sample of

Bangladesh businesses so the level of corporate governance cannot be extrapolated into the

broader business population. Based on the concerns voiced by fund managers and investors,

Bangladesh companies need to make significant improvements to their corporate governance --

transparency, financial reporting, board oversight -- before they will be ready to accept funding.

In addition, fund managers highlighted a possible shortage of true IB companies in the pipeline.

Without more companies engaging the bottom of the pyramid through Inclusive Business as a core

strategy -- rather than an offshoot of corporate social responsibility -- it may be difficult for any

sizable fund to be fully invested in true IB companies.

In terms of skills, there is a general perception that Bangladesh companies are lacking in business

management skills. Specifically referring to Inclusive Business skills, these are as non-existent as the

understanding of what Inclusive Business actually is. The companies surveyed had skills in dealing

with the BOP which could be easily adopted to IB with some training or intervention.

The level of interest of all key stakeholders was not assessed. The managers surveyed were

universally interested in Inclusive Business. We have to assume that shareholders will be interested

in any venture that is going to make a decent profit. Other key stakeholders -- employees and

customers -- don't have a lot of say in business decisions.


Strategy and recommendations

Steps to be taken:

Develop inclusive business awareness and offer technical assistance

• Bangladesh companies and related stakeholders need to understand that Inclusive Business

is self-sustaining and profitable. An awareness building campaign is necessary to convince

companies that involving the BOP in Inclusive Business is profitable and offers significant

growth opportunities.

• A tailored technical assistance facility is critical. This should include support with innovative

business models and pre-investment services, particularly with regards to corporate

governance,

Set up a fund

• There is clear potential for an IB fund. The ADB should set up a US dollar fund to invest in

inclusive businesses in Bangladesh.

• The fund should explore the possibility of a currency swap with either the Bank of

Bangladesh or a commercial bank to neutralize currency risk.

• The fund should be flexible enough to invest according to the opportunities available rather

than be fully invested immediately. This could be done either through staged funding of the

facility over 3-4 years, or making the fund a part of a regional IB fund.

• The ADB should anchor the fund as lead investor. This is critical as it provides credibility to

other in estors. ADB’s leadershi on inclusi e usiness can hel assuage concerns of other

investors who may perceive that companies working with the BOP increase investment risk

Take a staged approach

Offer technical assistance through ADB or other NGOs with business models and corporate governance

over a period of 2-3 years before injecting equity into the company. This gives the company time to

grow large enough to need the funding, will help the company develop a level of corporate governance

that fund managers require, and give fund managers more confidence in the company's business model.

Size of investment and enterprise

Enterprises should be large enough for a significant investment to still be a minority stake and small

enough for any investment to have a significant impact. The minimum enterprise value should be


around $5 million and the maximum enterprise value $50 million. Enterprise value is defined as market

value (or estimated market value) plus net debt.

The size of each investment should be US$1 to US$10 million. Smaller investments than $1 million will

burden the fund with high due diligence costs. The study also found that $10 million would cover the

Inclusive Business needs of most, with working capital and capital investment (e.g. machinery, building

etc.) being the most commonly required form of use.

Priority sectors

In terms of prioritizing investments, the fund should focus on inclusive businesses that offer superior returns

first and foremost. The sector priorities should be used to look for possible investments rather make

investment decisions.

The priority sector should be agriculture because of the high percentage of BOP engaged in agriculture and it

was considered the most attractive sector for investment, both overall and for inclusive business.

Secondary sectors include Energy, IT, Hospitality & tourism, Manufacturing, Education, Food & beverage, and

retail.

These sector priorities should not preclude the fund from investing in any other sector where an Inclusive

Business offers superior potential.

Fund details

The fund should be a US dollar fund with, if possible, a currency swap agreement with a bank to make all

investments in Bangladesh taka.

Proposed fund size US$ 50 million (either staged funding or part of a regional fund)

Investment time frame 5 years

IRR 15 percent

Financing instrument Private Equity/Debt

Investment exit strategy Initial Public Offering (IPO)

Investment exit time frame 5-7 years

Total tenure of fund 12 years

Target segment & deal size US$ 1 million to US$ 10 million

Investment geographic focus Any of Bangladesh’s se en di isions

IB priority sectors & BOP

engagement

Sector agnostic with a skew to Agriculture, Energy, IT, Hospitality & tourism,

Manufacturing, Education, Food & beverage, and retail

Fund denomination US dollar with currency swap

Fee structure Management fees (2.5 percent of total committed capital), Carried interest (20

percent of returned fund above initial capital)


Appendices

Appendix 1: An important macro trend: Bangladesh's demographic dividend 74

Appendix 2: Business environment and economic progress 76

Appendix 3: Analysis of company sample 77

Appendix 4. Case studies 80

Appendix 5: Current engagement with the BOP 86

Appendix 6: Fund managers 95

Appendix 7: Co-investors 99

Appendix 8: Overview of relevant donor partners 101

Appendix 9. Private sector mapping survey 104

Appendix 10. Fund manager & co-investor survey 113

Appendix 1: An important macro trend: Bangladesh's demographic dividend

Bangladesh is about to reap a demographic dividend. That is,

1. A high number of youth achieving working age and entering the workforce

2. Lower fertility rates mean parents can spend more time and finances educating each child.

Sixty ercent of Bangladesh’s o ulation is under 30 years of age, with its median age eing 24 years old

(34 percent under 15 years of age). This ratio is similar to other Developing Countries, and lower than

countries such as Korea, Taiwan, and Singapore which have already gone through this phase.


Figure 38. Bangladeshi population age groups in 2012

Source: Ministry of Health & Family Welfare 2012

Fertility rates in Bangladesh have fallen dramatically over the past 30 years, infant deaths also fallen.

This enables parents to spend more time and money educating their fewer children, which historically

has led to high economic growth (Japan in the 50s and 60s, Korea and Taiwan in the 70s and 80s, China

and Vietnam currently).

Figure 39. Fertility rates over the past 50 years

Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population

Prospects: The 2010 Revision

There are also other specific advantages to Inclusive Businesses of a large young population such as their

quick adoption of technology bringing new scalable opportunities such as financial inclusion through

mobile platforms.

15-49 years old

52%

≤ 14 years old

34%

50-59 years old

7%

≥ 60 years old

7%

012345678

Fertility Rates have fallen by two thirds since 1970

http://esa.un.org/unpd/wpp/index.htm

http://esa.un.org/unpd/wpp/index.htm


Appendix 2: Business environment and economic progress

Lack of infrastructure, corruption and bureaucracy are big hindrances to doing businesses in the country.

Nonetheless, Bangladesh ranks 24th in terms of “Protecting In estors” which is est in the South Asia

region according to the DB Index of the World Bank. It has also shown enviable resilience to external

economic shocks such as the US recessions in 2002 and 2008 and the economic crisis of South East Asia

in 1997, but is facing a slow down due to internal crises such as the stock market crash of 2009 to 2011,

large bank loan scams in 2012, and a significant energy shortage from 2009 to 2012. Climate and

environment induced shocks such as flooding are also significant challenges that impact on the

economic progress of the country.

Figure 40. Recent trends of macro-economic indicators

Indicator Unit / Growth 2008-09 (Actual)

2009-10 (Actual)

2010-11 (Actual)

2011-12 (till April)

Real GDP Growth (%) 5.7 6.1 6.7 6.3

Inflation YoY growth (%) 6.7 7.3 8.8 10.8

Credit to private sector YoY growth (%) 14.6 24.2 25.8 19.4*

Export US $ Billion (Growth %) 15.6 (10.3) 16.2 (4.1) 22.9 (41.5) 19.8 (8.4)

Import US $ Billion (Growth %) 22.5 (4.1) 23.7 (5.5) 33.6 (41.8) 29.8 (8.7)

Remittances US $ Billion (Growth %) 9.7 (22.4) 11.0 (13.4) 11.7 (6.0) 10.6 (10.4)

Current account balance US $ Billion (% of GDP) 2.4 (2.7) 3.7 (3.7) 1.0 (0.9) 0.45* (0.5)

Foreign exchange reserve US $ Billion (in months of Imports) 7.5 (3.8) 10.7 (5.1) 10.9 (3.7) 9.5# (3.0)

Exchange rate (average) Taka / US $ (Depreciation %) 68.8 (0.3) 69.2 (0.6) 71.2 (2.9) 81.9%

(15.0) *Jul-Mar, 2012 #Reserve 29 May 2012 %Average rate 29 May 2012 Source: Bangladesh Bank 2013

Des ite these significant challenges, the largely ositi e outlook in ratings y Moody’s and Standard &

Poor remains unchanged. Moody's rating has put Bangladesh on a par with the Philippines, three steps

ahead of Pakistan, and one step higher than that of Sri Lanka, but below India. Easy repatriation of

profit (no stringent condition applicable), no investment ceiling overall (even to particular industries),6 a

huge untapped area for investment in infrastructure development, and a lower cost of labour have

made Bangladesh an attractive business case for foreign and local investments. Moreover, Bangladesh

has received positive forecasts from a range of international economic analysts; JP Morgan has included

Bangladesh among the ‘ rontier our’ for its im ressi e economic and usiness otential; Goldman

Sachs has du ed it one of the “next ele en nations to watch” for romising economic growth; and

Morgan Stanley has predicted that the FDI inflow to Bangladesh will reach US$ 5 billion by 2015.

Despite these positive outlooks, the Global Competitiveness Index 2011-12 indicates Bangladesh still has

some way to go.

Figure 41. Global Competitiveness Index

Global Competitiveness Index Rank Score

GCI 2011–2012 108 3.7

GCI 2010–2011 (out of 139) 107 3.6

6 Bangladesh Bank 2013


GCI 2009–2010 (out of 133) 106 3.6

Basic requirements (60.0%) 112 3.8

Institutions 112 3.3

Infrastructure 134 2.2

Macroeconomic environment 75 4.7

Health and primary education 108 5.0

Efficiency enhancers (35.0%) 99 3.7

Higher education and training 126 2.8

Goods market efficiency 81 4.1

Labour market efficiency 100 4.0

Financial market development 67 4.1

Technological readiness 122 2.8

Market size 49 4.3

Innovation and sophistication factors (5.0%) 113 3.0

Business sophistication 98 3.5

Innovation 124 2.6

Source: World Economic Forum 2012

Figure 42. Wealth and health

Indicator Year Bangladesh India Pakistan

Income per person $ PPP

*

1990 540 874 1200

2011 1909 3663 2786

Life experience at birth, years

1990 59 58 61

2010 69 65 65

Infant (aged <1) deaths per 100 live births

1990 97 81 95

2011 37 47 59

Child (aged <5) deaths per 1,000 Live births

1990 139 114 122

2011 46 61 72


1990 800 600 490

2010 194 200 260


1990 64 59 48

2008 94 66 80


1991 38 49 no

2009 77 74 61


1990 62 60 39

2007 36 44 31

Source: World Bank; UNCIEF; WHO; National Statistics purchasing-power parity

The significant decrease in infant mortality rates over the past 21 years has resulted in a significant skew

towards a younger generation, commonly referred to by economists to as "demographic dividend"

because of the medium-term benefits to the economy.

Appendix 3: Analysis of company sample

The company sample included a diverse range of industries, company sizes, and types of relationships

with the BOP. As shown below, the 55 companies interviewed covered the following sectors:


Manufacturing (25 percent; 14 companies); Banking & Finance (13 percent; 7 companies); Food &

Beverage Products (11 percent; 6 companies); Energy (11 percent; 6 companies); Agriculture (9 percent;

5 companies); Information Technology (9 percent; 5 companies); Pharmaceuticals & Biotechnology (7

percent; 4 companies); Retail (5 percent; 3 companies); and, finally, other industries represent the

remaining 9 percent of companies in the sample.

Figure 43. Industry sectors of the market scoping company sample

“ thers” includes Education; Health Insurance; il, Gas & Natural Resources; Pro erty & Construction


The sample included both private and listed companies as well as local affiliates of multinational

corporations as well as social enterprises.

The range of industries was selected based on potential growth in these sectors at the BOP. Growth

industries were considered the primary focus as these are the industries where companies will require

capital infusion.

The table below lists the businesses surveyed the size of the company, the estimated growth potential

and the BOP business model in terms of employed, suppliers, distributors or consumers. The data from

the surveys was used to prepare the table, however in some cases when data was not provided a best

estimate was used.

Retail

5%

Pharmaceuticals &

Biotechnology

7%

Agriculture

9%

Information

Technology

9%

Others

9%

Energy

11%

Food & Beverage

Products

11%

Banking & Finance

13%

Manufacturing

26%


Figure 44. Market scoping companies showing sector, size, growth potential & BOP model

Name Products / Sector Size Potential growth

BOP model

E S D C

Consumer Products / Retail

Aarong Apparels and home accessories L VH Rahim Afrooz Superstores Ltd.A37 Retail superstore chain L VH

JITA Bangladesh Rural distribution of consumer products S M Pran Foods Ltd Agro processing L VH

Kazi & Kazi Tea Estate Production, packaging, dist., exports & domestic M VH

Nestle Bangladesh Processed food and beverages L VH

BD Food Agro processing L M Grameen Danone Foods Ltd Fortified yoghurt for children M M Pharmaceuticals / Biotechnology

Incepta Pharmaceuticals & Biotechnology M VH Renata Limited Pharma & Biotech; Health & nutrition L H ACI(Advanced Chemical Industries) Ltd Pharma, consumer brands and agribusiness L H Manufacturing / Light Manufacturing

Otobi Furniture M VH

German Bangla Bicycles Ltd Bicycle exporters L VH

Fortuna Shoes Ltd Footware M VH Viyellatex Ltd Garments L VH

Bata Shoe Company (Bangladesh) Ltd Shoes, bags, socks, belts etc L M

Monno Ceramic Industries Ltd Tableware (e.g. plates, bowls, mugs etc) L M

Well Group (Sanji Textile) Fabrics L M

Singer Bangladesh Ltd Electronics consumer goods L H Energypac Power Generation Ltd Green bulbs L H

Apex Adelchi Footwear Ltd Shoes, sandals, exporters L H DBL Group Manufacturing of textiles and garments M H TdK (Bangladesh) Ltd Leather goods, jute and recycled products M M

Energy

Grameen Shakti Solar systems M VH Panna Group Batteries M H Rahimafrooz Renewable Energy Solar systems M H Dimensions Ltd Diesel gens, hydraulic hose piping, solar panels M L

Beximco Petroleum Petrol S M

Allied Solar Energy Limited Supply solar components and install mini-grids M VH Banking / Finance

BRAC Bank Ltd SME banking, technology adoption L VH ASA Micro financier with ancillary services L VH bKash Banking and fin services; focus on low income group M VH INAFI Network organisation of microfinance lenders S M LankaBangla Finance Banking and financial services (including microfinance) L M Agriculture / Agribusiness

Multimode Group (Lal Teer) Hybrid seeds, research, biotech, development L VH World Fish Centre Research M L

iDE Training and capacity building for rural enterprises S M Neo Inventions Fish fillet export M H

GETCO Limited (agricultural arm) Manufacturing and sale of organic and hybrid seeds L H Other

Bestway Group Real estate, property, const (including low cost housing) L H Fair Price International Ltd Producer's rights body S M

Jaago Foundation Education provider for disadvantaged children S M

Joyita Livelihoods capacity building for impoverished women S L

NR = No Response; SIZE (refers to annual turnover & no. employees): S = Small, M = Medium, L = Large; GROWTH (refers to forecast potential : L

= Low, M = Moderate, H = High, VH = Very High


Appendix 4. Case studies

bKash Limited

Background: bKash Ltd, a subsidiary of BRAC Bank, is a joint venture between BRAC Bank Ltd

(Bangladesh), and Money in Motion LLC (USA). With a vision of ensuring the people of Bangladesh have

access to a road range of financial ser ices, Kash’s focus is on hel ing the low income masses of

Bangladesh to achieve broader financial inclusion through the provision of services that are convenient,

affordable and reliable.

Serving the BOP: According to bKash, approximately seventy percent of people in Bangladesh live in

rural areas however only about 15 percent have access to formal financial services. These people need

to either receive money from relatives or family members from distant locations to whom they depend,

or to access finances in order to purchase essential consumer products and services. Identifying a real

consumer need and potentially huge market segment, bKash works in collaboration with telecom

networks to provide a secure, fast and affordable money transfer and mobile banking services to the

lesser-served remote population of Bangladesh.

Growth potential: Formed in 2011, bKash operates its mobile banking system through 3,600 distribution

networks serving a customer base of some 70,000 registered users. With almost 75 million people

falling within mobile network coverage, the company sees potential for considerable further growth

articularly due to a fa oura le regulatory framework and Bangladesh’s continued inadequate anking

infrastructure that restricts a large segment of the population from accessing financial services. The

company acknowledges however, that illiteracy poses the biggest barrier to its growth due to it being

linked to limitations in the uptake of new technology.

Financial needs: The company has shown interest to receive a fund of US$ 5 to US$ 10 million

preferably in equity however debt would also be considered providing there are SMART terms and

conditions, and a viable goal. In the past equity Investment was their main source of funding (49

percent).

Case study 2: Aarong

Background: Aarong is Bangladesh’s largest retail chain of fashion and lifestyle roducts such as

clothing, household items and jewelry. Originally a project of the Ayesha Abed Foundation (established

1978), Aarong is the result of the oundation’s efforts to ro ide a enues for employment and income

generation for underprivileged rural women. Today, Aarong has a reputation for selling good quality

products to both local Bangladeshis as well as non-residents, a result of comprehensive quality

assurance measures. Approximately 70 percent of Aarong-retailed products are apparels, and 30

percent are home accessories.

Serving the BOP: Aarong has also institutionalized large-scale female participation in its supplier-base as

producers of indigenous handicraft goods in Bangladesh. Initially established to create job opportunities

for rural women in just one rural community, today the company estimates that it provides direct


employment to some 1,500 low-income earners as staff – of which more than 1,000 are retail associates

– in their 11 stores located across the country. It is estimated that a BOP population of some 35,000

mostly women artisans are directly engaged by the company (and a further 30,000 indirectly) through

its 13 production centres specifically located in urban and rural areas accessible to the BOP. When

multiplier effects are considered, the company estimates that it benefits some 320,000 people across

the country, of which the majority fall into the low-income segment of the population. The company

also provides a range of additional services for employees and suppliers including vocational training,

the supply of raw materials for producers, credit facilities, day care services, free medical check-ups, and

financial assistance for the treatment of illnesses.

Growth potential: Aarong has significant grounds to grow beyond its existing 11 stores. With

Bangladesh’s 150 million eo le shifting towards working age there is significant and realistic

expectations for growth resulting from an bourgeoning middle-class and increases in discretionary

spending on consumer products. With the development of a strong extension plan the company

believes it would be able to engage many more women as artisan suppliers in other parts of the country.

Moreover, the company has yet to tap into additional sales opportunities afforded by global boom in

internet shopping and e-commerce which may open up new domestic and export markets. Key

obstacles for growth according to the company include the absence of fair market competition, along

with the lack of equilibrium in international trade exchange [please add a few words to explain what the

“lack of equili rium in international trade exchange” actually means – needs to be more specific].

Financial needs: The company has shown interest to receive a fund of US$ 10 to US$ 12 million at an

interest rate of between 8 percent to 10 percent for working capital. In the past equity Investment was

their main source of funding (49 percent). The company has been borrowing from BRAC at a 12 percent

interest rate.

Case study 3: Lal Teer (Multimode Group)

Background: Identifying a gap in the market, in 1995 Multimode and Simon Groot of the Netherlands

set up Lal Teer to develop and sell customized hybrid seeds to local farmers. Despite economic and

technological constraints, extensive research and collaboration with local communities from 64 districts

has turned the venture into the largest biotechnology and seed production company in Bangladesh. Key

products developed by Lal Teer include the development of seeds resistant or tolerant to pests and

diseases and adverse climatic conditions, as well as higher yielding livestock in the production of milk

and meat. The com any estimates that o er 35 ercent of Multimode’s re enue is now deri ed from

this sector.

Servicing the BOP: The end benefit of the Lal Teer products to the BOP includes greater food security

and increased income through higher-yielding and more resilient crops and livestock, and improved

health resulting from the increased nutritional value provided in its products and by- roducts. Lal Teer’s

products, pricing and distribution strategies, and its management provisions are specifically designed to

access and benefit the BOP segment of the population. The company considers its agricultural business

as entirely geared towards the BOP, primarily as consumers (75 percent BOP), and then as suppliers (50

percent BOP), employees (50 percent BOP), and distributors (45 percent BOP). The company estimates


that it directly employs approximately 500 people from the low-income segment, and over 250,000

people indirectly from the low-income segment. Lal Teer has hired and trained between 10,000 to

12,000 farmers in how to improve production. These farmers also have the option to sell surplus seeds

obtained from crops grown back to Lal Teer; this way, the BOP comprises the consumer base, as well as

the supplier and distribution chains. The company is highly engaged in CSR activities (from education

and training through to fair employment and working conditions and environmental sustainability).

Growth potential: Lal Teer has ositi e growth ex ectations o er the next twenty years. The com any’s

brand of around 50 hybrid vegetable, jute, and cereal seeds, are currently marketed to rural farmers

through approximately 5,000 stores and mobile vendors, with the company estimating it has

approximately 80 percent of the market share, and 100 percent of the export market share to countries

in the region lus a handful of Euro ean countries. n account of Lal Teer’s quality seeds, the company

expects further growth. With the highest percentage of the Bangladeshi population involved in

agriculture [what percent is it?] and also predominantly representing the BOP group, the company

considers its farmer consumer base of its vegetable and cereal seeds as the largest emerging consumer

market in Bangladesh. Lal Teer is also the only brand that exports hybrid vegetable and cereal seeds

from Bangladesh, giving it 100 percent market share of the export hybrid seed market. The company is

confident it now has the potential to significantly cut into the Chinese hybrid seed market.

Financial needs: Lal Teer (Multimode Group) is interested in further investment in the BOP to increase

company growth and profitability as well as gain a first-mover advantage in the market segment. In

particular, Multimode is interested in setting up an investment fund to finance research and

development (especially in livestock), grants, or long-term equity-based financing. Financial assistance

is also needed to build additional infrastructure including the purchase of land, office buildings, labs, and

cow sheds. The company requires approximately US$ 3 million for seed projects, expansion and

working capital, and a further US$ 10 million for livestock development. The company prefers soft long-

term financing in the form of equity and debt at an IRR of about 20 percent over 10 years.

Case study 4: Grameen Shakti:

Background: ounded y Professor Mohammad Younus, Grameen Shakti is one Bangladesh’s most

successful market-based renewable energy social development programmes, reaching millions of rural

villagers across the country. Based upon the development of Solar Home Systems and other renewable

energy technologies, Grameen Shakti claims to be one of the largest and fastest growing rural-based

renewable energy companies in the world. As of December 2009, Grameen Shakti has installed more

than 320,000 Solar Home Systems in Bangladesh’s rural areas, equating to almost 9,000 Solar Home

Systems installed per month. The company has also introduced Improved Cooking Stoves and Bio-gas to

rural households, identifying a need for a fuel efficient and cost effective source of energy for simple

purposes such as home cooking. Waste from the Bio-gas process can also be used as fertilizer to assist

indirectly in food security. The company attributes its success to its unique approach which blends

market and social forces together in order to ring the world’s most u -to-date technology to the

impoverished rural people of Bangladesh.


Servicing the BOP: Grameen Shakti aims to bring green energy, improved health, income and green jobs

to the rural BOP population of Bangladesh [Please explain a little more about how the company is

ringing “im ro ed health, income and green jo s”]. Grameen Shakti works directly with the low

income segment as consumers of their renewable energy products. The company estimates that they

have accessed at least 1,000,000 families with their Solar Home System up to 2012. An integral part of

the company sales strategy to the BOP is to offer soft credit and step-by-step instalments of payment to

make their products more affordable to their customer base. Product pricing is extensively researched

in order to ensure the average family will have the capacity to make the instalment payments without

significantly impacting on their household budget. The technology offers villagers a permanent and

clean source of energy for their basic power requirements that is cost-effective.

Growth potential: Due to the high cost of research and development, Grameen Shakti initially had

conservative expectations for growth, selling only 228 Solar House Systems from 1996 to 1997. Since

then the volume of Solar House Systems installed has skyrocketed, taking the company three years to

reach four digit sales of their product, four years to reach five digit sales, and a subsequent four years to

reach six digit sales. By the end of 2012 the company had installed 1,000,000 Solar Home Systems. The

company has had similar success with its Bio-gas plants; installing only 30 units in 2005, the company

has since installed 24,206 Bio-gas units by 2012. The company is expecting similar growth with its

Improved Cooking Stoves. Whilst there is considerable demand for all three of Grameen Shakti’s

renewable energy products, the company has expressed that it is experiencing supply chain

management setbacks. The company also identified insufficient skilled manpower as an obstacle to

serving the level of demand [Is this insufficient staff to install the products? Please can you check? I

found the English a little confusing to understand]. Access to finance is also seen as an obstacle to

growth due to the inhibitive high interest rates offered by commercial banks.

Financial needs: Whilst Grameen Shakti claims to be financially self-sufficient, they would be open to

taking US$ 612,670 for use in training field workers and labourers. The company would expect flexible

financing arrangements with a low or zero interest rate for a period of five years.

Case study 5: JITA Bangladesh

Background: JITA Bangladesh is a joint venture Social Business between CARE International and Danone

Communities dedicated to empowering women through an extensive network of enterprises, creating

employment opportunities and improving access to market. Established in December 2011, JITA is

considered to be a leading example in Bangladesh of an NGO project (the CARE Rural Sales Program)

that has successfully transformed into an independent Social Business. The Rural Sales Program model

involves using local rural women as door-to-door sellers who buy different company products from JITA-

a ointed local entre reneurs (‘hu managers’). The system is ased on commissions for different

participants from private companies. Major multinational companies like Unilever, Bata, and BiC as well

as local companies like Square and Lalteer Seeds are current partners in the rural sales activity. JITA is

also increasingly focusing on developing consumer knowledge, education and awareness in areas such

as nutrition, hygiene, and high yield vegetable seeds by partnering with related companies in order to

enable companies to deliver product-related information and knowledge to consumers. Recently JITA


has opened a new business arm devoted to gaining market insights, understanding consumer demand,

geographical market mixes, and socio-economic patterns and changes over time with the purpose of

supporting companies with new ideas, to identify product development opportunities, launch new

products, test markets and develop Inclusive Businesses.

Serving the BOP: The JITA door-to-door distribution network is generating a sustainable source of

income for poor marginalized women who take and directly sell products to other members of the BOP

located in Bangladesh’s rural areas. Starting with just 26 sales women in 2005, the number of Aparajitas

has since reached 2,600 by the end of 2011. The sales women typically earn an income between US$ 12

to US$ 38 [is this daily, monthly? Unconverted value provided was BDT 1000-3000] which provides the

economic means to enjoy a higher standard of living for themselves and their families. JITA distributed

products now reaches more than 10 million consumers across Bangladesh, most of whom are from the

BOP. JITA has also established more than 100 local entrepreneur / hub managers in scarce local job

markets, and created employment opportunities for a further 200 appointed product delivery men (JITA

Ser ice Persons). JITA’s ‘Health / Hygiene & Nutrition’ campaigns create rural awareness regarding to

different aspects of rural life.

Growth potential: JITA reports that the expansion of the Rural Sales Programme operation with

different private partner companies was swift and required only a single initial investment from Danone

Communities in order to become the first social enter rise in CARE’s history. The strength of its growth

has lead the organisation to believe that it has tapped into a massive market with a bright, prosperous

future. Today, JITA aims to empower some 12,000 women as door-to-door sales women and become a

create a far more sustainable and successful position in the Social Business arena, which would never

have been possible if it had remained as an NGO project. The business also has expectations of being

able to create 450 successful local entrepreneurs by covering 450 Bangladeshi Sub-Districts.

Financial requirements: JITA is seeking to outsource an equity fund of approximately US$ 550,000 for

the year of 2013 with minor shareholding facilities and a profit share of 33 percent for Danone and 67%

by CARE Bangladesh [does this actually add up? Please double check figures. I cannot find this

information in the survey spread sheet].

Case study 6: Viyellatex Group

Background: The business model of Viyellatex Group, a renowned Bangladeshi textile and apparel

manufacturing group established in 1996, is comprised of design and product development, sample,

knitting, dyeing, washing, cutting, sewing and finishing sections. The Vieyellatex Client list includes

prominent brands such as Puma, Marks & Spencer, Esprit, S.Oliver, Hugo Boss, Philip Van Heusen and

Decathlon amongst others. A 100 percent export-oriented organization, the Group has successfully

etched its brand name worldwide as a reliable manufacturer of textile products. The Viyellatex Group

has recently diversified its businesses into tea plantations, logistical management and services, and

power generation.

Serving the BOP: Viyellatex’s strategy to engage the low income segment is rimarily through the

creation of new jobs. With an increase in export volumes the company requires an expanded labor


force that will focus on hiring from the BOP segment of the Bangladeshi population. Currently

a roximately 90 ercent of Viyellatex’s total la or force of 1,188 em loyees is directly linked with the

BOP. A signatory of the UN Global Compact since 2009, the company places CSR as a central edifice of

its ethics. Key focus areas of the company have been in health and education. Social development

activities undertaken by Viyellatex Group include employing some 60 physically challenged people into

its mainstream workforce, establishing seven pre-primary schools for underprivileged children in

association with Save The Children (USAID), organizing annual Eye Camps for the local community

(benefiting some 5,000 atients to date), and organi ing quarterly clinics for workers’ children,

benefiting over 350 children since 2009.

Growth potential: Beginning with just six lines in 1996, Viyellatex Group now has grown to more than

135 lines with a current average production capacity of 2.5 million per month and an approximate 2.2

percent to 2.5 percent market share in national exports (worth some US$ 13 billion) during the fiscal

year 2010 to 2011. The company estimates its average annual growth rate to date as about 8 percent

[please check this figure – I am not sure I have put it within the correct context]. The company has

positive expectations for further growth and expansion and intends to not only employ more members

of the BOP as employees, but also integrate the BOP into their business model within the textile sector

as suppliers in backward and forward linkages [not sure how the forward linkages work for suppliers –

can you please provide a small explanation of a few words?].

Financial requirements: In the future Viyellatex Group would potentially be interested in receiving

funding of US$ 10 million in the form of debt to enable business expansion. [Please provide further

information on financing terms and conditions if available].


Appendix 5: Current engagement with the BOP

Whilst all four modes of engaging the BOP – as consumers, distributors, suppliers, or employees are

evident across multiple sectors, the employee and consumer models are most strongly represented.

Figure 45. BOP models according to sector


The type and range of BOP engagement models vary considerably from sector to sector. In banking and

finance for example, the BOP is primarily engaged in just two ways; as consumers of the financial

services, or within micro-finance organisations, also as employees. Such microfinance companies are

spread throughout the country and may typically employ between 5 to 100 staff often directly from the

BOP in district offices, although the salary level of such micro-finance employees may be a matter of

contention in consideration of Inclusive Business principles of engagement with BOP employees.

Beyond micro-finance, which isn't strictly IB, financial institutions are also expanding their mobile

networks, which potentially bring more useful payment solutions and other banking solutions to the

rural communities.

In comparison to the more limited BOP engagement models seen in banking and finance, within the

consumer products and retail sector the full range of BOP models are engaged – as suppliers of goods,

deliverers of goods, employees, and as product consumers.

An analysis of each of the four observed modes of engaging the BOP – as consumers, distributors,

suppliers, or employees is provided below.

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

Agriculture/Agribusiness

Banking & Finance

Consumer products/retail

Energy

Pharma/Biotech

Other

Manufacturing

Employee Supplier Distributor Consumer


Consumer model

For Inclusive Businesses, adopting a consumer BOP model involves providing basic goods or services that

are specifically developed to serve the needs of the BOP population, with affordability being the most

common key feature.

IB organisations that are strongly focused on serving the BOP will often undertake market research to

understand the needs of the BOP market as well as their specific limitations in being able to access

particular products or services. The International Network of Alternative Financial Institutions (INAFI)

provides micro-insurance and remittance services to some 115,000 members of the BOP. Through a

demand and affordability survey of some 3,000 respondents, INAFI identified that rural poor are

vulnerable and prone to a different set of risks compared to other segments of the population. They

also found that the low-income group needed social protection including outpatient, inpatient and

compensation at an affordable rate and with a streamlined service that could enable claims to be settled

quickly. However, start-up and operational costs to service the geographically spread BOP population

was estimated to be prohibitively high. One way INAFI overcame this was to partner with 14 NGOs

which enabled them to operate their micro-insurance scheme through the NG ’s 140 ranches across

Bangladesh.

For renewable energy Inclusive Businesses engaging the BOP as consumers of their products is about

providing energy to those off the grid or by providing cheaper, less polluting energy. For those who are

off the grid (and unlikely to be connected for some time to come), renewable energy offers a life

changing experience that poses little to no negative effects on health, unlike firewood for example, that

can cause a range of health impacts.

Panna Group for example, is a manufacturer of various types of batteries (e,g, pasengaka, IPS, Solar and

PBC) that almost exclusively serves the domestic market. With a focus on the BOP as the consumers of

its products, Panna Group set up the Panna Rural Development Foundation (PRDF), a social enterprise

to provide sustainable energy solutions and services to the rural households and businesses of

Bangladesh. In order to ena le the B P to take u PRD ’s renewa le energy roducts, customers are


provided with a complete package of product, service and consumer financing through a micro-credit

and cash purchase system. The micro-credit facility operates from PRDFs own invested money.

Another strategy to engage the BOP as consumers is to run awareness raising, capacity building and

training programmes for target communities of Inclusive Business products or services. GETCO Agro

Vision produces high quality F1 Hybrid, OP and organic vegetable seeds primarily for domestic

consumption. GETCO sells its agro-products to BOP farmers by providing minimal prices and developing

roducts that fill an identified need, such as the farmer’s need to e a le to increase the roduction of

otatoes in order to fill the country’s shortfall of su ly. In order to introduce new hy rid arieties of

different types of vegetables farmers are educated in routine training sessions in the field.

Case study: bKash Limited

Background: bKash Ltd, a subsidiary of BRAC Bank, is a joint venture between BRAC Bank Ltd (Bangladesh), and Money in Motion LLC (USA). With a vision of ensuring the people of Bangladesh have access to a broad range of financial ser ices, Kash’s focus is on hel ing the low income masses of Bangladesh to achie e roader financial inclusion through the provision of services that are convenient, affordable and reliable.

Serving the BOP: According to bKash, approximately 70 percent of people in Bangladesh live in rural areas however only about 15 percent have access to formal financial services. These people need to either receive money from relatives or family members from distant locations to whom they depend, or to access finances in order to purchase essential consumer products and services. Identifying a real consumer need and potentially huge market segment, bKash works in collaboration with telecom networks to provide a secure, fast and affordable money transfer and mobile banking services to the lesser-served remote population of Bangladesh.

Growth potential: Formed in 2011, bKash operates its mobile banking system through 3,600 distribution networks serving a customer base of some 70,000 registered users. With almost 95 million mobile phones in the country, the company sees potential for considerable further growth particularly due to a favourable regulatory framework and Bangladesh’s continued inadequate anking infrastructure that restricts a large segment of the population from accessing financial services. Currently, only around 10% of the population have bank accounts, and most don't have access to physical bank branches. The company acknowledges however, that illiteracy poses the biggest barrier to its growth due to it being linked to limitations in the uptake of new technology.

Financial needs: The company has shown interest to receive a fund of US$ 5 to US$ 10 million preferably in equity

however debt would also be considered providing there are SMART terms and conditions, and a viable goal. In the

past equity Investment was their main source of funding (49 percent).


Distributor model

Distributor BOP models used by Inclusive Businesses do not feature strongly in any one sector but

instead are commonplace across a range of sectors, most notably within the consumer products and

retail sector, manufacturing, and agriculture / agribusiness.

The use of door-to-door sales is a common distribution method employed by Inclusive Businesses as it

allows the BOP to become involved without the need of additional resources. Grameen Danone Foods

engages some 600 people from the low-income group as distributors of its dairy food products and has

found that local distributers are also more trusted by the local community.

Similarly, footwear manufacturer, Bata Shoe Company (Bangladesh) Ltd, uses the BOP as a part of its

distri ution strategy. In Bangladesh’s many isolated laces, working through the connections of the

JITA / CARE joint venture social business (see Case Study following), rural women are engaged to sell

Bata shoes door-to-door as a part of a Rural Sales Programme. This not only creates a source of income

for the women but also increases their entrepreneurial skills and is a source of empowerment. Due to

the success of the programme Bata is considering to make the programme a part of its core distribution

model and help it meet its Corporate Social Responsibility requirements.

Some Inclusive Businesses on the other hand, implement capacity building of distributors to increase

efficiency and sales. GETCO Agrio Technologies Ltd manufactures high quality and high yielding seeds

that are priced to be accessible to BOP farmer producers. The seeds are distributed through a highly

developed network of distributors and retailers who are provided with training and technical advice

which not only helps to improve efficiencies for the company but ultimately also increases sales.

Instead of using a distributorship, Lal Teer from the Multimode Group, an agri-business research and

development organisation, introduced a retail marketing model that involves reaching grassroots level

farmers through the deployment of mobile seed vendors in villages. To promote new varieties of seeds

or other agricultural products Field Days are run and farmer information booths operated in village

haats (a local weekly bazaar).


Case study: JITA Bangladesh

Background: JITA Bangladesh is a joint venture Social Business between CARE International and Danone Communities dedicated to empowering women through an extensive network of enterprises, creating employment opportunities and improving access to market. Established in December 2011, JITA is considered to be a leading example in Bangladesh of an NGO project (the CARE Rural Sales Program) that has successfully transformed into an independent Social Business. The Rural Sales Program model involves using local rural women as door-to-door sellers who buy different company products from JITA-a ointed local entre reneurs (‘hu managers’). The system is ased on commissions for different artici ants from ri ate com anies. Major multinational companies like Unilever, Bata, and BiC as well as local companies like Square and Lalteer Seeds are current partners in the rural sales activity. JITA is also increasingly focusing on developing consumer knowledge, education and awareness in areas such as nutrition, hygiene, and high yield vegetable seeds by partnering with related companies in order to enable companies to deliver product-related information and knowledge to consumers. Recently JITA has opened a new business arm devoted to gaining market insights, understanding consumer demand, geographical market mixes, and socio-economic patterns and changes over time with the purpose of supporting companies with new ideas, to identify product development opportunities, launch new products, test markets and develop Inclusive Businesses.

Serving the BOP: The JITA door-to-door distribution network is generating a sustainable source of income for poor marginali ed women who take and directly sell roducts to other mem ers of the B P located in Bangladesh’s rural areas. Starting with just 26 sales women in 2005, the number of Aparajitas has since reached 2,600 by the end of 2011. The sales women typically earn a monthly income of between US$ 12 to US$ 38 which provides the economic means to enjoy a higher standard of living for themselves and their families. JITA distributed products now reaches more than 10 million consumers across Bangladesh, most of whom are from the BOP. JITA has also established more than 100 local entrepreneur / hub managers in scarce local job markets, and created employment opportunities for a further 200 appointed product deli ery men (JITA Ser ice Persons). JITA’s ‘Health / Hygiene & Nutrition’ cam aigns create rural awareness regarding to different as ects of rural life.

Growth potential: JITA reports that the expansion of the Rural Sales Programme operation with different private partner companies was swift and required only a single initial investment from Danone Communities in order to ecome the first social enter rise in CARE’s history. The strength of its growth has lead the organisation to elie e that it has tapped into a massive market with a bright, prosperous future. Today, JITA aims to empower some 12,000 women as door-to-door sales women and become a create a far more sustainable and successful position in the Social Business arena, which would never have been possible if it had remained as an NGO project. The business also has expectations of being able to create 450 successful local entrepreneurs by covering 450 Bangladeshi Sub-Districts.

Financial requirements: JITA is seeking US$ 550,000 to then provide loans to its network or entrepreneurs.


Supplier model

Those in the retail sector most heavily engage the BOP as suppliers of key inputs, with agriculture and

manufacturing also a natural fit.

Rahim Afrooz Su erstores, one of Bangladesh’s largest chain of retail stores, engages the low income

group primarily as suppliers of fresh agricultural-based products. After a recent merger with another

leading superstore in the country, PQS, Rahim Afooz Superstores has enhanced its previously low

margins by overcoming an identified supply chain setback, whilst at the same time expanded its number

of retail chain outlets. To achieve this the company undertook a joint initiative with a business

innovation facility that assisted it to build the capacity of small and medium fresh produce suppliers

through the provision of technical assistance, know-how, and vocational training, thereby developing a

range of robust supply chains. This has benefited the company by better ensuring stability in the supply

of critical inputs and ultimately increased sales. Moreover, with the BOP engaged not only as suppliers

but also as customers, Rahim Afrooz Superstores can better ensure that the products it sells are

compatible with customer needs.

Whilst Pran Foods, another retailer, engages some 30,000 people as employees (of which 18,000 are

from the BOP), an even more impressive 70,000 people from the BOP are associated with the company

as farmers. One of the key Pran Foods supplier model engagement strategies was to introduce mango

plants to new parts of Bangladesh that previously had not grown the fruit. People were encouraged to

get involved in mango production through the provision of free mango plants and the incentive of a buy-

back guarantee. With the suppliers not having to worry about marketing and the non-binding promise:

“if you roduce it, we will uy it”, mango roduction has astly increased.

This move from traditional subsistence crops such as rice to cash crops enables the poor to put money in

their pockets as well as food on the table -- a first step up in the rise out of poverty.

Case study: Lal Teer (Multimode Group)


Background: Identifying a gap in the market, in 1995 Multimode and Simon Groot of the Netherlands set up Lal Teer to develop and sell customized hybrid seeds to local farmers. Despite economic and technological constraints, extensive research and collaboration with local communities from 64 districts has turned the venture into the largest biotechnology and seed production company in Bangladesh. Key products developed by Lal Teer include the development of seeds resistant or tolerant to pests and diseases and adverse climatic conditions, as well as higher yielding livestock in the production of milk and meat. The company estimates that over 35 percent of Multimode’s re enue is now deri ed from this sector.

Serving the BOP: The end benefit of the Lal Teer products to the BOP includes greater food security and increased income through higher-yielding and more resilient crops and livestock, and improved health resulting from the increased nutritional value provided in its products and by- roducts. Lal Teer’s roducts, ricing and distri ution strategies, and its management provisions are specifically designed to access and benefit the BOP segment of the population. The company considers its agricultural business as entirely geared towards the BOP, primarily as consumers (75 percent BOP), and then as suppliers (50 percent BOP), employees (50 percent BOP), and distributors (45 percent BOP). The company estimates that it directly employs approximately 500 people from the low-income segment, and over 250,000 people indirectly from the low-income segment. Lal Teer has hired and trained between 10,000 to 12,000 farmers in how to improve production. These farmers also have the option to sell surplus seeds obtained from crops grown back to Lal Teer; this way, the BOP comprises the consumer base, as well as the supplier and distribution chains. The company is highly engaged in CSR activities (from education and training through to fair employment and working conditions and environmental sustainability).

Growth potential: Lal Teer has ositi e growth ex ectations o er the next twenty years. The com any’s rand of around 50 hybrid vegetable, jute, and cereal seeds, are currently marketed to rural farmers through approximately 5,000 stores and mobile vendors, with the company estimating it has approximately 80 percent of the market share, and 100 percent of the export market share to countries in the region plus a handful of European countries. n account of Lal Teer’s quality seeds, the com any ex ects further growth. With the highest ercentage of the Bangladeshi population involved in agriculture and also predominantly representing the BOP group, the company considers its farmer consumer base of its vegetable and cereal seeds as the largest emerging consumer market in Bangladesh. Lal Teer is also the only brand that exports hybrid vegetable and cereal seeds from Bangladesh, giving it 100 percent market share of the export hybrid seed market. The company is confident it now has the potential to significantly cut into the Chinese hybrid seed market.

Financial needs: Lal Teer (Multimode Group) is interested in further investment in the BOP to increase company growth and profitability as well as gain a first-mover advantage in the market segment. In particular, Multimode is interested in setting up an investment fund to finance research and development (especially in livestock), grants, or long-term equity-based financing. Financial assistance is also needed to build additional infrastructure including the purchase of land, office buildings, labs, and cow sheds. The company requires approximately US$ 3 million for seed projects, expansion and working capital, and a further US$ 10 million for livestock development. The company prefers soft long-term financing in the form of equity and debt at an IRR of about 20 percent over 10 years.


Employee model

Employing people from the BOP is the most common model of engagement, with more than one third

of all the Inclusive Businesses surveyed identifying this as one of their key BOP engagement strategies.

or exam le, AAR NG, Bangladesh’s largest retail outlet for fashion and lifestyle products, provides

direct employment to 1,500 low-income earners as staff, of which 1,100 become retail associates.

Textiles manufacturer, Viyellatex Limited, estimates that approximately 90 percent of its labour force

are from the BOP. A signatory to the United Nations Global Compact, Viyellatex takes great pride in

paying its workers more than what is required by the Bangladeshi government. There are a broad range

of other benefits to staff including health care, meals and training that goes beyond the immediate

needs of the company. The continued employment of the BOP is a key strategy for the company to

reach its export volume targets over the next 5 years.

However, with the Bangladeshi BOP incorporating a sizable segment of the total population for a

company to truly demonstrate Inclusive Business, it must include BOP engagement as a core business

strategy and undertake specific activities that help lift the BOP out of impoverishment.

In order to help retain BOP employees and ensure productivity, many Inclusive Businesses will also

provide additional services that specifically fulfill the needs of the BOP such as free healthcare and

daycare facilities for parents. Well Group (Sanji Textile), an industrial sewing thread business that grew

from a family business into one of the largest sewing companies in the country within three decades,

directly employs some 1,800 people from the low-income group, and expects to employ many more as

it continues to grow. For the BOP, in addition to gaining employment and income, free education,

training and health services are also received. Providing such additional services not only keeps staff

healthy, but helps to secure productivity.


Case study: Aarong

Background: Aarong is Bangladesh’s largest retail chain of fashion and lifestyle products such as clothing, household items and jewellery. Originally a project of the Ayesha Abed Foundation (established 1978), Aarong is the result of the oundation’s efforts to ro ide a enues for em loyment and income generation for underprivileged rural women. Today, Aarong has a reputation for selling good quality products to both local Bangladeshis as well as non-residents, a result of comprehensive quality assurance measures. Approximately 70 percent of Aarong-retailed products are apparels, and 30 percent are home accessories.

Serving the BOP: Aarong has also institutionalized large-scale female participation in its supplier-base as producers of indigenous handicraft goods in Bangladesh. Initially established to create job opportunities for rural women in just one rural community, today the company estimates that it provides direct employment to some 1,500 low-income earners as staff – of which more than 1,000 are retail associates – in their 11 stores located across the country. It is estimated that a BOP population of some 35,000 mostly women artisans are directly engaged by the company (and a further 30,000 indirectly) through its 13 production centres specifically located in urban and rural areas accessible to the BOP. When multiplier effects are considered, the company estimates that it benefits some 320,000 people across the country, of which the majority fall into the low-income segment of the population. The company also provides a range of additional services for employees and suppliers including vocational training, the supply of raw materials for producers, credit facilities, day care services, free medical check-ups, and financial assistance for the treatment of illnesses.

Growth potential: Aarong has significant grounds to grow eyond its existing 11 stores. With Bangladesh’s 150 million people shifting towards working age there is significant and realistic expectations for growth resulting from an bourgeoning middle-class and increases in discretionary spending on consumer products. With the development of a strong extension plan the company believes it would be able to engage many more women as artisan suppliers in other parts of the country. Moreover, the company has yet to tap into additional sales opportunities afforded by global boom in internet shopping and e-commerce which may open up new domestic and export markets.

Financial needs: The company has shown interest to receive a fund of US$ 10 to US$ 12 million at an interest rate of between 8 percent and 10 percent for working capital. In the past equity Investment was their main source of funding (49 percent). The company has been borrowing from BRAC at a 12 percent interest rate.


Appendix 6: Fund managers

Brummer & Partners

This globally-oriented Scandinavian hedge fund manager with total assets under management of US$ 15

billion globally, was the first firm to start a private equity business in Bangladesh in 2008. Target asset

classes include hedge funds, private equity and listed equities. In Bangladesh, Brummer & Partners is

operating the Frontier Fund (Bermuda) Limited, a fund focused on the privately-held companies of

Bangladesh with assets under management of the fund worth US$ 100 million (invested by

organisations such as the International Finance Corporation, CDC, and FMO). The Frontier Fund has

already made investments in Rahim Afrooz Superstores Limited, the first retail chain in Bangladesh, and

RahimAfroozGlobatt Limited, which produces low maintenance batteries. Both these companies have

significant engagements with the BOP through Inclusive Business oriented strategies. For Brummer &

Partners a typical deal size is about US$ 5 million to US$ 20 million, with a target return of about 18 to

25 percent with no specific sector focus.

Small Enterprise Assistance Fund

The second Private equity fund manager to start business in Bangladesh, the Small Enterprise Assistance

Fund (SEAF) provides growth capital and business assistance to small and medium enterprises (SMEs) in

emerging and transition markets underserved by traditional sources of capital. SEAF has a presence in

22 countries across Asia, Europe and Latin America where 338 investments have already been made. In

Bangladesh, SEAF operates through its finance company SEAF Bangladesh Ventures (SEAF BV) which

focuses on key growth sectors that lack access to traditional sources of finance. Thus far, SEAF has

made two investments in Solaric, a renewable energy technology company, and SSD TECH, an

information technology company. A more in-depth profile of SEAF BV can be found in the following

section.

BD Venture Limited

Bangladesh’s first enture ca ital com any was launched with a mandate to in est in and incu ate new

and existing business ideas in emerging and high-growth sectors to assist in the development of the

country. A art from financial returns, BD Venture’s mission is to encourage inno ation and ins ire the

entrepreneurial spirit in the country. Besides financing, BD Venture helps manage investee companies

by shaping their business strategy, as well as providing assistance to companies to create new product

categories. Some of the leading banks, non-bank financial institutions, insurance companies and

renowned business leaders of Bangladesh are involved in BD Venture.

Whilst BD Venture is yet to make any investments it feels that equity, an equity-debt blend, and debt

are the financial instruments preferred by investees. The company sees Education, Hospitality & Leisure

/ Tourism, Food & Beverage Products, Manufacturing, Agriculture, Information Technology, and Energy

as the most attractive sectors within which to invest. The most viable sectors for including low income

groups are considered to be Education, Hospitality & Leisure / Tourism, Food & Beverage Products,

Manufacturing, Agriculture, Information Technology, Energy, Water & Sanitation.


Figure 46. Estimated deal sizes according to the different types of financial institutions in Bangladesh

Type Examples Estimated starting deal size

Private equity / Venture capital SEAF, Brummer & Partners, BD Venture US$ 50,000+

SME banking BRAC Bank, Eastern Bank Limited, Prime Bank US$ 1,000+

Non-private equity Grameen Fund, VIPB, Midas Financing, IDCOL US$ 650+

Micro-financiers ASA, BRAC, Grameen Bank US$ 125+

Source: Estimation of Authors

The Government of Bangladesh

The Go ernment of Bangladesh’s (GoB) Equity and Entre reneurshi und (EE ) was esta lished in the

fiscal year 2000-2001 with a fund size of BDT 1 billion (USD12.8 million) and later increased. The

objective of the EEF is to increase investments in the software industry and food processing and agro-

based industries, and to encourage entrepreneurs to launch projects within these sectors to create

employment opportunities for the young educated and skilled people of the country. Though

Bangladesh Bank managed this fund since inception, the Investment Corporation of Bangladesh has

been authorized to run the fund from 2009. The fund mostly focuses on agro-based industries and the

IT sector, with typical deal sizes of less than US$ 1 million.

SEAF Bangladesh Ventures

SEAF BV provides long-term growth capital and the necessary support to medium-sized businesses in

Bangladesh that are underserved by traditional sources of finance. Currently, half of the portfolio of this

private equity fund manager is invested in the Information Technology sector with the rest going into

the Energy sector. SEAF BV has invested in companies that serve the low income segment. SEAF BV

believes that targeting businesses with low-income segment employees can generate the best mix of

social and financial return (creating employment and leveraging low labour cost). Sectors such as

Education and Energy where the low income segments are consumers are also considered of interest as

they can generate high social and financial returns. SEAF BV believes investee companies mostly like

blended financing of both equity and debt. For Bangladesh, an average deal size per investment of US$

500,000 could expect to generate an average return in the range of between 18 to 24 percent. Since its

inception SEAF BV has invested US$ 1 million out of its US$ 40 million committed capital. As the fund is

new, many more investments are planned in the coming years.

Profile of SEAF BV investee preferences:

Finance instrument Ranking Average deal size IRR

Equity-debt mix 1 US$ 500,000 18-24 percent

Credit guarantee 2 US$ 500,000 18 percent

SEAF BV sees Oil, Gas and Natural Resources, Information Technology, Energy, Water & Sanitation, and

Life Insurance as the most attractive sectors for investment. Education, Food and Beverage Products,

Manufacturing, Agriculture, Energy, Textiles & Garments, and Water & Sanitation are considered the

most viable for including low income groups.


ASA

The Inclusive Business finance model of ASA, one of the most reputed micro-finance institutions of

Bangladesh, is involved in establishing and investing in high-performing micro-finance institutions

throughout Asia and Africa. With this aim, ASA has created the CMI fund, a private equity fund of US$

125 million. Investors of the CMI fund include the Dutch pension fund, ABP, the US Investor Financial

Services Organization, TIAA-CREF, the Bangladesh GoF, and CDC Group. The company has also

established micro-finance funds including Gray Ghost Microfinance. The CMI fund has invested in

micro-finance institutions in Pakistan, the Philippines, Nigeria, Ghana and Cambodia. Through the

provision of small loans, the low income people can then get involved in a range of small businesses and

agricultural activities (amongst others). Whilst micro-finance is not necessarily by nature an Inclusive

Business, ASA’s acti ities are strongly connected to the etterment of the low income eo le of the Asia

and Africa region, whilst at the same time meeting its business objectives.

Whilst ASA was not able to disclose the specific nature of its investments, an equity-debt blend and

credit-guarantee are identified as the most attractive financial instruments used by its investees. The

company believes an IRR of between 8-10 percent can be expected with a investment fund for the low

income segment. ASA sees Banking & Financial Services, Pharmaceuticals & Biotechnology, Retail, and

Transportation & Logistics as the most attractive sectors within which to invest. The most viable sectors

for including low income groups are considered to be Banking & Financial Services, Pharmaceuticals &

Biotechnology, and Life Insurance.

Ventures Investment Partners Bangladesh Limited

The target group of VIPB is SMEs who lack sufficient collateral to get conventional financing from banks

and leasing companies. Whilst VIPB acknowledges the inherent level of risk in financing these types of

companies, unique advantages are seen to make it more worthwhile such as high growth potential (due

to their size), and the expertise and self-in ol ement of the entre reneur in the com any’s growth.

VIPB expects these factors to generate meaningful return to both investors and entrepreneurs --

typically a risk-weighted return of 15-25%. For investing in these ventures, VIPB uses two investment

instruments – equity and quasi-equity (a mixture between debt and equity). VIPB financing starts from

as low as US$ 3,750 to various SME ventures throughout the country. Apart from financing, VIPB also

has an advisory wing that offers technical and business assistance to help the companies they have

invested in. Currently VIPB invests in Manufacturing, Agriculture, Information Technology and Textiles &

Garments.

Profile of VIPB investee preferences:

Finance instrument Ranking Average deal size IRR

Equity-debt mix 1 US$ 10,000 20 percent

Debt 3 US$ 8,000 20 percent

Equity 2 US$ 20,000 10 percent


VIPB sees Education, Pharmaceuticals & Biotechnology, Retail, Food & Beverage Products, Agriculture,

and Energy as the most attractive sectors within which to invest. The most viable sectors for including

low income groups are considered to be Pharmaceuticals & Biotechnology, Retail, Food & Beverage

Products, Transportation & Logistics, Manufacturing, Agriculture, Forestry & Forest Products, Textiles &

Garments, and Water & Sanitation.

Midas Financing Limited

Specifically focused in the Micro and SME sector, Midas Financing Limited invests its funds into the

economy’s roductive sectors that are directly engaged in employment creation including Agro-based

sectors and Renewable Energy, as their backward and forward linkages are considered to have the most

promise for changing the life of low income people. In addition they have financed some NGOs who are

engaged in development work at the grass-roots level including the landless, poor people of the villages,

in semi-urban and urban slums.

Whilst Midas was not able to disclose the specific nature of its investments, debt and credit-guarantee

are identified as the most attractive financial instruments used by its investees. Midas sees Banking &

Financial Services, Retail, Hospitality & Leisure/Tourism, Manufacturing, Agriculture, Information

Technology, and Energy as the most attractive sectors within which to invest. The most viable sectors

for including low income groups are considered to be Food & Beverage Products, Manufacturing,

Agriculture, Energy, and Textiles and Garments.

Infrastructure Development Company Limited (IDCOL)

IDCOL is funds private sector infrastructure and power. Projects in rural areas have a direct or indirect

positive impact on the BOP. The primary objective of IDCOL is to promote significant participation of the

private sector in investment and operation, ownership and maintenance of new infrastructure facilities.

IDCOL has access to resources provided by the World Bank, Asian Development Bank, GIZ, Kfw, Islami

Development Bank and the GOB to place in projects across a range of infrastructure sectors and has

been mandated to provide long-term senior and subordinated debt financing to viable infrastructure

projects in the private sector for power generation, gas and gas related infrastructure, toll roads and

bridges, water supply, urban environmental services, ports, telecommunications, renewable energy and

other similar projects for the development of infrastructure of the country. IDCOL also channels grants

and provides soft loans for the development of rural infrastructure, i.e. renewable energy.

At the end of 2012, IDCOL had a total of 18.18 billion taka (USD 233 million) extended in loans and

purchased bonds, an increase of 49% over the previous year.

IDCOL currently invests in Energy and Information Technology amongst some other lesser sectors.

IDCOL sees the Energy sector as a standout for both its general investment attractiveness as well as its

viability for including low income groups.

Other companies


Non-private equity fund managers include Grameen Fund, Venture Investment Partners Bangladesh

Limited (VIPB), Midas Financing Limited, and Infrastructure Development Company Limited (IDCOL).

These companies invest from their own funds or from borrowed funds. Well-known BRAC Enterprises

not only invests in ventures but also manages them, whilst ASA, one of the largest NGOs in the country

and manager of the Catalyst Microfinance Investors (CMI) fund, only invests in NGOs.

Banking institutions

Recently banks are heavily investing in the agro-based and SME sector due to incentives given by the

Bank of Bangladesh. Banks will typically provide debt financing and sometimes seed money for an

infrastructure mutual fund. BRAC Bank Limited, the country’s largest SME financier, has hel ed to

create many jobs. Prime Bank Limited and National Bank Limited on the other hand, focus on

infrastructure mutual funds.

Appendix 7: Co-investors

Industrial and Infrastructure Development Finance Company Limited – The Industrial and

Infrastructure Development Finance Company (IIDFC) Limited is a development finance

institution sponsored by ten commercial banks, three insurance companies and the Investment

Corporation of Bangladesh. This non-bank financial institution offers various types of financial

services including term financing, lease financing, syndicated financing, SME financing, and

acquisition of public sector enterprises amongst others. The company has also started capital

market services through its two subsidiary companies – IIDFC Securities Limited, a stock broking

company, and IIDFC Capital Limited, a full-fledged merchant bank.

Though IIDFC is interested to invest in this fund, they are now facing a severe liquidity crisis with

the com any’s in estment in its two su sidiaries, IID C Securities Limited and IID C Ca ital

Limited. Their investment of BDT 2 billion (USD25.6 million) is not providing any return to the

parent though IIDFC has to expend interest expense to the depositors. For this reason, IIDFC is

not in a position to invest in equity although they may consider investing in this fund if the

situation changes for the better.

Investment of IIDFC in this fund may be in the range of US$5 to 6 million. For providing this

fund, the investor would expect at least a 1 percent spread over their cost of funds. Although

IIDFC normally earns an interest spread of 3 to 3.5 percent in their loans, it would agree to less

due to their interest in making a social contribution. This would put their hurdle rate of return

at around 12-15%.

Though the fund manager may invest in any viable sector, IIDFC believe investment in the

Health Care and Education sectors are the best placed to create significant social returns to

society as a whole.

Prime Prudential Fund Limited – Prime Prudential Fund (PPF) is a public limited company whose

main objective is to manage funds of the company and its investors and provide other financial


services such as corporate advisory, merger & acquisition, equity investment, joint venture

sourcing and socio economic consultancy. Prime Finance & Investment Limited, one of the

country’s largest non-bank financial institutions, owns 40 percent of the shares in the company.

PPF is not interested in being a co-investor in the ADB fund at a 10-15 percent fund return. PPF

considers this to be too low -- they can earn that interest rate almost risk-free in a bank account.

If the fund can provide IRR of 30 percent (local currency), the company may consider investing

around US$3 million. Among the other terms, the company would require a 15 percent hurdle

rate and high water mark provision in the fund structure. Furthermore, PPF would expect ADB

to select a fund manager with adequate experience in managing private equity funds.

Whilst PPF is sector-agnostic, they would expect the fund to invest in companies which may be

brought to IPO within 3 to 5 years post-investment with the investment being floated in a bull

market – a challenge for early start-ups. While choosing companies, the company would like to

see the fund give importance to the integrity of the entrepreneur due to transparency and

corporate governance being a serious issue in Bangladesh. Prime Prudential would only be

interested in a full equity fund. Employment generation and goods and services creation for low

income segments are considered as social return objectives.

Caravel Management, LLC – Caravel Management, LLC, founded in 2004, is a New York-based

investment manager dedicated to investing in the beyond-BRICs Emerging and Frontier Markets.

Caravel Management seeks high returns through value investment around the world. They are

actively making investments in countries of Asia, Latin America and Africa.

Caravel Management, LLC is already operating its first hedge fund, Caravel Fund which is

providing 18 percent return on average since inception. Current assets under management of

this fund are US$ 200 million. This particular fund cannot invest directly in private equity,

However, Caravel Management is interested in Inclusive Business private equity funds and

would be interested in investing if they launch a second fund which allows investments in

private equity.

Though Caravel Management, LLC is interested in contributing to society, the company

considers that the target IRR of the investment should be at least 25 percent if it is a full equity

fund. Of all of the exit options, Caravel Management believes IPO would provide the best

financial return.

Professor Mahbub Ahmed – Prof. Mahbub Ahmed is a renowned academic, businessman and

social worker who currently teaches at the Department of Accounting, University of Dhaka.

Prof. Mahbub has business stakes in many financial institutions including banks and brokerage

houses, and has served for the last seven years as the Vice Chairman of Alhaj Abu JorGhifari

Donor Trust, a social welfare organization with an asset size of BDT 500 million (USD6.4 million).

Though Professor Mahbub does not currently have an interest in investing in this fund, he would

consider investing US$2-3 million in the future based upon a number of specific terms and


conditions, including social impact and the inclusion of religious students as beneficiaries of the

fund.

Whilst social return is a key criterion, an IRR of 15 to 20 percent would be required to meet

normal commercial expectations -- normal bank deposit rates in local currency. With regard to

measuring social return, Prof. Mahbub would like 10,000 low income people set as a target as

beneficiaries of the Investment in the Education and Agriculture sectors are considered the

most viable for this fund in order to create both financial and social returns. The low level of

education of Bangladeshi eo le and the ossi ility of a large num er of eo le’s engagement

in agriculture are reasons given for the sector selection. IPO is considered the most viable exit

option for a private equity investment.

Appendix 8: Overview of relevant donor partners

An overview of the current programmes and initiatives of donors including both bilateral aid agencies

and Development Finance Institutions that are relevant to the development of Inclusive Business in

Bangladesh follows. These donors may be involved in:

Funding activities – Such as grants, loans, and guarantees

Advice & brokerage – Providing guidance on Inclusive Business models, value chain

development, linking / networks

Implementation support – Leveraging local offices, skilled local staff, technical experts and

networks

Policy dialogue & development of business friendly environments – Help with advocacy to

develop or revise legislation to attract investment and support PSD and Inclusive Business)

Figure 47. Current activities of key bilateral aid agencies and DFIs in private sector development

Funding

Advice & brokerage

Implement-ation support

Policy dialogue, development of business friendly environments

Inclusive Business relevance

Grants, loans, guarantees Investment

Bilateral aid agencies

DANIDA Medium

DFID * High

EC Low

JICA Low

Netherlands Embassy % Medium

SIDA Medium

DFI funded investors Frontier PE Fund

1 High


ICD-IDB2 Q Medium

Katalyst3 B High

SEDF (IFC)4 Medium

World Bank5 Medium

Other providers of support for IB BGCCI Low

Solidaridad Low

1 CDC, IFC, FMO, Norfund; 2 51 IDB member countries & 5 public financial institutions; 3CIDA, Gov UK, Netherlands Embassy, GiZ, SDC; 4 IFC, DFID, NORAD; 5 IDA, DFID; *See SEDF; % See Frontier F; Q = Quasi; B = Broker

Bilateral aid agencies

As part of their Overseas Development Assistance (ODA) programs, a number of countries provide

funding and or support for Inclusive Business initiatives or run Inclusive Business related programmes

themselves.

DANIDA - The Business Partnerships Bangladesh programme supports sustainable development

and contributes to the economic and social development of Bangladesh by attracting Danish

technology and investment to the country's private sector. The programme establishes

profitable, long-term and mutually binding business-to-business co-operations between

Bangladeshi and Danish companies.

Department for Internal Development (DFID) - Four key programmes have relevance to the

potential ADB Inclusive Business Fund:

i) The Economic Empowerment of the Extreme Poor Programme aids the government of

Bangladesh to achieve Millennium Development Goal Target 1 and Target 2 on income,

poverty and hunger by improving the livelihoods of the extreme poor to scale, testing

innovative approaches to improve the livelihoods of the extreme poor, and through local

and national policy advocacy.

ii) The Urban Partnerships for Poverty Reduction Programme reduce urban poverty in

Bangladesh through empowering and supporting the urban poor to acquire the resources,

knowledge and skills they need to increase their income and assets.

iii) The Business Innovation Facility (BIF) helps the development and uptake of Inclusive

Business models by companies in developing countries by supporting companies that are

developing Inclusive Business projects (e.g. by brokering partnerships, signposting to other

sources of support, and / or sharing the cost of consultancy support). The BIF also provides

a gateway to the latest information, insights from peers, good practice, useful resources,

and lessons learnt about developing and implementing Inclusive Business.

iv) An Inclusive Business in Bangladesh Programme is currently in the feasibility design stage

that will scope, assess and design programming options for strengthening or facilitating the


establishment of Inclusive Business models that address the needs of the poor as

consumers, producers, suppliers and distributors in Bangladesh.

European Commission (EC) Delegation to Bangladesh – The EC’s SME Competitiveness Grant

Scheme reduces poverty in Bangladesh by supporting the development of SMEs in cluster and

value chain development projects that clearly seek the increase in SME competitiveness in

priority sectors, as well as skills development and capacity building of business intermediary

organizations.

JICA – The Private Sector Development Project empowers developing countries to build

industrial bases, advance industry, increase job opportunities and create a society that can reap

the rewards of economic de elo ment through their own efforts. JICA’s strategy for achie ing

this is by promoting trade and investment, SMEs, and local industry and economies.

The Netherlands Embassy – The Private Sector Development Programme works to improve the

enabling environment for doing business in Bangladesh to reduce poverty via sustainable and

pro-poor economic growth through enhancing its business enabling environment in areas such

as policy development. A second programme, Private Sector Investment (PSI), stimulates

financial growth, creates employment opportunities and generates income in developing

countries by providing Dutch companies with an opportunity to make an innovative investment

together with a Bangladeshi partner.

SIDA – The Innovations Against Poverty Programme supports sustainable business ventures to

impact on poverty reduction by providing a risk sharing mechanism for sustainable business

ventures.

Investors funded by Development Finance Institutions (FDI funded investors)

The following investors differ from commercial investors in that their funds come from bilateral and

multilateral agencies. Due to multi-lateral agencies often not permitted to invest directly in businesses

in host countries, equity investments are made through Development Finance Institutions (FDI) such as

the IFC, CDC (funded by DFID), FMO (funded by the Government of the Netherlands), and Norfund

(funded by NORAD). In most cases, these entities invest in private equity funds with a footprint in the

country in question (i.e. through a fund of funds approach). Others may also make equity investments

directly in businesses.

CDC, IFC, FMO, Norfund – Invests in the development of capital markets and institution

building, infrastructure, general manufacturing and services, and innovative projects in health

and education. Investment may be in listed securities as well as the securities of privately-held

companies in Bangladesh.

ICD-IDB – The Global Line of Finance Programme aims to provide lines of financing to qualified

local financial institutions to support SMEs in Bangladesh by extending lines of financing to

commercial banks and national DFI.


IFC, DFID, Norad – The South Asia Enterprise Development Facility assists sustained growth and

development of SMEs in order to reduce poverty in South Asia. Key strategies include the

provision of access to finance, increasing the competitiveness of SMEs in selected sectors by

addressing the overriding market failures within the value chain, and facilitating the easing of

constraints to business operation, formation and expansion.

SDC, CIDA, Gov UK, Netherlands Embassy7 – The Katalyst Programme (Phase 2) benefits the

poor as producers, entrepreneurs, employees or consumers through market development on an

economic sector-wide basis, targeting growth opportunities and removing constraints.

World Bank – The Private Sector Development Project8 aims to increase transformative

investments and enhance the business environment by supporting Economic Zones (Private

Sector Development), providing long-term finance (including housing and capital market), and

by strengthening the micro-finance sector.

Appendix 9. Private sector mapping survey

About the company

1. 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 % Market Share

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

Information Technology

7 Phase 1 was funded by DFID, SDC, SIDA and implemented by Swisscontact, GiZ (GTZ at the time) and the Ministry

of Commerce of Bangladesh 8 Funded by IDA and DFID


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 Proprietorship Partnership Listed Company Unlisted Company

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

Product and/or Service Annual Sales % Contribution

1.

2.

3.

4.

5.

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

4. Please provide a brief overview of the relative market share of each of these products/services vis-

à-vis your competitors nationally and where relevant internationally over the past 5 years.

Product and/or Service Domestic Market Share International Market Share

´07 ´08 ´09 ´10 ´11 ´07 ´08 ´09 ´10 ´11

1. % % % % % % % % % %

2. % % % % % % % % % %

3. % % % % % % % % % %

4. % % % % % % % % % %

5. % % % % % % % % % %

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

6. Please describe what percentage of your business is domestic and what percentage is for exports? How has that changed over the past 5 years? What has driven these changes?

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

8. What do you see as the 3 main barriers to the growth of your company? Please rank the top 3 with 1 being the most significant barrier.

Opportunity Select 3 Opps ONLY Rank (1-3) 1= Highest

Favourable business climate

Growing consumer confidence

Increasing export opportunities

Rise in domestic consumption

Company Innovation


9. What do you see as the 3 main opportunities to accelerate the growth of your company? Please rank the top 3 from highest to lowest.

Obstacle Select 3 Obstacles ONLY

Rank (1-3) 1= Highest

Poor business climate and regulatory environment


Poor Infrastructure

High cost of inputs

High labour costs







10. What are the most significant risks facing your company in the following areas? Please provide examples where relevant in 3 of the most significant risks:

a) Regulatory? b) Financial? c) Supply Chain? d) Labour? e) Competitive? f) Environmental? g) Social? h) Political?

About working with the low-income segment

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

$1/day

$2/day

$3/day

$4/day

$10/day

New customer segments in the BoP

Government incentives/reduced taxes

M&A Opportunities for company to expand

Increased access to capital


Lower input costs


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

13. 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.

14. Is the low-income segment important to your company´s current business model? Do you have plans to consider making it a priority over the next 5 years? If so, why? If not, why not?

15. What would be the main reason for you to more actively incorporate the low-income segment within your company´s business strategy? Please select and rank the top 3.

16. Does your company currently have a commitment to corporate social responsibility (CSR)? If so, please describe it in more detail. How do you report on your CSR performance? What percentage of your overall budget in percentage terms would you say your company invests in CSR each year?

17. What has been your company´s commitment to environmental sustainability? Please describe it in more detail

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

POTENTIAL, CURRENT OR NO ENGAGEMENT WITH THE LOW INCOME SEGMENT

Please complete questions 20 – 29 if your company is currently engaged with the BoP.

Please complete questions 30– 36 if your company has plans to engage with the BoP in the near future (next 18 months)

Please complete question 37 – 39 if your company has no plans to engage with the BoP.

Reason Select 3 Reasons ONLY

Rank (1-3) 1= Highest

Increase company growth and profitability

Strengthen company reputation/brand

Comply with Corporate Social Responsibility Strategy/internal requirements

Comply with government regulations

To gain first mover advantage in this market segment

To localize my company´s supply chain and reduce associated costs

To secure a long-term license to operate

To 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


Current engagement with the low income segment only

19. Does your company currently engage with the low-income segment in the following ways? Please check all that apply.

20. If your company is engaging with the BOP in the aforementioned business models, how many people are currently being impacted by your company using this approach? Please estimate impact numbers per applicable business model.

21. In your company´s engagement with the BOP, what have been the benefits to the BOP? Please rank the top 3 benefits.

22. In your company´s is engagement with the BOP, what have been the benefits to the Company? Please rank the top 3 benefits.

Inclusive Business Model Currently Engage

BoP as employees BoP as suppliers of raw materials BoP as distributors of goods and/or services BoP as consumers of your company´s products and/or services

Inclusive Business Model Currently Engage Number of Beneficiaries

BoP as employees

BoP as suppliers of raw materials

BoP as distributors of goods and/or services

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


Rank (1-3) 1=greatest benefit


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


Secure and long-term buyer of goods and services



Improved nutrition


Access to housing

Other: Please specify:

Reason Select 3 Benefits ONLY

Rank (1-3) 1= greatest benefit

Cheap labour supply


23. What Percentage of your overall business is related to the BOP?

24. Please provide the percentages through which you involve the BOP in any of the following ways:

As suppliers As Consumers As Employees As distributors

%%

%

%

%

25. Considering the importance of job creation to long term growth, how many people does your company employ directly? How many would you say are employed indirectly (indirectly refers to people who are not on your company´s payroll but still compensated by your company)? What percentage of direct and indirect employees are from the low-income segment?

26. Please describe two initiatives (the most successful or with the best potential) through which you are actively engaging in a BOP-focused business venture/project? How did you 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 the low-income participants involved? What have been the lessons learned? Did you partner with any organizations to achieve your objectives? Did you require additional capital to develop the initiative?

27. What obstacles have you encountered when developing an inclusive business iniative with the BOP?

New, highly profitable (high volume, low margin) consumer market


Lower transaction costs in supply and/or distribution

Improved reputation/brand equity in local and international market

To create shared value

To contribute to sustainable development

Improved results for CSR Report

Favourable engagement with national government

Improved sales

Improved profits

Innovation


Obstacle Select all that Apply

Rank them (1= greatest obstacle)

Lack of information about the BoP (i.e. consumer behaviour, needs, productive capacity, etc)

Lack of access to relevant technology critical to the inclusive business initiative

Lack of appropriate distribution channels

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

Start-up costs for the inclusive business initiative were too high

Lack of management buy-in and company support

Lack of organizational capacity and organization among supplier (if applicable)

Insufficient volume with sufficient margins to make business viable


28. Considering the risks involved, would there be a need for a technical assistance facility that 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?

Potential engagement with the low income segment

29. Does your company plan to engage with the low-income segment in the following ways? Please check all that apply.

30. If your company WERE planning to engage with the BOP in the near future through the aforementioned business models, how many people would you say might be impacted by your company using this approach? Please estimate impact numbers per applicable business model.

31. If your company is plans to engage with the BOP, what benefits to the BOP do you aim to achieve? Please rank the top 3 benefits.

Lack of finance to kick-start the project

Lack of trust between the company and the BoP

Lack of company capacity to effectively develop the inclusive business project

Negative perceptions about the value of the opportunity with the BoP

Inclusive Business Model Plan to Engage

BoP as employees BoP as suppliers of raw materials BoP as distributors of goods and/or services BoP as consumers of your company´s products and/or services

Inclusive Business Model Potentially Engage Number of Beneficiaries

BoP as employees

BoP as suppliers of raw materials

BoP as distributors of goods and/or services

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


Rank (1-3) 1=greatest benefit


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


Secure and long-term buyer of goods and services




32. If your company is planning to engage with the BOP, what are the benefits to the company? Please rank the top 3 benefits.

33. What Percentage of your overall business would you expect to be related to the BOP? Specifically, what percentage of your sales would you expect to be generated as a result of goods and services provided to the low income segment? What percentage of your company´s suppliers would you estimate comes from the BOP? What percentage of your labour force (both direct and indirect) comes from the BOP?

34. Please describe two initiatives (the most successful or with the best potential)you are contemplating through which you plan to actively engage in a BOP-focused business venture/project? How would you identify and develop the opportunity? What would you consider to be the business need to be identified? Why would you engage the BOP? What could be the impact to your company and to the low-income participants involved? Would you partner with other organizations to achieve your objectives? Would you require additional capital to develop the initiative?

35. Considering the risks involved, would there be a need for a technical assistance facility that 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 potential inclusive business initiative succeed?

No engagement with the low income segment

36. What are the main reasons for which your company is not interested in engaging in business models that could integrate the BOP within your company´s value chain? What evidence or argumentation would make you reconsider?

37. Are there any market OPPORTUNITIES THAT could yield additional benefits to your company?

Improved nutrition


Access to housing

Reason Select 3 Benefits ONLY

Rank (1-3) 1= greatest benefit

Cheap labour supply

New, highly profitable (high volume, low margin) consumer market


Lower transaction costs in supply and/or distribution

Improved reputation/brand equity in local and international market

To create shared value

To contribute to sustainable development

Improved results for CSR Report

Favourable engagement with national government

Improved sales

Improved profits

Innovation


38. If you were provided with patient capital provided through a technical assistance facility to develop an inclusive business pilot to demonstrate proof of concept, would you reconsider?

About financing and financing Inclusive Business

39. What sources of financing have you used in the past? What amounts and under what conditions? Please check all that apply.

40. Have the investor(s) made the anticipated return? If not, why not?

41. What are the current Financing (both debt and equity) options in Bangladesh? Explain under what terms each of these options operate (i.e. In terms of interest rates, collateral or guarantee requirements, etc)

42. What role did the investors take in the management of the company (i.e. General Partner, Limited Partner, etc)

43. Is your company interested in receiving financing designed to support the development of inclusive business initiatives within your company?

44. If so how much financing would your company require (in USD) for this initiative? What would the funds be used for primarily (i.e. Working capital, marketing, capital investments, etc)

45. What type of financing would you consider? Debt? Equity? Guarantees?

46. Under what terms would you consider financing? Within what time frame?

47. 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 people impacted by increased income, employment opportunities, standard of living, etc)?

48. Does your company currently have a source of financing that supports your BOP activities? If so, please describe the type of financing, terms, amounts and returns provided where possible.

Follow-up

49. Would you like to receive further information about financing opportunities from the ADB and/or SNV to support inclusive business development in your company?

50. Would you like to receive additional information about inclusive business and be added to our newsletter through which you can receive regular updates as to inclusive business activities worldwide?

Financing in use or used Terms(Rate/currency/period) Amount

Equity Investment

Debt

Guarantee

Grant

Other:


Appendix 10. Fund manager & co-investor survey

General information for the fund and interviewee

1. Fund Information

a. Name of Fund Management Company:

b. Geographic Focus:

c. Website:

2. Fund Manager (Company)

a. Name of Fund:

b. Address:

c. Province:

d. District:

e. Specific Fund website (if any):

3. Interviewee Contact Information

a. Name:

b. Position:

c. Telephone:

d. Email:

1. Please describe your fund´s investment strategy. What are the kinds of investments you are 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 to engage with the low income segment for business reasons? would you consider this as important criteria now or in the future and why?

Investment climate and economic outlook

3. What is your general outlook for the economy of Bangladesh over the next 12 months? Why?

Positive Neutral Negative

4. What is your general outlook for the economy of Bangladesh over the next 5 Years? Why?

Positive Neutral Negative

5. Of the following issues, please rate the degree to which the following are Obstacles to investment in Bangladesh. 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/Instability Competition with State-owned Enterprises Real Estate Ownership Laws Private Equity Regulation or Lack Thereof Physical Infrastructure Other (please specify):

6. What are the Main reasons for Investors to Invest in Bangladesh? Please rate the Degree to which the Reasons are Important.

Issue Very Important Important Not Important

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 Potential local market Other (please specify):

7. How attractive do you think Bangladesh would be for Private Equity Investments vis-à-vis other countries in South Asia? Why?

Extremely Attractive Very Attractive Neutral Less Attractive Not Attractive

8. How attractive do you think Bangladesh would be for Social Investments vis-à-vis other countries in South Asia? Why?

Extremely Attractive Very Attractive Neutral Less Attractive Not Attractive

Industry/ sector investment /company attractiveness


9. Please provide your Investment attractiveness rating for the following Industry Sectors in Bangladesh. Please rate them as a) Very Attractive; B) Attractive; C) Neutral; or D) Negative.

Sector Very Attractive Attractive Neutral Negative

Education Banking and Financial Services (including microfinance)

Real Estate/Property/Construction 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 Information Technology Energy (including renewables) Textiles and Garments Water and Sanitation Life Insurance (including micro-insurance)

9a. Why have you rated some of these industries as Very Attractive?

9b. Why have you rated others 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 portfolio? Please mark the sector(s) and the estimated percentage (note: total percentage cannot exceed 100%)?

Sector In Portfolio Percentage

Education %

Banking and Financial Services (including microfinance) %

Real Estate/Property/Construction %

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 %


Information Technology %

Energy (including renewables) %

Textiles and Garments %

Water and Sanitation %

Life Insurance (including micro-insurance) %

11. Of the following industries, please rate which ones may present the best and most viable opportunities for businesses to integrate the low income segment as consumers, suppliers, distributors and/or employees within their business model.

Sector Most Viable Viable Neutral Unviable

Education Banking and Financial Services (including microfinance)

Real Estate/Property/Construction 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 Information Technology Energy (including renewables) Textiles and Garments Water and Sanitation Life Insurance (including micro-insurance)

11a.Why are the industries you selected most viable for investment in business models with the low-income segment? Please explain.

11b.Considering these sectors, which of the following inclusive business approaches -- including the low-income segment as a) suppliers, b) distributors, c) consumers and/or d) employees-- would generate the best mix of social and financial returns? Why?

12. From your Investment experience, please select and rate (1-6 with 1 being Most Preferred) the financial instruments preferred by your investees, indicate what percentage of your investment portfolio is currently allocated per instrument and the average deal size and returns obtained?

Financial Instrument Check if part

of portfolio

Rank (1-6)

1 = most preferred

% of

Portfolio

Average

Deal Size

Average

Returns

Equity

% $ %

Debt

% $ %

Credit Guarantee

% $ %


Blended (Debt+Equity)

% $ %

Grant

% $ %


% $ %

13. If you were to consider developing a social investment fund to finance business models that target the low-income segment, please indicate the financial instruments that are likely to be preferred by investees, their ranked preference, potential % of the funds portfolio, and the average deal size and returns you would expect per financial instrument.

Financial

Instrument in a

SOCIAL

INVESTMENT

FUND

Check if part

of portfolio

Rank (1-6)

1 = most

preferred

% of

Portfolio

Expected

Avg Deal

Size

Expected

Avg

Returns

Expected

Currency Term

In years

Equity

% $ %

Debt

% $ %

Credit Guarantee

% $ %

Blended (Debt+Equity)

% $ %

Grant

% $ %


% $ %

13a.Please explain why you would expect the aforementioned portfolio structure and expected returns in a Social Investment Fund?

Key factors in investment strategy

14. When considering the following most important factors in making a private equity or related investment in Bangladesh, please select and rank the top three below (1 being the most important):

Factor Select 3 Factors ONLY Rank (1-3) 1= Highest

Transparency in Business Activities

Growth history and projections

Quality of the Management Team

Company Track Record/Performance

Cash flow

Speed at which value can be created

Operational/Cultural Fit with Fund´s Goals

Brands/Products

Strategic Fit with Fund´s Strategy

Corporate Responsibility/Ethical Reputation

Other Reputable Investors

Anticipated Return


15. Why are these the most important factors?

16. Conversely, what would make you not invest? and Why?

17. Conversely, what would be the most important concerns/risks when making investments in Bangladesh? Please select up to 3 of the following concerns/risks and rate them in terms of their degree of importance (1 being the most important) degree of importance:

Factor Select 3 Factors ONLY Rank (1-3) 1= most important

Lack of Transparency

Poor Corporate Governance

Lack of Skills/Experience in Current Management

Limited or No Company Track Record

Poor business strategy/business plan

Lack of other investors/finance streams


No CSR/Stakeholder management strategy

Unclear/opaque financial reporting

Issues with current shareholders

Conflict of Interest

Difficulty to exit

17a. Why have you selected these three concerns as the most important?

18. What are the greatest challenges to starting a private equity fund in Bangladesh and why?

19. What are the current opportunities for private equity fund development in Bangladesh? Why are these opportunities most promising?

20. What are the best performing private equity funds in Bangladesh and why do you think these funds are the best performing?

Key factors when considering the low-income segment (please answer these questions even if you have

not made prior investments in business models serving the low income segment)

21. When considering (or if you were to consider) the most important factors in making a private equity investment in an Inclusive Business venture in Bangladesh, please select and rank the top 3 most important factors.

Factor Select 3 Factors ONLY Rank (1-3)

1= most important

Viability of Business Model

Company Track Record with the BoP

Potential for Social Returns (>5,000 people impacted)

Potential for Financial Returns (>15%)

Innovation Potential

Strategic Alignment with Investment Strategy


Prospects for Growth

% contribution of inclusive business to overall company growth/bottom line

Quality of product/service being proposed

Presence of other reputable investors

Overall company reputation/brand

Clear pathway to exit

21a.Please explain why these 3 factors are the most important.

22. Conversely, which of the following issues would you consider the top 3 greatest concerns when making inclusive business investments in Bangladesh?

Concern Select 3 ONLY Rank (1-3)

1= greatest concern

Lack of Skills/Experience in Current Management especially with the BoP

Lack of Grant Funds/Technical Assistance to mitigate BoP associated risks

Weak prospects for social returns/impacts on the BoP

Limited or No Company Track Record with the BoP

Poor business strategy/business plan to create value for the BoP

Lack of other investors/finance streams


No CSR/Stakeholder management strategy

Unclear/opaque financial reporting

Weak prospects for significant financial returns

Risks associated with proposed BoP suppliers, distributors and/or employees

Difficulty to exit

22a. Please explain why you selected the aforementioned concerns?

Obstacles to starting an Inclusive Business private equity fund in Bangladesh

23. What would be the greatest challenges, obstacles or barriers to starting a private equity fund focused on inclusive business in Bangladesh and why? Do you think there is a real opportunity? Why or why not?

24. If you were to create an Inclusive Business-Focused Private Equity Fund in Bangladesh, what would be the greatest obstacles to effectively capitalizing and managing a successful fund (please select and rate the top 3 obstacles)?

Obstacle Select 3

Obstacles ONLY

Rank (1-3)

1= greatest obstacle

Lack of a viable pipeline of inclusive business opportunities

Lack of investor interest to capitalize an Inclusive Business Private


Equity Fund

Lack of Technical Assistance support to Mitigate Inclusive Business-related risks

Negative perception regarding possible returns of a private equity fund targeting the BoP

Lack of fund managers with required expertise and/or motivation to manage such a fund

Perceived Risks far outweigh returns

Lack of Government Incentives to support BoP-related investments

Lack of standard metrics by which to assess social/financial returns

Lack of bi-lateral/multi-lateral funder interest to complement fund managers

Ethical Reasons

24a.Please explain why you selected these top 3 obstacles?

25. Can all of these obstacles be overcome? If yes, how would you overcome these obstacles?

26. Considering the risks involved, would there be a need for a technical assistance facility that 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?

27. If the ADB Investment is capped at US$10 - 20 million for this Fund in Bangladesh, 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 remaining US$80 – 90 million?

28. Would you be interested in managing such a fund? Why or why not?

29. Please describe the kind of investors you would target for this fund (i.e. other fund managers, donors, multilateral financial institutions, etc.) What is their risk profile and what kind of financial and/or returns do you think they might expect?

Factors to measure success in private equity investments

30. Other than the IRR, How would you define success for a private equity fund? What are the current metrics you use?

31. 30a. Are you aware of and/or do you use any established metrics systems to assess the financial and social impact of your fund like GIIRS?

32. If you are currently managing or were to manage a portfolio of private equity investments focused on creating value for the BoP, what would be the kinds of metrics you would use to measure the success of the fund?

33. What would you consider the most important factor when measuring the success of an Inclusive Business Private Equity fund in Bangladesh? Please provide an example of a quantifiable metric (i.e. 25% IRR, 10,000 served, etc.) that would qualify as success.

Factor Select 1 Factor ONLY Metric

Social Return

Financial Return


Greater Social Return than Financial Return

Greater Financial Return than Social Return

Equal Social and Financial Return (provided it can be measured)

34. What do you consider the most attractive exit strategy for your investments?

IPO Trade Sale Secondary Sale Refinancing

33a.Please explain why.

Social investment strategies and considerations

35. Do you currently make investments based on their potential for social impact? If so, what are the kinds of investments you have made of this type?

36. 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?

37. What is your preferred term for the investments you could make in the social investment marketplace?

38. If the investment were to be debt rather than equity, what would you consider to be competitive terms in the current market in Bangladesh?

39. If the investment were to be equity, what position would you normally take (Stake and Role)? Please provide an example.

40. What incentives would you integrate into the design of the Inclusive Business Private Equity Fund to attract investors/Fund Managers? What would be the critical success factors in your opinion?

41. What kind of real and/or perceived benefits, if any, does the anchor investment by the ADB in this type of fund provide?

Investigating the potential of an Inclusive Business Fund...

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