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Developing the Business case for Investing in Inclusive Business in the Mekong

A Market Brief
September 2012

Asian Development Bank

Developing the Business Case for Investing in Inclusive Business in the Mekong:
A Market Brief

Asian Development Bank

2012 Asian Development Bank

Written by W. Robert de Jongh, the Red Mantra Group. All rights reserved. Published 2012. Printed in the Philippines.

Publication Stock No. RPTXXXXXX Cataloging-In-Publication Data Asian Development Bank and SNV. Developing the Business Case for Investing in Inclusive Business in the Mekong Mandaluyong City, Philippines: Asian Development Bank, 2012. 1. Inclusive Business. 2. Mekong. I. Asian Development Bank.

The views expressed in this publication are those of the authors and do not necessarily reect the views and policies of the Asian Development Bank (ADB), its Board of Governors, or the governments they represent. ADB does 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 does not intend to make any judgements as to the legal or other status of any territory or area. ADB encourages printing or copying exclusively for personal and noncommercial use with proper acknowledgement of ADB and the authors. Users are restricted from reselling, redistributing, or creating derivative works for commercial purposes without the express, written consent of ADB. Note: In this publication, $ refers to US dollars. 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

Printed on recycled paper.

Contents
Executive Summary I. Background The ADBs Inclusive Business Initiative Purpose of and Approach to the Market Brief The Mekong: A Snapshot II. Inclusive Business and Social Enterprise Inclusive Business and Social Enterprise Dened Inclusive Business and Social Enterprise in the Mekong Vietnam
The Context The Opportunity Sector Opportunities for Inclusive Business

6 10 11 12 13 16 16 19 21
21 21 22

Lao PDR
The Context The Opportunity Sector Opportunities for Inclusive Business

27
27 27 28

Cambodia
The Context The Opportunity Sector Opportunities for Inclusive Business

31
31 31 32

Thailand
The Context The Opportunity Sector Opportunities for Inclusive Business

34
34 34 35

Developing the Business Case for Investing in Inclusive Business in the Mekong Page iv

Myanmar
The Context The Opportunity Sector Opportunities for Inclusive Business

36
36 36 37

III. Inclusive Business Opportunities Overview of the Inclusive Business Opportunities 1. Inclusive Business Case Study - Green Energy Biomass, Vietnam

38 38 39

2. Inclusive Business Case Study - Huong Hoa Tapioca Starch Factory (SEPON), Vietnam 40 3. Inclusive Business Case Study - TPC, Cambodia 4. Inclusive Business Case Study: Duc Viet Foods JSC, Vietnam 5. Inclusive Business Case Study: ANTESCO JSC, Vietnam 6. Inclusive Business Case Study - Acleda Bank Lao Ltd., Lao PDR 7. Inclusive Business Case Study - IPR Ltd, Cambodia 8. Inclusive Business Case Study - Urmatt Ltd., Thailand 9. Inclusive Business Case Study - Nestl, Vietnam 10. Inclusive Business Case Study - First Finance PLC, Cambodia 11. Inclusive Business Case Study - Sunlabob Renewable Energy Ltd, Lao PDR 12. Inclusive Business Case Study: Hydrologic Social Enterprise, Cambodia 13. Inclusive Business Case Study - Shan Maw Myae Co, Ld, Myanmar 14. Inclusive Business Case Study - Proximity Designs, Myanmar 15. Inclusive Business Case Study, WING, Cambodia IV. Conclusions and Recommendations Appendices 41 42 43 44 45 46 47 48 49 50 51 52 53 54 58

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Executive Summary

Executive Summary
One of the key leadership challenges of our time is to nd new ways to harness the innovation, technology, networks and problem-solving skills of the private sector, in partnership with others, to support international development goals. And to do so in a manner that makes sound business sense, and does not replace or undermine the role of government. Business leaders have a growing interest, both in terms of risk management and harnessing new opportunities, to get engaged. Partnering for Success: Business perspectives on multi-stakeholder partnerships The World Economic Forum, the International Business Leaders Forum, and the CSR Initiative, Kennedy School of Government, Harvard, January 2005.

As part of its long-term Strategy 2020, the Asian Development Bank (ADB) has dened inclusive growth as one of its three main strategic pillars, aiming to broaden economic and social opportunities for lower-income and excluded groups in part through private sector development opportunities. Beyond large-scale infrastructure investments in the region, the ADB is also looking to tap into the innovation and entrepreneurial potential of social enterprise and inclusive business -- twin strategies that seek to create social value through scalable market-based approaches that generate market or above market returns.

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Executive Summary

This market brief was commissioned to determine the potential for inclusive business nancing and development in the Mekong region (Vietnam, Laos, Cambodia, Thailand and Myanmar). In builds on the results of two previous studies: a market scoping study of inclusive business in Vietnam completed in 2010 and updated in 2012, and a due diligence report for the Mekong region completed in 2011. The purpose was to answer three interrelated questions:

What is the relevance, market opportunity and feasibility for the development of an ADBsponsored inclusive business private equity fund in the Mekong? What are key risks to consider when developing an investment strategy? What inclusive business opportunities exist that could form the basis for an investment pipeline?

Following several on-the-ground assessments and due diligence of the Mekong region including interviews with fund managers, social entrepreneurs, company executives, donor agencies and other relevant stakeholders, and secondary research and analysis, the study concluded that despite numerous, but manageable risks, there is a unique opportunity for the ADB to sponsor the establishment of a Mekong Inclusive Business Private Equity Fund (Mekong Fund) that could a) meet underserved nancial needs in the market; and, b) contribute to accelerating the development of an emerging segment of wellmanaged and viable businesses focused on addressing critical market failures and systemic issues related to poverty, productivity, and sustainable livelihoods. In particular, the feasibility for the fund is due to the following reasons:

The regions dynamic growth coupled with substantial poverty and market failures creates opportunities for inclusive businesses that leverage countriesproductive base and entrepreneurial predisposition; There is signicant but unsatised demand for innovative nancial instruments that target inclusive business1 models in underserved markets; There is a favorable and nascent enabling policy environment that can contribute to accelerating inclusive business development There is a unique opportunity for the ADB to crowd-in other investors and catalyze the development of a new asset class that can enable market-led solutions to some of the regions most systemic poverty challenges; There are notable examples of viable businesses across the region that can be impactful, scalable, can generate above market nancial returns and form the basis for an investment pipeline; The Greater Mekong Subregional (GMS) initiative, initially sponsored by the ADB and which helps implement high priority projects ranging from transport to energy, agriculture to private sector investment, can be leveraged and optimized to support inclusive business development in the region due to some of its contributions to risk mitigation;

Due to recent political reforms and an investment gold rush, opportunities in other parts of the Mekong.

Myanmar in particular could

drive a renewed culture of social innovation and corporate responsibility that could strengthen

Inclusive business models are further dened on page 16.

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Executive Summary

Specically, this market brief reinforced the conclusions that:

A USD 80-100 million ADB-sponsored private equity fund focused on the Mekong region is feasible and should target USD 500K to USD 10 million dollar investments in equity and subordinated debt; Due to variable country risks and management capacity issues, the funds investment strategy should be lightly sector-agnostic (agribusiness, renewable energy, nancial services, consumer products focused on basic services) but geographically weighted (hedging risk by focusing on the larger countries in the region);

Despite an initial subsidized movement promoting social enterprise in the region, there is a growing segment of mature social enterprises requiring additional investment, particularly in equity, while there remains an increasing need of larger enterprises to share risk and move beyond a pilot phase to grow and scale their inclusive businesses with additional investment;

There is both company and fund manager interest in the ADB taking a leadership role in promoting inclusive business in the region and unlocking the potential for impact investment to target this emerging market segment; There are important risks in these markets ranging from opaque ownership structures to poor management and governance structures, volatile macroeconomic fundamentals and challenging operating environments. Notwithstanding, these risks can be adequately managed through an appropriate investment strategy and selection of the right fund manager to manage the fund;

Given management and operational limitations in the region, a USD 5 million regional technical assistance facility is proposed to provide pre- and post-investment management support to mitigate pre-investment and execution risks.

Considering the underlying rationale and main conclusions, this market brief recommends that the ADB:

Establish the Mekong Fund and accompanying TA facility in the near term to take full advantage of the increased awareness and potential for leverage generated through its fact nding, due diligence and fundraising eorts carried out across the region; Rene its investment strategy and fund design to comply with evolving standards, return expectations and risk management criteria. anticipated nancial returns; These renements should include a reassessment of geographic scope and the private equity/debt mix in order to better dene a clear route to the

Brand inclusive business as a means to accelerate the impact of second stage social enterprise opportunities as well as a means for larger companies to share risk when seeking to leverage the BoP as an integral part of their value proposition and business strategy; Outline the parameters, scope and functionality for the Technical Assistance Facility in order to ensure its relevance and strategic contribution to the objectives of the Mekong Fund, particularly in the context of risk mitigation and investment readiness of potential opportunities across the region;

Finalize the impact assessment parameters and tools to ensure the fund manager and investees are clear as to the expected standards, compliance and reporting mechanisms; Optimize complementarity and alignment with the GMS, public policy incentives and/or other donor/co-investor interests where relevant to maximize opportunities for synergy, risk sharing, and impact at scale.

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Executive Summary

Given the high rate of growth, increasing diversication, intra-regional trade, and improving infrastructure, the opportunities for inclusion across the economies of the Mekong as a strategy to mitigate the specter of inequality and social exclusion are notable. Establishing that inclusive business is not a byproduct of business as usual, but rather a core business strategy that can actively and measurably contribute to inclusive growth through enabling the active and qualied participation of the low-income segment in the creation of shared value, can make a meaningful contribution to addressing some of the regions most dicult social challenges. A Mekong Fund anchored by the Asian Development Bank can provide reasonable condence that these types of business models not only require careful consideration and attention, but also that they can supplement other large-scale development strategies being implemented in the region, critical for the regions sustainable future.

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I. Background

I. Background
For the past two or three decades, rising inequalityinequality of incomes, of economic outcomes and of economic opportunitieshas taken a back seat to the goal of boosting overall growth. But growing discontent with the fallout of the global nancial crisis has put inequality back on top of the policy agenda. While the symptoms may be dierent, tackling inequality is no less an issue in Asia. Indeed, research shows that inequality can be counterproductive to sustaining longer-term growth. So, in increasingly turbulent global economic times, this gives added importance to promoting sharedor inclusivegrowth in Asia that is more likely to be sustained.

Anoop Singh, Director, Asia and the Pacic Department, IMF

During the past twenty years, economic globalization, innovations in technology, and political liberalization have led to a remarkable transfer of assets to the private sector, bringing business to the fore of the international development agenda. Even though small and medium enterprise (SMEs) are considered to be the engine of growth and job creation in most countries, larger domestic enterprises and multi-national corporations have played an increasingly important role in economic development -- particularly given their economic footprint and inuence across their supply chains. At the same time, social enterprises nurtured over the past decade through a mix of angel investment and patient capital are reaching a tipping point. And, having demonstrated the proof of concept of their mission-driven

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I. Background

business model, some of these businesses require additional capital to scale. Under the right conditions and given the right business strategy, the private sector generally and these kinds of companies specically can oer immense potential to catalyze innovation, transfer technology, spur competitiveness, contribute to sustainable wealth creation, increase access to basic needs, and improve the livelihoods of million of people. This Mekong market brief (which includes Cambodia, Lao PDR, Myanmar, Thailand and Vietnam) is a supplement to the rst inclusive business investment fund market scoping study which focused exclusively on Vietnam. Much like the Vietnam report, this brief recognizes that as the Mekong region further accelerates its ambitious pace to integrate and consolidate economic and social performance, it not only has to sustain record growth, increased trade, foreign direct investment, and competitiveness, but also improve equity, equality of opportunity, and protection in market and employment transitions. While the Mekongs rapidly expanding private sector, nascent private equity markets, and policy reforms, are projected to be the driver of 7.2% economic growth in 2012, the BoP still comprises more that 43% of the population in the region.2 As such, unless both the pace and pattern of growth are addressed through specic policy and market interventions, there is a potential risk of increased inequity and unsustainable growth in the medium to long term. Providing medium and long-term capital, including risk capital, at competitive rates that complement and build upon the Mekong region s existing, but nascent growth-centered private equity market could be a useful incentive in raising awareness about the market opportunity for inclusive business ventures while establishing a new asset class for investments that could catalyze new investments with competitive returns into this underserved sector. This form of liquidity could help unlock the potential of entrepreneurs within the private sector to take risks pursuing innovative business models that contribute to record growth while creating shared value.

The ADBs Inclusive Business Initiative


Since 1990 the number of people in Asia and the Pacic living in extreme poverty, dened as earning less that USD 1 a day, has been reduced in half, to under 20% of the population. Cheap land and labor, globalization, technological innovation, and forward-looking policy interventions related to trade and social investment, have lifted hundreds of millions out of poverty. However, despite the spectacular statistics, poverty and the vulnerabilities associated with it remain entrenched, exacerbated by rising inequity and growing social exclusion. And more importantly, when a wider denition of poverty is applied (less that USD 4/day), almost 3 billion people, roughly 82% of the Asian population is considered part of the Base of the Economic Pyramid (BoP) as dened by the World Resources Institute.3 While the private sector has been a key contributor to the economic boom in Asia, it is increasingly 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. As one of the key multi-lateral nancial institutions operating in the Asia region, the Asian Development Bank (ADB), through its long-term Strategy 2020 has dened inclusive growth as one of its three main strategic pillars, which aims to broaden economic and social opportunities for lower-income and excluded groups. Inclusive business represents one such inclusive growth strategy -- catalyzing private
2

Based on population of people living on less that $2/day as per the World Bank, 2011. World Resources Institute and International Finance Corporation. (2007). The Next 4 Billion: Market Size and Business Strategy at

the Base of the Pyramid. Washington, DC.

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I. Background

sector development opportunities that through their business models accelerate economic growth while integrating the low-income segment into their value chains. Companies improve their bottom line while the low-income segment can benet through new income and employment opportunities and/or access to good and services that meaningfully contributes to their livelihoods. Since 2007, the ADB has taken proactive steps to further explore and develop the inclusive business concept as an important element of its private sector development strategy - leveraging lessons learned in particular from the IFC and the Inter-American Development Bank. (IDB). For example, in 2007, IDB President Luis Alberto Moreno created the Opportunities for the Majority (OMJ) to promote and nance market-based, sustainable business models that engage private sector companies, local governments and communities in the development and delivery of quality products and services for the BoP in Latin America. Through loans, guarantees, and grants, OMJ has sought to increase productivity, bring the poor into the formal economy, create jobs, address market failures that raise costs for those least able to aord them, and bring quality goods and services to the 360 million people in Latin America who are at the BoP. OMJ has built a portfolio of 35 investment projects for $220 million since it began operations in 2008. Building in part on this experience, the ADB developed the regional technical assistance project Promoting Inclusive Growth through Business Development at the Base of the Pyramid that aims to assess the feasibility of developing regional and/or country-based impact investment facilities/ private equity funds for BoP ventures in ten Asian countries (Bangladesh, India/Sri Lanka, Indonesia, Pakistan, the Philippines, and Vietnam/(Mekong which includes Laos, Cambodia and Thailand) while increasing awareness about the market opportunity for the same. The expected impact of the overall ADB initiative is to create a new class of private equity funds that can invest in innovative, replicable and scalable inclusive businesses that can in turn contribute to promoting inclusive growth in the region.4 In this regard, one of the key considerations that drives the analysis of this market brief is what are the critical success factors for inclusive business development in an emerging market region like the Mekong that would provide sucient deal ow and competitive social and nancial returns for an inclusive business private equity fund like the one being considered by the ADB. Recognizing that the private sector is the major contributor to economic growth and employment creation, promoting a more dynamic and vibrant private sector consequently has a central place in renewed eorts to reduce poverty. Notably, expanding market access to all private sector actors and improving how markets function can lead to more jobs, better returns on goods sold, greater aordability of essential goods and services, and reduced exposure to risk. When integrating the poor in this approach, the outcomes can signicantly inuence the pace and pattern of economic growth.

Purpose of and Approach to the Market Brief


The purpose of this Market Brief is to provide private sector examples and additional insights to substantiate the preliminary recommendations the ADB has made regarding the establishment of a Mekong Inclusive Business Fund in early 2013. It builds upon the ndings and recommendations of the market scoping study for Vietnam (completed in 2010 and updated in 2012) and summarizes to a large extent,

See Promoting Inclusive Growth through Business Development at the Base of the Pyramid (Project Note for the

revised ADB TA No.6518-REG) and www2.adb.org/projects/Base-Pyramid/default.asp.

Developing the Business Case for an Inclusive Business Private Equity Fund in the Mekong Page 12

I. Background

the due diligence conducted in Cambodia, Vietnam, Thailand in Laos in 2011.5

Both of these reports

conclude that there is an opportunity for the Asian Development Bank to sponsor the establishment of a fund (an IB Fund) which both contributes to poverty alleviation by addressing production, consumption and employment-related challenges that aect the BoP, and helps to build the base of wellmanaged, protable businesses in the target countries.
6

They also in turn recommend the develop-

ment of a Technical Assistance Facility to help nurture a pipeline of viable inclusive businesses, address pre-investment risks, and support the development, replicability and scalability of inclusive businesses once investments have been made. The approach used for the market brief included the following four elements: Desktop Analysis: Review of existing literature about private sector development, inclusive business, and impact investing in the Mekong and in Southeast Asia and analysis of 40 to 50 inclusive business and social enterprise case studies relevant to the Mekong region in particular; Market Research: Rapid assessment of the political landscape, economic policy and performance, operating environment, sector opportunities and prospects for an IB fund in the ve countries of the Mekong region (Cambodia, Lao PDR, Myanmar, Thailand and Vietnam); Company Interviews: Face-to-face interviews with 15 to 20 companies currently engaging in or interested in engaging in inclusive business strategies as part of their core business model in the countries of the Mekong (case studies are summarized in section III of this report. Due to the condentiality of some of the company information, all company names have been excluded from this report. The Asian Development Bank reserves the right to disclose additional information from these interviews on a case-by-case basis provided company consent is previously secured; Fund Manager Interviews: Engagement with fund managers and donors active in the Mekong region to gain insights from the current pipeline of investments and recommendations of portfolio companies that could be included in this report. Due to the limited scope and time for this assignment, the ndings and analysis considered herein are not a substitute for more extensive market research and due diligence that should be conducted if and when investment decisions are to be taken. Notwithstanding, this report provides additional insights into what a portfolio of potential investments might look like consistent with the ADBs planned inclusive business Mekong fund selection criteria and social and nancial return expectations.

The Mekong: A Snapshot


Driven by the acceleration of trade and investment, the Mekong is one of the fastest growing regions in the world and is often characterized as a success story of economic transition and integration. Policy reforms, economic liberalization, foreign direct investment and trade have catalyzed a regional reinvention that has assured that the Mekong outpaced economic growth in all of East Asia and the Pacic during the past two decades. This transformation contributed to dramatic changes in the structure of the economies in the Mekong: namely a gradual but important shift away from agriculture, increased diver-

The country analyses included in this report summarizes and complements the ndings included in the Due Diligence Report on

Cambodia, Vietnam, Thailand and Laos for the ADB Inclusive Business Fund undertaken by Noah Beckwith, Asian Development Bank, December 2011.
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Beckwith, Noah. Due Diligence Report on Cambodia, Vietnam, Thailand and Laos for the ADB Inclusive Business Fund. Asian Devel-

opment Bank, December 2011.

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I. Background

sication of these economies to include industry, manufacturing and services, focusing not only on the cheap supply of labor but also investing in developing value added products and services (see Table 1 below7 ). It also led to more regional integration, foreign direct investment (which was at USD 209 billion in 2010 or 48% of GDP) and intra-regional trade that has helped the countries in the Mekong improve their ability to withstand global economic shocks such as the recent Great Recession.

Source: The World Bank Trade Indicators 2009/10 and World Development Indicators, April 2011.

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I. Background

As noted in Table 28 , this economic transformation has contributed to and accelerated human development outcomes across the region. Infant mortality rates have dropped, literacy has improved, GDP per capita has almost doubled in most countries in the region, while poverty rates have fallen dramatically. Yes despite this impressive track record of growth in the Mekong, progress remains fragile. On the one hand, while extreme poverty rates (at USD 1.25/day) have fallen to below 35% in most parts of the region, the percentage of people living in poverty or who are deemed near poor continues to exceed 60% in most countries. On the other hand, critical inputs such as a stable and sustainable source of energy, nancial services for the unbanked and entrepreneurial small and medium size enterprises, reliable infrastructure and enabling environment for business development, are still either sub-standard or lacking altogether. Notwithstanding, the Mekong region contains numerous enabling conditions for inclusive business development including an increasingly inclusive public policy environment, growing foreign direct investment, market diversication including international, regional and domestic market segmentation, increasing awareness of impact investment and social entrepreneurship accompanied by an emerging private equity market that is contributing more and more to private sector development eorts. the Mekong. It is in part with this backdrop that this paper analyzes the potential for and current practice of inclusive business in

Source: The World Bank Trade Indicators 2009/10 and World Development Indicators, April 2011.

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II. Inclusive Business and Social Enterprise in the Mekong

II. Inclusive Business and Social Enterprise


Interest in impact investments in developing countries has grown in recent years for a variety of reasons. First, the slow growth of OECD economies and the high positive correlation among them, as shown by the recent global nancial crisis, have helped to shift interest towards the developing world. Second, the depletion of natural resources coupled with the rising demands of a growing world population will require more responsible and sustainable business practices.Impact investments oer a new approach in the way that they reduce the imbalance in the distribution of wealth between a company s ownership and the community in which it operates, while at the same time being respectful of the natural environment and its resources. In addition, these structures are readily applicable in the existing economic system. Responsible Research. Impact Investing in Emerging Markets, May, 2011.

Inclusive Business and Social Enterprise Dened


The ADB actively supports both social enterprise and inclusive business development as important market-based and entrepreneurial solutions to create long-term and sustainable social impact across Asia. For the purposes of this study, social enterprises are non-prot or for-prot entities whose primary mission are to create, sustain and relentlessly pursue social value (not just private value). As Professor J. Greg Dees suggested in his paper The Meaning of Social Entrepreneurship, social entrepreneurs and

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II. Inclusive Business and Social Enterprise in the Mekong

the social enterprises they often lead recognize that making a prot, creating wealth, or serving the desires of customers may be part of the model, but these are a means to a social end, not the end in itself. Prot is not the gauge of value creation; nor is customer satisfaction; social impact is the gauge.
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Social enterprises often start small, seeking to address root causes rather than symptoms of social and/or environmental problems through systemic change, and begin with modest investment -- a mix between patient (philanthropic) capital and nancial capital (though the latter is often reserved for later stage growth and scalability if and when the social enterprise reaches this stage). According to the results of the Regional Technical Assistance Project: Developing a Regional Social Investment Exchange Initiative: while there are many denitions of social enterprise, this report used the term to refer to an entity that meets the following key criteria:

exists primarily to create specic positive social and environmental impact (vs. ancillary or secondary development, such as a companys corporate social responsibility program); adopts a market orientation; focuses on nancial sustainability.

An SE meeting these criteria may be structured as a for-prot or a not-for-prot. Given the present surge of global interest in SEs, one may think that SE and social entrepreneurship are emerging phenomena. However SEs, primarily in micro-nance, have existed for over three decades. Some SEs have overcome barriers to scale and successfully merged an explicit and intrinsic social mission with commercial viability. Faced with challenges such a sunk costs in establishing their organizations, razor sharp margins in serving marginalized communities and challenging the hegemony of multinational and megacorporations, and operating with a permanent lack of available capital and credit, SEs such as BRAC and Grameen Bank in Bangladesh have successfully scaled to become multi-million-dollar enterprises. SEs may employ market-based solutions to tackle a given social or environmental challenge, but SEs often operate in the intersection of private, public and charitable sectors relying to a greater extent on the concerted eorts of parties in all sectors. Such SEs may take growth capital from commercial investors as well as impact investors, while also attracting donations from traditional philanthropic organizations, receiving support from governments and corporate social responsibility initiatives.
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In contrast to traditional social enterprise, inclusive businesses are dened as businesses that has found protable ways to integrate the low-income segment into their business operations in a way that benets these communities, creates sustainable livelihoods and generates shared value. Within this model, the low-income segment lls one or more of three important roles: consumers: new markets for aordable goods and services; distributors: new distribution networks; and suppliers: new sources of supply/inputs;

They can often be larger, well-established, viable businesses that are a) seeking to accelerate growth by pursuing new market segments and/or distribution channels and/or b) focused on mitigating supply chain, labour and reputational risks or they can be successful social enterprises with a proven business model that are seeking scale. Inclusive businesses maximize these opportunities and address these

Dees, J. Gregory. The Meaning of Social Entrepreneurship Asian Development Bank. Impact Investors in Asia: Characteristics and preferences for investing in social enterprises in Asia and

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the Pacic. Asian Development Bank, 2011.

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II. Inclusive Business and Social Enterprise in the Mekong

risks by integrating the low-income segment into their value chain in such a way that they contribute meaningfully to a companys bottom line by increasing prots 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. To the ADB, inclusive businesses tend to have the following characteristics that integrate both denitional and strategic/tactical considerations: 1. 2. 3. 4. IBs are strictly for-prot; IBs must be strictly core business; IBs must include the low-income segment within their business model through one or more of the following ways: as suppliers, as consumers, and as distributors; IBs must generate nancial returns. The level of returns depends on either investment criteria set by an impact investor, company ambition, strategy and business model or a combination of both. 5. Ideally, an inclusive business should generate market returns commensurate with their business model and risk prole; IBs must generate social returns. The scale and scope of the anticipated social returns will also depend on the investment criteria set by an impact investor, company ambition, strategy and business model, or a combination of both. 6. 7. 8. IBs are designed from the start with scale in mind to a) maximize and optimize their route to impact and b) maximize the creation of company value; IBs do not seek trade-os between nancial and social returns. Rather, they continuously seek solutions through which both can be optimized simultaneously; IBs often require blended capital priced for their their level of risk and relevant stage of development. 9. Therefore, dierent forms of capital (patient, debt, equity, and others) are often deployed at dierent stages of an IBs life cycle; IBs actively assess and measure both social and economic performance in a standardized manner; 10. IBs 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. See Figure 1 below. Beyond these standard attributes, the ADB in particular requires IBs to:

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II. Inclusive Business and Social Enterprise in the Mekong

11. Achieve at least a 15% gross nancial return; 12. Measurably and meaningfully impact at least 5,000 people during the investment period;11 13. Optimize their businesses value proposition in such a way that it also addresses a systemic and relevant poverty-related issue in a specic geographic context; 14. Demonstrate a clear route to impact; 15. Identify and manage pre- and post-investment risks. In summary, the ADB aims to target its investment strategy on a specic type of inclusive business -- it is by no means a generic approach to inclusive business development. As such, the ADB has a qualied perspective on selection criteria and focus: one that assures market returns or above and scalable, meaningful and measurable impacts on the livelihoods of the poor.

Inclusive Business and Social Enterprise in the Mekong


As a concept, inclusive business is relatively new in the Mekong region. However, as a practice, there are a number of existing initiatives in the region that, while not called inclusive business, meet many if not all of the aforementioned criteria. Some of the key aspects that lend themselves to an inclusive business predisposition in the Mekong include (but are not limited to): A long track record of micro-nance and micro-nance institutions that have historically used market-based strategies to increase the access of low-income families, particularly low-income women and rural communities, to nancial services. Micro-nance has laid an important foundation for the business community to recognize that serving the poor, while improving their livelihoods can be a protable and commercially viable eort; A rich tradition of social enterprise and social entrepreneurship inspired by leading social entrepreneurs from the region like Thailands condom king Mechai Viavaidya, Andy Schroeter from Sunlabob in Laos who was recognized as Asian social entrepreneur of the year in 2010 by the Schwab Foundation for Social Entrepreneurship12 ; Long-standing experience with contract farming models in rural areas through which rural farmers were assured certain goods, services and a xed price in exchange for their compliance with quality and productivity standards. Contract farming schemes across the region are varied, but in many cases have demonstrated shared value results; The emergence of an impact investment market targeting investments in early stage social enterprises and inclusive businesses, particularly in innovative solutions in value-added agricultural products and services along the value chain, renewable energy, and technology adaptation especially with regard to nancial services and market-related information management. While the aforementioned characteristics suggest that inclusive business opportunities do exist and have the potential to scale within the Mekong region, the challenges in the greater Mekong region remain signicant. From volatile macroeconomic fundamentals to poor management capacity and corporate governance or opaque ownership models to politically-directed lending, challenges abound. Nevertheless, a guided and strategic approach to deploying capital into the region to achieve a balanced port11

Total impact is case dependent. The number of beneciaries may vary based on the local context, business model and opportunity. A list of all Schwab Foundation Social Entrepreneurs can be found at

12

www.schwabfound.org/sf/socialantrepreneurs/proles/index.htm

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folio of social and economic returns could prove catalytic in unlocking the potential of a new asset class in the Mekong region -- essential for further spurring the private sector to shape the development agenda for years to come. Each of the country summaries below provides a summary of the context, opportunities and sectorbased opportunities for inclusive business. Furthermore, each summary includes the relevant Bertelsmann Stiftungs Transformation Index (BTI) Country Report Summary which provides qualitative comparative data on democracy, market economy and political management in order to assess the countries transformation status and challenges. From a regional perspective, it is evident that investment opportunities tend to be found in the same sectors across the region (agribusiness, renewable energy, light manufacturing, nancial services, and basic services including water and sanitation, health and education) given the concentration of low-income families in these areas. However, each country does have its own unique features and challenges that do not necessarily aect sector choices, but rather investment strategy and the allocation of capital in a Mekong Fund.

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Vietnam
The Context
Characterized by Goldman Sachs as one of the Next 11 -- Vietnam has been characterized as one of the countries that has a strong potential of becoming, along with the BRICS, one the worlds largest economies in the 21st century. While real GDP per capita grew by over 6.6 percent annually between 1998 and 2010 and lifted over 26 million people out of poverty, 43.4% still live on less than $2 per day and more than 65% on less than $3 per day.13 Despite public sector expenditure, foreign direct investment, and foreign aid, challenges of rising inequity, slowing growth, and fragile economic gains for the low-income segment have increased the interest to explore alternative market-based solutions -- solutions that contribute to long-term economic growth while materially and sustainably improving the livelihoods of the low-income segment. This is especially true It is given that Vietnam dropped 10 places to 75th in the World Economic Forums 2012 Global Competitiveness Report and plunged 41 places in its macroeconomic environment ranking (to 106th). therefore clear that the economic hardships created as a result of the Great Recession of 2009-2010 has accelerated the Vietnamese governments interest in addressing increasing ination, especially in the prices of staple foods and also taught the Vietnamese marketplace some valuable lessons about speculation, valuation, and over-reliance on export markets.

The Opportunity
While the Great Recession of 2009-2010 hit Vietnam particularly hard, causing wild uctuations in the stock market, the bursting of the Vietnamese housing bubble, low business sentiment, and an overly cautious capital market, these factors have ironically contributed to an enabling environment for an IB Private Equity Fund; in particular due to:

An unprecedented focus on company value over short-term prot. Due to the collapse of many businesses during the crisis and increased tolerance of the government to allow companies, especially state-owned enterprises (SOEs) to fail, has demonstrated that underlying company value might well be more important than short-term prot;

13

World Bank. World Development Indicators, 2012.

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Increased openness to private equity. Due to a historical over-reliance on debt to fuel company growth, Vietnamese companies were not compelled to leverage additional nancial instruments. However, given the stock-exchange fall-out coupled with more stringent commercial lending conditions, companies have increasingly sought to explore other nancing options, including private equity. As such, the Mekong Fund would fulll a current and urgent niche in the Vietnamese capital market;

Reprioritization of supply-chain related SMEs. The government and private sector have realized and are now emphasizing the important contribution of localization and industrialization within target value chains -- particularly as they recognize the need to reduce dependence on the import-content of exports in order to increase domestic growth and employment. Therefore, there is a growing realization and as a result increasing government and private sector investment, in aligning value chain and supply chain activities in such a way as to maximize local value, especially between SMEs and the larger businesses they serve.

Increased transparency regarding valuations. Due to the fact that the boom years of excess liquidity clouded realistic valuations, the post-crisis liquidity gap has forced companies to recalibrate their valuations and restructure in order to become more attractive to potential investors;

Increased number of underfunded transactions. Due to post-crisis indebtedness within the corporate sector, commercial banks are reluctant to lend to all but their largest and most stable clients. This undercapitalized group of companies may provide a unique pipeline of opportunities previously unavailable when the markets were ush with cheaper debt.

Sector Opportunities for Inclusive Business14


In addition to the post-crisis nuances of the Vietnamese economy that may create unique opportunities for the Mekong Fund, it is also clear that there are target sectors most likely to contribute to the dual objectives of the Fund -- particularly with regard to addressing systemic issues related to poverty and identifying the most protable opportunities with the greatest upside potential. In this vein, while it is clear that the Vietnamese economy is export-driven and relatively diverse, there is arguably also a 90 million-strong domestic market that is growing and partially underserved. Any eort to stimulate more balanced, consistent and sustainable growth must seek to leverage Vietnams export-oriented economy with a renewed focus on unlocking both the productive and consumption forces of the domestic economy. This includes restoring condence in the quality of Vietnamese manufacturing (given that Made in Vietnam has not been seen as synonymous with quality), addressing important gaps in physical infrastructure and access to energy, and, as noted above, aligning value chains to strengthen and optimize local value creation in order to stimulate local employment and increase productivity. As such, most of the target sectors for the IB Fund included below will be found not only in agribusiness and light manufacturing, but also in services, healthcare and education. Each sector is described in terms of the current market failures and/or key challenges that oer unique inclusive business opportunities when addressed.

14

The country analyses included in this report summarizes and complements the ndings included in the Due Diligence Report on

Cambodia, Vietnam, Thailand and Laos for the ADB Inclusive Business Fund undertaken by Noah Beckwith, Asian Development Bank, December 2011.

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Agribusiness.

As the worlds second largest producer of coee, Vietnams agricultural potential is

well-known,15 even though signicant challenges need to be overcome in order for the country to realize the kind of rapid and consistent growth it seeks while trying to increase and leverage the capacity of its rural productive base. Within agribusiness, inclusive business opportunities can have systemic impacts and create value in the following areas:

Commodity and Speciality Commodity Agricultural Value Chains:

Addressing key chal-

lenges such as a) weak processing capacity that cause processing to occur in neighboring countries; b) the consistency and quality of supply by strengthening farmer systems and building lasting, and mutually-benecial relationships with farmers and farmer groups in target supply chains; c) value chain dislocations that cause ineective distribution of products to and predatory pricing in target domestic markets in Hanoi and HCMC; d) rudimentary growing techniques that are not mechanized, have inadequate inputs, that leads to low and inconsistent productivity; e) erratic land tenure and distribution that can be subject to random government expropriation for other industrial or infrastructure purposes; e) poor cooperation among farmers due to the fact that top-down collectivism never functioned eectively in Vietnam leaving farmers susceptible to predatory lenders and buyers; and, f) the lack contract enforceability and the need to rely on trust and established relationships. Therefore, inclusive businesses that ensure quality supply through appropriate investments in inputs and technology, establish adequate links in the supply chain based on relationships of trust and shared value, and can leverage local processing capacity and ecient logistics can create enormous value with signicant upside potential in the Vietnamese context. Good examples of this can be found in the SEPON and Nestl case studies later in the report on pages 39 and 46 respectively.

Agro-processing for domestic consumption. The size and growing purchasing power parity of the domestic consumer base has substantially increased demand for processed fruits, vegetables, meat products (as in the case of Duc Viet case study included on page 41 and ANTESCO included on page 42) and most notably sh sauces. As such, while the market has an abundant supply of foreign imports that are often ve to ten times more expensive than their local counterparts, domestic brands must improve their quality, marketing, packaging, and branding in order to maximize this growing opportunity. This includes investing in compliance and traceability systems to improve food safety and also identifying higher-end niche opportunities for the growing and more discerning Vietnamese middle class, including in fast moving consumer goods. Furthermore, as supply chains consolidate, there are increasingly opportunities for exit for IB Fund as larger companies seek to consolidate in order to increase their market share -- an excellent proxy indicator for the pent up demand that exists for processed foods.

Agricultural Inputs. As mentioned previously, the Vietnamese agricultural sector is adversely aected by poor quality inputs which aects the quality, reliability and cost of agricultural production in many areas. As such, the demand for quality factor inputs is substantial and opportunities about for several players to enter the market and provide safe, reliable and aordable products through eective farmer engagement.

15

Vietnam is known for its agricultural production in coee, tea, cardamom, pepper, acacia, cassava, fresh fruits and vegetables, sh-

eries, horticulture and oriculture.

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Fisheries.

The growing market for seafood, sh products and sauces and the limitations of

reliable and quality supply suggest a growing opportunity from locally sourced and processed sh products, especially by including local farmers and households given the current limitation in aggregator and processor supply. The encouraging pre-approval by the US Food and Drug Administration two sh processors has provided additional incentives for other businesses to make the necessary investments in technology to assure quality control and stimulate growth in what could be a lucrative industry. Healthcare. Vietnam is the second-highest self-medicating country in the world and as such due to

rising drug consumption and government investment, the healthcare and pharmaceutical market in particular are attractive from an investment point of view. Espicom research estimates suggest that pharmaceutical production has increased by a CAGR of over 25% during the period 2005 to 2010 and drug consumption in per capita terms is expected to increase by around 70% from 2010 to 2014.16 Furthermore, the government has announced that boosting the domestic pharmaceutical industry in the health sectors highest priority over the next few years. As such, analysts predict that the Vietnamese pharmaceutical industry could triple from USD .6 billion in 2012 to more than USD 1.8 billion in 2020.17 Beyond pharmaceuticals, there is growing demand for better healthcare services outside the countrys main urban centers while the growing upper segment of the BoP is willing and able to spend some of their limited disposable income on quality healthcare -- specically in areas such as oncology and cancer treatment, maternal and pediatric healthcare. Finally, the growing needs of quality healthcare in rural areas, the strain on the overtaxed public healthcare system, and issues related to aordability suggest that opportunities exist in formalized hub-and-spoke structures through which healthcare services can be provided to rural communities, new models of nancing healthcare that oer pooled products and risk-adjusted model for coverage to lower-income groups are emerging, while privatization has also increased demand for investment in order for these facilities to be able to serve low-income groups and rural areas eectively. Education. Two decades after Doi Moi, the Vietnamese education system has grown from having just 162,000 students enrolled in 1993 in 110 institutions to having more than 1.3 million Vietnamese enrolled in more than 230 higher education institutions.18The speed and pace of the Vietnamese economy coupled with the increased value being placed on the higher skill-sets required for more diversied and industrialized economy has only increased the demand for better quality education. This phenomenon is not limited to the wealthy and to urban centers, but also in rural areas where beyond the formal education, there are growing needs in vocational education critical to preparing Vietnams young and growing labor force for the jobs of the future. For example, the Kinderworld Groups investments into private education in Vietnam (covering kindergartens all the way through private Colleges) has helped them grow from having 5 students in 2000 in one school to more than 1,500 students on 12 campuses across the country in 2012. Their rapid expansion and success demonstrates the potential of the private education sector in Vietnam and how the IB fund could aim to strengthen the quality and accessibility of education, including for the low-income segment.

16

Espicom Business Intelligence, July 2012. Business Monitor International. Vietnam Pharmaceuticals and Healthcare Report Q4 2010, September 2010. The World Bank. Vietnam: Higher Education and Skills for Growth, June 2008.

17

18

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Other Target Sectors.

Other important sectors believed to contain important inclusive business op-

portunities include the following:

Sanitation. While the access to basic household sanitation increase from 35% in 1990 to 75% in 2008, 33% of the rural population (approximately 20 million people) is without access to improved sanitation, and in some of the poorer regions, this can be as high as 50%.19. Notwithstanding public eorts to address this issue, there are opportunities for lucrative private sector interventions with signicant opportunities for impact at scale. IDEs success in demonstrating the eectiveness of selling sanitation and hygiene through to the poor through market-based systems oer encouraging signs that larger scale private investments could yield attractive results.20

Small Hydro and Clean Energy.

Under its Power Master Plan VII approved in September This anticipated growth in the renewable

2011, Vietnam established a 6% renewable energy target by 2030 and a commitment to complete rural electrication in the country by 2020.21 energy eld could be in part driven through build-operate-transfer (BOT) modalities through which the private sector develops o-grid energy supply that can be subsequently integrated into the grid, increased innovation in waste-to-energy biomass projects (such as Green Energy Biomass included later in this report on page 38), and small hydro aggregator models across communities. IB opportunities could not only yield access to energy for currently underserved poor rural households, but also provide additional income opportunities for low-income farmers to sell their agricultural waste and/or target oilseed crops (should it be a specic biofuel initiative);

Light Manufacturing. Inclusive business opportunities in both export-driven retail markets in products such as clothing, shoes, leather goods, furniture, and wooden ooring as well as domestic products that can be dierentiated from less expensive and potentially lower quality imports could oer interesting investment potential provided the opportunities are developed with the required investment in technology, know-how, skills development, and quality assurance while providing above market labor conditions in order to improve labor retention and mitigate the costs of high turnover rates;

Garments. While the garment sector in Vietnam is one of the largest contributors to GDP (more than USD 4 billion), it is risky given that its main export is the United States, it is not very competitive (of the USD 4 billion, USD 3.6 billion is import content), and has some of the worst labor conditions in the country. As such, nding inclusive business investment opportunities that can help the industry boost competitiveness through import substitution, attract and maintain skilled and semi-skilled workers through nancial and non-nancial incentives and labor retention schemes, and improve quality while diversifying their export markets, could contribute to improving wages of these low-income workers, improve company productivity, reduce production costs, and create additional value.

19

Water and Sanitation Program. The Economic Returns of Sanitation Interventions in Vietnam, 2011. IDE. Harnessing Market Power for Rural Sanitation: Selling Sanitation and Hygiene Services to the Poor in Vietnam, March 2005. Green Chip Stocks. Top 10 Clean Energy Highlights of Vietnam. April 18, 2012.

20

21

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Financial Services.

Following the nancial crisis, nancial institutions in Vietnam have been

compelled to develop new products and services to remain competitive. In particular, commercial banks are seeing opportunities to engage the low-income segment particularly in rural areas with products such as crop insurance, disaster relief, micro-health insurance, mobile banking, and agricultural nance products, in addition to more traditional collateral free lending, factoring, reverse factoring and others. Given that access to nance, especially for low-income farmers may be a systemic barrier to entry limiting their ability to participate in some of the opportunities listed above (especially those in agribusiness), the Mekong Fund may consider investing in MFIs and/or commercial banks pursuing these types nancing innovations for the low-income segment. Several examples of these types of MFIs and commercial banks in Vietnam and in the wider Mekong region and their innovations are included later in this report (see TPC Cambodia on page 40, Acleda Bank Lao on page 43, IPR on page 44 and First Finance on page 48). It cannot be overstated how the 2009 - 2010 economic downturn has shaken the business mind-set and nancing landscape within the VIetnamese nancial community. It is clear that access to cheap debt, unbridled issuing of corporate bonds and their subsequent treatment as assets rather than liabilities all helped fuel the unsustainable boom of the mid 2000s. As a result, as part of the post crisis environment, commercial banks have tightened lending policies, interest rates have risen, and collateral requirements have become stricter -- all in all reserving access to capital to the privileged few and strongest Vietnamese companies. Conditions for higher risk ventures involving the BoP will have even a more dicult time nding capital. The overall result however is that the acute credit constriction and the inability to raise funds from speculative investors on the capital markets has incentivized the creation of a private equity culture in Vietnam -- which bodes well for the establishment of an IB fund and in particular an IB fund that can concentrate in the aforementioned sectoral priorities.

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Lao PDR
The Context
While Lao PDR has suered from economic isolation for many years, it has emerged as a rapidly growing economy albeit heavily dependent on the sale of high-priced commodities and strong foreign investment in hydro-electric projects -- contributing to average growth rate of about 6.5 percent between 1990 and 2009. Per capita income more than doubled since 1990 (reaching $1010 in 2010) and GDP growth was projected to be around 8 percent in 2011. As such, Lao PDR s real GDP growth will likely remain robust in 2011 with projected growth of 8.0 percent. With these levels of growth, it is no surprise that poverty levels have also fallen -declining from half the population to below one quarter within a decade (the absolute number of the poor now hovers around 1.5 million people). Notwithstanding these positive trends, the absolute numbers hide geographic and ethnic disparities within the country, particularly given that rapid growth has been conned largely to urban centers and districts along the Thailand-Lao PDR border. Furthermore, the countrys demographic dividend (with more than half of the population under 20 years of age) while potentially an economic boon, can only be seen as such if policy responses are developed that are commensurate with these young peoples aspirations.

The Opportunity
Due to years of economic isolation and market distortions accentuated by government interference and central planning, Laos is one of the most challenging environments in which to deploy risk capital in Asia. Yet, from the perspective of the IB Fund, Lao PDR oers unique investment opportunities given incremental steps towards market transformations to improve business transactions but are taking place while borrowing rates are very low (5%), lending rates are punitive and collateral requirements are excessively stringent at approximately three times the requested loan amounts. In this regard, the availability of loans to the private sector, particularly among small and medium-sized businesses is virtually nonexistent. While the private sector within Laos may need additional time to meet basic requirements for IB investments, it may also be possible to utilize their counterpart/partner businesses in Thailand, Cambodia and Vietnam as preliminary access points. Other factors contributing to a favorable environment for an IB fund include the following:

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From land-locked to land-linked economy. Government-led economic development plans include taking advantage of the country s central location in the Mekong region to foment greater cooperation and collaboration with neighboring countries with more robust economies. Already, the concept of risk capital is becoming familiar in Laos through transactions with Cambodia and Vietnam.

Increased Foreign Inows. Between 2003 and 2010, foreign investments increased from $110 million to nearly $800 million with 80% accounted for by the natural resource sector (mining and hydropower development) and the remainder in non-resource sectors including agriculture, tourism and manufacturing. Main investors originated from GMR members - Thailand and Vietnam - as well as China, that has supported the integration of Laos into the regional economy. Apart from the economic growth these investments have aorded, they are also a formidable force for economic reforms to decrease business transaction costs, increase transparency and formalize a largely informal market economy driven by micro-enterprises that present the IB fund with investment opportunities.

Catalytic Entrepreneurship. As Laos transitions from a socialist economy to one that is globally integrated, private sector growth is stimulating entrepreneurship at multiple levels including the BOP. Moreover, approximately 30 to 40% of growing entrepreneurs are women whose informal businesses render them largely unqualied for mainstream loans and investments. Only 3% of total enterprises utilize external nancing for investments and only 19% have bank loans. This provides fertile ground for IB fund investments that could have signicant impacts on enterprise growth and unprecedented impacts on Laos low income majority.

Growth in the Natural Resource Sector. Laos is currently channeling economic development investments into the natural resource sector, mostly in the form of mining and hydroelectric power, which are labor-intensive sectors that have a high absorption capacity for skilled workers, many of whom would have to come from low-income segments of the country s workforce. However, while this sector is growing rapidly, mainstay non-resource sector GDP contributors in the form of agriculture, tourism and manufacturing in which the BOP are already engaged, will continue to form the backbone of the economy, projected to account for 75% of expected GDP and about half of future GDP growth. As such, the natural resource sector s contribution to GDP growth increased from about 2.6 percentage points in 2009 to 4.8 percentage points in 2010 and is projected to average 4.0 percentage points between 2011 and 2015, and 3.5 percentage points between 2016 and 2020. This growth in resource led growth marks a structural shift from agriculture to natural- resource based industry. Natural resources have been growing very rapidly during the past decade, at an annual average of 20.7 percent in 2003-2010. As a result, the share of the sector in GDP almost tripled between 1998 and 2010, increasing to about 16.1 percent by 2010 from 5.9 percent in 1998

Sector Opportunities for Inclusive Business


Given the existing banking and equity infrastructure in Laos that only very few can avail of, eorts will have to be made to cultivate an investment-friendly culture and mindset that understands how to eectively apply shared value, enterprise re-investment and risk capital to economic growth activities. Unlike Thailand, Cambodia and Vietnam, Laos investments will likely be much more limited and will require additional inputs into building supplier/producer and demand-side capacity to implement and participate in
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inclusive business strategies. The main sectors through which this paradigm shift can best occur are the following:

Agriculture. To date and for the foreseeable future, Laos remains an agrarian state dependent on small to medium-scale farms that absorb more than 80% of the country s economically active population. If Laos economy continues to develop, it will have to not only include but focus on rural-based improvements where, a) the majority of the country s economic activities occur and b) where the majority of low-income populations participate in the economy. In this regard, rural based farmers will necessitate investment in building their capacity to take advantage of emerging markets such as organic farming and specialty commodities as well as developing the appropriate infrastructure (e.g. high quality seeds, modernized irrigation, post-harvest treatment facilities etc.) for farm production to be competitive domestically but also among its GMR neighbors.

Sustainable Forestry. Timber resources in Laos represent some of the richest in the region with wood processing accounting for 25% of total manufacturing jobs. With forest area rapidly dwindling elsewhere in the GMR and in the broader Asia/Pacic region, the demand for high quality wood and wood products is growing within the GMR countries, China, Korea and Japan. The key in the sector is for investments to develop a sustainable timber and wood product industry that conserves the natural resource while maximizing returns through value addition along with a regulatory and political framework that ensures the value remains in-country, within the domestic private sector and their beneciaries.

Aquaculture. Although IB investments in this sector may not constitute an immediate priority for the Fund, the increasing demand for sh protein presents another emerging market to invest in. As a landlocked country, freshwater biodiversity constitutes a major portion of protein sources and, economically, sheries accounts for 13% of GDP (Phommavong 2010). Growth in this sector, though potentially signicant, is limited by various factors including competing hydro projects that impact river ow and are much more heavily invested in. To date, the main challenge of developing aquaculture as a viable industry is a lack of aquaculture techniques and technology for appropriate sh-farming systems including sh-paddies.

Renewable Energy. Despite the fact that Laos does not have abundant conventional energy resources such as natural gas, oil and coal, the country does have substantial renewable energy potential such as biomass, hydropower and solar energy. According to a Ministry of Energy and Mines report,22 Lao PDR has signicant potential in biomass through energy crops and organic waste such as oily crops (such as palm, jatropha, sunower, beans, coconut, etc), sugar and starch (including cassava and corn), as well as fast growing trees and aquatic cultures. Furthermore, solar irradiance in Laos is between 3.6 to 5.5 kWh per square meter (approximately 1,800 to 2,000 hours per year) -- as such, if photovoltaic technology were to be used, it would generate 12 million tons of oil equivalent per square km per year. Finally, while hydropower is considered the most important energy source currently with technical potential to be as high as 26,000 MW, only 2,500 MW is the current installed capacity. As such, there is scope for the IB fund to consider renewable energy initiatives in Lao, such as the eorts made by Sunlabob, featured later as a case study in this report on page 49.

22

Lao PDR Ministry of Energy and Mines. Renewable Energy Development Strategy in the Lao PDR, October 2011.

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Access to Finance. Assuming relaxation of government restrictions on foreign entities participating in the country s nancial sector, it may be feasible for the IB Fund to capitalize a domestic nancial institution that then provides micro-nance and other services to enable IB and IBrelated eorts. However, such a strategy has to be carefully evaluated and weighed against other investment opportunities and strategies, as well as the risks in a slowly developing nancial market. See the Acleda Bank case study on page 43 which is an example that goes beyond micro-nance.

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Cambodia
The Context
Cambodia is a largely cash-based economy that heavily relies on three major sectors contributing to GDP agriculture, tourism and manufacturing. Following an investment boon in tourism infrastructure in the mid 2000s that boosted annual growth to 13%, Cambodia s economy has since plateaued at a 6 to 6.5% annual growth rate since 2008 and is expected to hold for the next several years. Simultaneous high dependence on exports and reliance on imports (i.e. agriculture inputs), a dollarized economy, insecure land tenure and tenuous internal politics and external relations in terms of border disputes with Thailand, all contribute to economic instability and increased vulnerability of the Cambodian BOP who are small-scale farmers or employees of manufacturing and tourism companies. Unlike Laos, the banking sector of Cambodia suers from a surplus of liquidity compounded by a formal and informal loan system oered by foreign entities that do not have an interest in building long-term partnerships or maintaining economic value in-country. However, government eorts to strengthen nancial regulations to create and retain domestic value along with a business-friendly environment contributes to the case for IB investments.

The Opportunity
As the government and private sector alike seek to improve their market positions regionally and globally, the IB Fund could play a pivotal role in supporting key aspects of value creation and value retention. A distinct advantage is that Cambodia s banking sector is more open to foreign participation and there is growing recognition of the need for growth through scale. Other favorable factors include:

Economic Diversication. The government is creating new policy regimes for the agriculture and other sectors that favor product diversication through value added processing or product development. At the same time, socio-political and economic changes occurring in major markets such as China are highlighting the need for the private sector have greater parity and ownership of the value chains in which they are investing.

Recognition of Value Creation. The global economic downturn of 2009-2010 and returning foreign-educated Cambodians are generating private sector changes based on creating value in

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the marketplace to replace inherent management systems historically based on revolving cashow designed to meet family expenditures.

The Need for Partnerships. The current formal and informal loan structure in Cambodia is built on short-term gains and not long-term growth. True economic development will require the private sector to acquire in-house business services, technology, skilled labor capacity, and management systems to support value creation and that the current nancial sector, both formal and informal, do not oer. Moreover, if plans for economic diversication come to fruition, the current collateral-based banking system will not meet private sector investment needs. The IB Fund can potentially fulll this niche for the growing number of enterprises that cannot meet collateral requirements and also need a more holistic support system beyond money to create added value.

Emergence of an Equity Culture. In addition to increased awareness of value creation, the impending establishment of the Cambodia Stock Exchange is bringing to the forefront a shift from debt-based to equity-based lending that is forcing businesses large and small to follow a structured valuation system thereby encouraging formalization of both the sector and process. A government policy that will require businesses to disclose audited nancial statements is reinforcing the process of formalization as well.

Sector Opportunities for Inclusive Business


For the Cambodian economy to grow and compete among its neighbors in the Greater Mekong Region, diversication of its economic base is inevitable. However, diversication does not necessarily mean investments in new sectors. With strategic investments in current sectors, the value created by an emerging value-based private sector can boost growth and increase competitiveness in a wider market. Although tourism and garment manufacturing comprise a signicant portion of annual GDP, IB investments would be more dicult given the complexities and lack of transparency in those sectors that are currently driven mostly by foreign investors at this point.

Agriculture. Agriculture and aquaculture has consistently contributed approximately one third of national GDP from 2002 to the present (32%) and remains the largest employer of Cambodia s economically active population. While agriculture products are already well diversied into a broad range of food commodities and raw materials, value can be added through organic production being increasingly demanded in Asian markets. The IB Fund can make investments in smallholder farms for them to gain access to appropriate techniques and technologies (e.g. transition farming, modernization of growing and harvesting, certication etc.) for growing organic produce according to industry standards as well as gain access to infrastructure necessary for market access (e.g. logistical support, distribution, cold chain development etc.). Corollary investments could also be made in strengthening the organic produce value chain from supplier to market to maximize as well as ensure a more equitable distribution of benets.

Agro-Processing. Value added through processing is a potentially viable prospect within Cambodia s agriculture production value chain. Rice, in particular presents a ready opportunity for investment due to a recent government target of increasing rice exports to 1 million tons by 2015, an ambitious goal given that rice exports were a mere 60,000 tons in 2010. Nevertheless,

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rice production is clearly a priority and both government and private sector are looking for ways to increase outputs, improve quality and increase overall competitiveness within and beyond the GMR. The IB Fund can contribute to addressing the key challenges to rice production for export including investing in modernized production techniques, improved milling infrastructure and marketing capacity that will stabilize supply chains into reliables sources.

Agricultural Inputs and Infrastructure. As a separate but parallel investment in the agriculture sector, the IB Fund could support domestic manufacturing and distribution of agricultural inputs (e.g. pesticides, herbicides, fertilizers etc.) that have to be imported are generally expensive and are not readily available. Other investments could include updating outmoded irrigation systems or establishing them in remote areas that have no access. Similarly, logistics support in the form of adequate and timely transport, a cold chain, appropriate storage facilities, etc. will contribute signicantly to improving market access.

Access to Finance. The private sector in Cambodia either struggle to nd nancing and those who have it struggle with over-indebtedness from perpetual renancing. Meanwhile, many producer communities are under-banked or un-banked altogether and have no recourse for seeking investments to improve their production. The IB Fund can ll a critical investment gap through directly or indirectly investing in micro-lending to the poor, crop insurance for farmers, micro-health insurance, and mobile banking to facilitate overall productivity. In addition, the parallel development of a Technical Assistance (TA) Facility will help ensure that appropriate skills for business development and production reside in-country as part of a strategy to foment long-term economic growth. Innovation in access to nance can be found in the WING case on page 54.

Renewable Energy. Eorts at utilizing secondary products of agriculture in the form of rice husks, cassava peel, sugarcane by-products etc. as energy sources is becoming a more common practice in Cambodia. Such waste-to-energy initiatives would necessitate a signicant investment to reach viable levels of use, however, in the absence of an electricity grid in Cambodia, such initiatives present alternative options for homegrown energy generation and additional value for producers.

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Thailand
The Context
Barring insecurity and instability from social unrest, Thailand is the most robust economy within countries of the Greater Mekong Region. While the economy was greatly affected by the global economic crisis of 2009-2010, impacts were, to some, extent mitigated by increased domestic demand for and investment in domestically produced goods and services. Thailand enjoyed a growth rate of 7.8% in 2010 and is expected to remain stable at 4.5% into 2015. The Thai economy s resilience is largely due to diversication eorts in the mid-2000s as part of a government eort to boost economic growth. Apart from mainstream agriculture, sheries, forestry and agro-processsing sectors, Thailand also developed outsourcing agreements for auto parts production with Japan and Korea. Other factors that contribute to an attractive investment climate include effective economic reform programs, more stringent controls in the banking sector, revived domestic lending and fair valuations of companies below unsustainable levels during the mid-2000s in other emerging markets. The overall strategic development of the Thai economy make is a leading candidate in the region for IB Fund investment.

The Opportunity
Thailand s economy is divided into highly developed industries in the greater Bangkok area and underdeveloped rural areas where poverty is omnipresent. As with other countries in the GMR, it is in the latter, where economic growth potential is increasing and low-income communities abound that the IB Fund should focus its investments. The rationale for investment lies primarily in the following:

BOP Majority. Although Thailand s middle class is increasing, majority of the country s population still constitutes the base of the pyramid. Despite that, domestic consumer demand has increased providing opportunities for growth for small and medium-sized enterprises.

Stability. The comparatively developed and structured economy of Thailand provides a stable environment for business investments. Investment Gap. Lending is isolated within upper tier companies while nancing remains elusive for smaller to medium-sized enterprises where growth potential is high. This leaves a gap which the IB Fund could fullll.

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Streamlined Value Chains. Consolidation within sectoral value chains through elimination or absorption of marginal actors is providing greater investment opportunities. Focus on Value Creation. Small and mid-sized companies are recognizing the importance of establishing company value in the marketplace and are able to respond more quickly to changing demand and conditions. The focus on value creation is also consistent with the overall purpose of the IB Fund.

Sector Opportunities for Inclusive Business


The high level of diversication in Thailand s economy provides more developed opportunities for IB investments relative to its neighbors in the GMR. As with other potential investments in the region, the IB Fund would focus investments in main growth sectors with the greatest potential for inclusion of the poor. For Thailand, that would imply focus on the Northern provinces of the country. The sectors of particular interest would include the following:

Agriculture. As with the other GMR countries, agriculture is the backbone of Thailand s evolving economy with the dierence that it is highly diversied from small-scale subsistence to large-scale mechanized and also in its range of products. Rural farmers operating at a small scale will be the target beneciaries of the IB Fund. Within the sector it is suggested that the IB Fund oer a holistic package of service investments designed to address the main challenges of increasing both productivity and product quality standards. These services could include: technical capacity building through targeted extension services, improved technologies (e.g. irrigation, growing and post-harvest etc.), value-added processing, market access and product distribution (logistics, management and organization etc.), organic farming, animal husbandry and meat processing. The IB Fund can also support eorts aimed at enhanced livelihoods to oset fallow periods of seasonal and mono-crop farming as well as increased mechanization of the industry that is displacing farmers. A specialty commodity example in Thailand can be found on page 45 through Urmatt, a leading diversied organic rice producer.

Manufacturing. Small and medium-sized enterprises are more commonly found in the manufacturing sector responsible for about 70% of total employment within the sector. The IB Fund can invest in these SMEs to gain competitive skills and products that move them further up the value chain both domestically and internationally.

Access to Finance. Following the failure of the SME Development Bank of Thailand that left many SME s devastated by debt, there is growing openness for a non-bank nancial institution to provide support for pro-poor eorts. The IB Fund could invest in this new kind of nancial infrastructure to give the BOP and SME s access to micro-nance, crop/disaster/health insurance etc.

Renewable Energy. Since the mid-2000s much investment has been made in the research and development of biodiesel fuel with little success. However, with wide recognition of the inevitable need for fuel, alternatives continue to be explored. Hardy crops such as jatropha are of particular interest given their current history of successful production, their suitability for intercropping and for growing on less arable, non-productive land. The IB Fund could invest in development of the renewable energy that would impact not only BOP growers but also generate opportunities for inclusion into other aspects such as processing, rening, transportation, and distribution.
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Myanmar
The Context
Myanmar is currently the poorest country in Southeast Asia and is noted for its turbulent social and political history. Within the 20092010 period, an estimated 26% of Myanmar s population was living below the poverty line established at $0.85 per day. This number was already down from 36% in the 2004-2005 period. Under strict military rule, Myanmar has largely been isolated from the global economy and community. Political instability and unpredictability, a lack of transparency and corruption have earned the country nancial and economic sanctions from the US, the European Union and Canada and have staved o nearly all foreign investment though a natural resource-rich country. Myanmar relies on three major industries, agriculture (38.2% of GDP), industry (18.2 %) and services (43.6%). A reported 70% of the country s labor force is engaged in agriculture on rural farm land. Only 23% work in the services industry. Moreover, long-time military rule has neglected education, health and other basic services leaving a young but uneducated and unskilled population and an under-developed private sector that is controlled by a handful of elite. Additionally, the country is sorely lacking in basic infrastructure such as roads, accommodations, clean water, stable electricity and reliable communications that are imperative for business. Recent political changes, however, show promising prospects for economic growth and development, and therefore, investment as well.

The Opportunity
As an emerging economy slowly opening its borders to the outside world, investors are waiting in the wings to see in which development trajectory Myanmar will launch. While recent reforms are demonstrating government eorts to improve overall conditions in the country, investors remain wary and continue to weigh the high levels of risk involved in country investments. Current changes that may aid the rationale for inclusion in the IB Fund include the following:

Economic and Political Reforms. The current President of Myanmar is implementing a series of economic and political reforms aimed to demonstrate a willingness to open up to the global community. These changes include the notable appointment of long-time opposition Aung San Suu Kyi into parliament and the implementation of cease re agreements between the military and armed ethnic groups. On the economic front, the Central Bank has formalized it exchange

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rate establishment and the government has approved a new investment law that will provide 5year tax exemptions to foreign investors. Other incentives include relief on prots with the provision that savings are re-invested in the business within one year. The US and EU have since relaxed some economic sanctions against Myanmar.

New Poverty Reduction Goal. The Government of Myanmar last year announced a new and lofty objective to reduce its current poverty level of 26% to 16% by 2015 under the auspices of the UN Millennium Development Goals. The poverty alleviation plan is focused on the rural poor and includes strategies such improvements in agricultural productivity, micro-saving and credit, development of cottage industries and environmental conservation. In response, the UN released its own strategic poverty reduction plan that is based on models of inclusive growth through agriculture sectoral development support, improving access to quality social services, and improving employment opportunities.

Underdeveloped Financial Sector. Another consequence of military rule is the undeveloped nature of the nancial sector that has been described as being shrouded in a lack of transparency and corruption leaving a non-functional nancial support for local businesses and foreign investors wary to engage.

Sector Opportunities for Inclusive Business


Due to the spur of changes in Myanmar, appropriate sectors for IB investment have yet to emerge based on government development plans. As an emerging market coming out of isolation, Myanmar is still considered a high risk investment climate that would require mitigation strategies. More specically, investments will have to assume the uncertainties and risks related to an authoritarian political rule, the common and accepted practice of forced labor, very low educational levels and unskilled labor that will take time to catch up. To date, the vast majority of foreign investments have been placed in the natural resource sector mostly in mining and energy generation that have little economic impact on the BOP. Despite government intention to attract more foreign capital, the capacity of Myanmar to absorb large investments remains in question due to system-wide issues that would take time and high level government commitment to address. What is certain is that any eorts directed at alleviating the country s impoverished population will have to engage in the agriculture sector in which the vast majority of the country s BOP are already working. Even then, investment strategies will have to depend on whether the government will pursue smaller-scale sustainable agriculture or commercial scale, mechanized monoculture. Other potential sectors include forestry (timber production and potentially non-timber products), sheries and aquaculture, tourism, basic services provision and renewable energy. Investments in the nancial sector and the natural resource extraction sector (except for timber and sheries) are likely risky investments in the short-term while the government re-aligns its economic development strategy.

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III. Inclusive Business Opportunities in the Mekong

III. Inclusive Business Opportunities


Overview of the Inclusive Business Opportunities
The following examples are illustrative of the potential inclusive business opportunities that could be considered during the development of the Mekong Fund. As described earlier in this report, opportunities for debt and equity depend in the Mekong depend on country context, familiarity with the nancial instruments available, stage of development, track record and size of the company, potential nancial and social returns, and the inclusive business model being employed. In most instances, the company interviewed provided a summary of nancial information that has been included in this report in abbreviated form. More detailed nance information required for due diligence processes should be obtained directly from company management. The cases included herein reect the sectoral and inclusive business model diversity prevalent in the Mekong region with particular attention paid to the sector priorities included in the sector opportunities section of this report. Notwithstanding, other innovative models were included as part of both the growth stage social enterprise context and large company driving an inclusive business agenda as part of their core business strategy.be

g employ part of the larger framework of this feasibility s

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1. Inclusive Business Case Study - Green Energy Biomass, Vietnam


Generating green energy from non-productive land Sector: Renewable Energy Location of Operations: Central and Southern Vietnam Year of establishment: 2006 Turnover: USD 653K projected in 2013. Extent of BoP Engagement: 75,000 rural poor in Vietnam at scale

Company Overview
Green Energy Biomass JSC (GEB) in the rst for-prot Vietnamese company structured to deliver market access to smallholder-produced energy biomass - delivering additional income to farmers in some of Vietnams poorest provinces and contributing to Vietnams increasing demand for renewable energy (i.e. according to USAID, demand for diesel is expected to reach 9.7 million tons by 2015). GEB is a feedstock company producing biomass derived from Jatropha Curcas - an ethical and sustainable second generation biofuel feedstock that is cultivated on marginallyproductive lands. GEB aims to become the leading provider of second generation biofuel feedstock in Vietnam. Because Vietnam has a shortfall of power generation capacity that is negatively aecting its economic growth (3 billion kWh in 2011), GEB is positioned to contribute renewable energy that can contribute to business development, investment and expansion while improving the livelihoods of low-income farmers.

Inclusive Business Model


BoP as Suppliers Sustainable energy feedstock models that succeed are those that tie feedstocks back to the investors proprietary use without requiring the capital to buy massive tracks of land, mechanization to establish them, massive quantities of chemical fertilizer programs to obtain eective yields and employ thousands of people to work the elds. GEB operates a low-capital contract farming model that secures an eective agricultural yield through sustainable cooperative contracts and incentives buttressed by oversight contracts with the cooperativesregulatory bodies and Peoples Committees. GEBs primary agricultural farmers are Vietnamese cooperatives, farmersunions and be extension, their smallholder farmers -- all of whom are voluntary members to are subsequently contracted over the long-term to sell their produced biomass to GEB in return for facility investment, training, agricultural extension services and the guaranteed purchase of biomass output.

Impact to date and Future Growth Plans


GEB targets the establishment of 25,000 ha by year 5 of its expansion (reaching full yields in 2018). As GEBs production increases in scale, it will become an attractive acquisition target for reners or end users looking to lock-in feedstock, making a trade sale a viable exit. At full expansion, GEBs model will have the eect of increasing income for more than 20,000 small-holder households from less-productive lands currently not generating and or only nonviable incomes.

Challenges
The key challenges to GEBs business model are as follows: 1) production risks attributable to climate, disease, pests, and natural disasters as with any other agriculture-based business; 2) market risks given that this is an emerging industry within Vietnam with the potential for many new competitors and variable input costs that could impact profitability; and, 3) regulatory risks that could be imposed by the Ministry of Agriculture through its National Jatropha Strategic Action Plan (currently under development); and most importantly, nancial risks stemming from the future price of crude oil (biofuels are competitive without subsidies when the costs of crude oil exceed between US$60 and US$100/barrel).

Sources of Financing to Date and Future Needs


Up to US$8.5 million - equity investment suggested at US$2.5 million for a signicant minority stake (up to 40%) and the balance as a credit facility that will be drawn upon under certain pre-dened terms and conditions. The credit facility will be interest bearing and is expected opened in 2014 and to be closed in 2017 reaching a maximum of US$6 million in 2016. The credit facility will repaid in full before dividends can be paid. The projected IRR (to new investor) is approximately 33% in a 10 year time frame. GEB estimates a 33% IRR in a 10 year period.

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2. Inclusive Business Case Study - Huong Hoa Tapioca Starch Factory (SEPON), Vietnam
Tapping Tapioca to create shared value in central Vietnam Sector: Agri-business Location of Operations: North Central Vietnam Year of establishment: 1973; 2004 for Huong Hoa Tapioca Factory (HHT) Turnover: Est. 2.2m USD based on 11,000 tons production Extent of BoP Engagement: 5,000 low-income cassava farmers

Company Overview

Home to some of the poorest and disadvantaged ethnic groups in Vietnam, Quang Tri province is heavily dependent on producing intensive cash crops, such as cassava, namely for the export of industrial starch. Because of poor farming practices, soil quality declined causing inconsistent quality and varying yields, leading to income instability for local farmers. Huong Hoa Tapioca Starch Factory (HHT) was established in 2004 and sought to source cassava locally but was also aected by inconsistent supply of raw materials which aected their level of production. Starting with a capacity of 50 tons of starch per day derived from an input of 200 tons of fresh cassava, HHT faced two challenges: 1) it was operating far below capacity and; 2) it was disposing of 3,000 tons of cassava waste annually at a cost of 300 million VND. By developing two inclusive business innovations, HHT has been able to expand its current capacity to over 200 tons per day and improved its starch production to 150 tons of starch per day. It is now the largest starch producers in the North Central Highlands and sells its processed starch to Chinese companies.

Inclusive Business Model

BoP as Suppliers HHT s inclusive business model targets poor farmers as suppliers. The company sources its fresh cassava supply directly from 5,866 smallholder farmers, mainly of the Paco and Van Kieu ethnic groups which are among the poorest groups in Viet Nam. HHT s eld sta organizes cassava farmers into groups to better provide training on planting new varieties of cassava, harvesting sequencing, sustainable production techniques and basic business skills. The company has also trained the farmers to use a slow-release micro-organic fertilizer that it produces from a mixture of cow dung and cassava waste priced at 1/3 the cost of chemical fertilizers which has not inly increased farmer margins, but reduced nearby deforestation that was being caused by farmer expansion into forested land due to declining productivity. At the same time, this innovation has raised productivity by over 25%.

Impact to date and Future Growth Plans


HHT has already impacted over 5,500 farming households, helped create an additional 150 employment opportunities through the bio-fertilizer production program and has contributed 1.71 billion VND to HHTs bottom line (USD 82,000) while increasing low-income farmer income by an average of just under USD 300 per year (147% increase). With strong demand for industrial starch (particularly from PRC), HHT s sales will continue to be high. The factory is currently producing only 80% of its installed capacity of 200 tons per day. Given the demand for starch in PRC and in the new market for ethanol in Viet Nam, there is a booming and assured market for industrial starch. HHT intends to bring into its production space an additional 2,000 farmers (1,000 from Laos). It will also further develop its production of organic fertilizer to support the expansion.

Challenges
Most challenges related to cassava production are related to farmer capacity issues including access to nancial services and business planning, use of upgraded technologies related to intensive cultivation and inter-cropping (with acacia and rattan for example), access to relevant market information, and weak governance and management capacity of producer groups. Most of these challenges however are mitigated through HHTs collaboration with local and international NGOs committed to their inclusive business model.

Sourcing of Financing to Date and Future Needs


HHT has been previously nanced by the Vietnam Challenge Fund (USD 167,000) out of a USD 420,000 (remainder was secured from other sources including the company). Given the potential to scale this initiative nationally and potentially to the wider region, investment need could range between USD 2.5 to USD 5 million. Developing the Business Case for an Inclusive Business Private Equity Fund in the Mekong Page 40

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3. Inclusive Business Case Study - TPC, Cambodia


Providing nancial services for low-income rural women in Cambodia Sector: Financial Services: Micro-nance Location of Operations: Southwestern, Central, and Southeastern Cambodia Year of Establishment: 1994 Turnover: Total assets USD 49.8m (2012 est) and Gross Loan Portfolio USD 38.8m (2012) Net Prot: USD 1.5m in 2011; 2.1m anticipated in 2012 Extent of BoP engagement: 102,950 low-income women in Cambodia

Company Overview
Thaneakea Phum (Cambodia) Ltd is a rapidly growing regulated micro-nance institution with a focus on serving lowincome women in the rural areas of Cambodia. As the 5th largest MFI (in terms of number of borrowers) and 8th largest (in terms of portfolio size) in Cambodia, TPC focuses on socially responsible group lending. As of March 31, 2012, TPC had a total equity of approximately USD $8.7m, total assets of USD $49.8m, gross loan portfolio of USD $38.8m (an estimated 5% of market), average loan size of $377 and an annualized ROE of 25.7%. TPC currently serves 102,950 clients, an estimated 9% of market, through 622 dedicated management and sta.

Inclusive Business Model


BoP as Consumers TPC was established to help rural low-income women (currently 89% of portfolio) in rural areas by providing them with access to nancial products and services that they can use to nance their micro-enterprises. These products and services provide economic opportunities that improve their livelihoods and their communities well-being. To this end, the majority of TPCs loans are group loans community-based lending facilities delivered directly to villages to better serve female entrepreneurs. There are two types: TPL loans which are disbursed directly in the villages with the principal repaid during or at the end of the loan term, and SGL loans which are disbursed at TPC branch or satellite oces with clients repaying the principal over the course of the loan. To serve entrepreneurs in urban areas and provincial towns (TPCs secondary market), TPC also provides individual loans (ILP) which can accommodate larger amounts for working capital or acquisition of xed assets. These clients are important to the development of the community as they provide vital supplies, services and employment opportunities. TPC also has responded to customer demands by introducing a seasonal loan product to be used for animal raising, storage, or agricultural businesses. TPCs competitive advantage lies in having a wide network of branches reaching remote rural areas, a commitment to serving clients responsively in the villages, high sta productivity and strong management.

Impact to date and future growth plans


TPC provides nancial services (average loans of USD 377) to more than 100,000 low-income rural women each year. Clients typically lack access to basic water and sanitation, use rewood for cooking purposes and have more than two children to support. 99% of borrowers live in rural or semi-urban areas, 61% are engaged in agricultural activities and often use the loans for productive agricultural purposes. TPC plans to expand its gross loan portfolio by a projected 47.6% in 2012, its product mix, and increase the number of credit ocers and oce locations through a hub and spoke strategy while strengthening service quality.

Challenges
Core challenges facing TPC include maintaining exceptionally low default rates through quality assurance in the credit worthiness assessment process and expanding liquidity to grow the portfolio are core challenges facing TPC, especially while TPC continues to grow. Ensuring the right product mix and continuing to deliver value in the face of sti competition could also force TPC to over-stretch, driving up operating costs, weakening protability and potentially diluting quality standards.

Source of Financing to Date and future needs


TPCs majority shareholder, Developing World Markets (DWM) injected USD 500K in fresh equity in 2011, which increased shareholder capital from USD 986,923 to US$1.5 M. This year, DWM is injecting fresh funding in a form of sub-debt amounting to USD 1.5m. TPC will convert its retained earnings of about USD1.5m to paid-up capital within the rst 6 months of 2012. TPC is planning to access USD 2m in Subordinated debt in 2013, and the same amount in 2014. For planning purposes, prot sharing and dividend are projected separately at 10% per year for 2012-14. Developing the Business Case for an Inclusive Business Private Equity Fund in the Mekong Page 41

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4. Inclusive Business Case Study: Duc Viet Foods JSC, Vietnam


Processed-meat company sourcing from low-income live-stock farmers Sector: Agri-business Location of Operations: Northern and Central Vietnam Year of Establishment: 2000 Turnover: USD 25m (2012) Net Prot: 5-8% per year 2010-2012 Extent of BoP engagement: 100 - 200 pig farmers and 240 workers from the BoP

Company Overview
Duc Viet Foods is a joint venture between Vietnamese (86%) and German (14%) partners focused on the production and commercialization of high quality processed foodstus (sausages, salami) and fresh meat (pork). Some of the inputs (namely pigs) for the production process have historically come from low-income rural households involved in animal husbandry. As the company continues to grow, the ecient and low-cost sourcing of inputs is critical to its high-volume, low-margin business model and its plans for expansion.

Inclusive Business Model


BoP as Suppliers Duc Viet has historically sourced inputs from 100 low-income farmers involved in animal husbandry and had plans to grow this model since 2010. However, because local inputs have become 10% more expensive than imports from the United States and Thailand, Duc Viet is shifting their sourcing away from an inclusive business supplier model and into a BoP as employee model where they can remain competitive and create shared value. BoP as Employees As Duc Viet has grown over the past ve years, so has its demand for labour for its factories and processing facilities. Currently, more than 75% of Duc Viets labour force comes from the low-income segment. Over the past three years, the number of employees from the low-income segment at Duc Viet has grown from 180 workers in 2010 to 240 workers in 2012.

Impact to date and future growth plans


Over the past three years, Duc Viet has doubled its production from 2.2 tons per year of processed foods to 4.0 tons per year anticipated in 2012 and as such increased its revenue base from roughly USD 12 million in 2010 to 25 million USD expected in 2012 (with net prots uctuating between 5 and 8%). Given its rapid growth and diversied product line, Duc Viet has the potential to include more and more BoP individuals within its workforce. At current growth rates, this would imply an additional 20 to 30 BoP workers per year over the next ve years. While local sourcing from animal husbandry farmers had promise given the potential for scale, competition has compelled Duc Viet to nd more cost eective solutions from the international marketplace.

Challenges
Duc Viet continues to face a number of challenges on its pathway to continued growth. Fluctuations in interest rates from local banks (interest rates ranged from 18% to 25% for short-term debt) have historically put pressure on the company but as a result of their success in 2011, Duc Viet was able to self-nance its continued expansion. Duc Viet traditionally self-nances its investments in equipment, seeks debt for raw materials, and for the most part can count on its own cash-ow for working capital. Other challenges facing Duc Viet are the modernization of their product and processing facilities, continuing to lower the cost of direct and indirect (animal feed) inputs, and accelerating automation of certain processes. These ambitions will require an increasingly skilled labour force that, as its largely comprised by the BoP, can provide numerous opportunities to contribute to the development of their BoP workforce.

Source of Financing to Date and future needs


Duc Viet has historically leveraged both debt (from local banks) and equity (primarily from German investors). To expand processing capacity to meet growing local demand, Duc Viet could be interested in equity investments of up to USD 12 million to develop a new processing facility with the competitive technology. At the same time, Duc Viet could also expand current processing capacity with a more modest USD 5 million investment. Developing the Business Case for an Inclusive Business Private Equity Fund in the Mekong Page 42

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5. Inclusive Business Case Study: ANTESCO JSC, Vietnam


Sourcing fruits and vegetables from the BoP for export Sector: Agri-business Location of Operations: Southern Vietnam Year of Establishment: 1975 Turnover: USD 4.8m (2011); USD 8.1m (2012) anticipated. Net Prot: 10% in 2011 (USD 450K); 9% in 2012 (USD 720K) anticipated. Extent of BoP engagement: 10,000 households as suppliers; 1,000 BoP employees Company Overview An Giang Fruit - Vegetables and Foodstus JSC (ANTESCO) is a Vietnamese company focusing on the production and export of frozen IQF and canned tropical vegetables and fruits. More than 98% of its total production is for export markets in the European Union, the United States, Canada and Japan. Having made signicant investments in three modern processing facilities over the past decade, ANTESCO is one of the most successful fruits and vegetable exporters in Vietnam and is considered to have the industrys highest standards and best facilities. Inclusive Business Model BoP as Suppliers ANTESCO sources more than 40,000 metric tons of agricultural products such as baby corn, pineapple, soybeans, straw mushrooms, okra, chillies, mango, dragon fruit, mangosteen and papaya from more than 10,000 agricultural producers in Southern Vietnam. ANTESCO has been actively involved in strengthening the productive capacity and competitiveness of local farmers through agricultural extension and training programs (particularly in quality assurance), the introduction and development of value added initiatives (such as organic production), and local nancing schemes to accelerate the acquisition of core inputs. Furthermore, ANTESCO assures a commitment to buy the local farmers harvest at competitive prices. On average, local farmers who are part of this initiative receive on average two to three times more income as a result of increased productivity and more competitive prices. BoP as Employees In addition to sourcing from low-income farmers as a core business practice, ANTESCO also sources in labor supply for its processing facilities from the low-income segment. Approximately 80% of its 800 employee workforce is considered BoP and during peak harvesting and processing seasons, this can grow to more than 1,000 workers (200 seasonal workers). As ANTESCO increases the number of processing facilities in Vietnam over the coming years, the company can create 150 to 200 employment opportunities for the low-income segment per facility. Impact to date and future growth plans ANTESCO has improved the livelihoods of more than 10,000 households in Vietnam by sourcing fruits and vegetables from low-income farmers and investing in their productivity and competitiveness. Furthermore, direct employment opportunities generate by ANTESCO have beneted between 600 to 800 low-income workers and contributed to their professional development. ANTESCO is actively accelerating its competitiveness by pursuing GAP certication, expanding its processing facilities while developing new ones, and broadening its outreach to local farmers. In the near term, ANTESCO plans a new processing facility, is expecting 10 to 20% y-o-y growth over the next ve years despite the recent economic downturn in key export markets. A focus on value addition is also part of ANTESCO value proposition moving forward which will also contribute to increasing farmer income. Challenges In order to remain competitive while further contributing their inclusive business model, ANTESCO needs to increase value added strategies for low-income farmers, improve farming practices and cultivation habits, strengthen the ability of farmers to access capital, and achieve GAP certication across their value chain. Source of Financing to Date and future needs ANTESCO has previously leveraged both debt, equity and grant money (i.e. GCF and DANIDA) to support both its growth and expansion and its farmer technical assistance programs. It may be interested in USD 2.5m of debt at 8% for working capital and infrastructure.

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6. Inclusive Business Case Study - Acleda Bank Lao Ltd., Lao PDR
Accelerating the growth of SMEs through nancial services Sector: Financial Services Location of Operations: 23 oces throughout Laos (branches, service units, HQ) Year of Establishment: 2008 Turnover: USD 8.1m; Total assets USD 55.9m (2011) Net Prot: USD 1.29m (2011) Extent of BoP engagement: 10% of current portfolio, 2,676 BoP clients; scaling to 50,000 BoP clients in 5 years

Company Overview
Acleda Bank Lao Ltd is a commercial bank providing inclusive nancial services primarily to small and medium size enterprises in Lao PDR. Acleda is a subsidiary of Acleda Bank Plc in Cambodia, one of the largest commercial banks in Cambodia. It provides products and services that include deposits (i.e. saving and current accounts), credit (small business and personal loans), funds transfers, cash management (payroll, direct debit, etc), trade nance (bid guarantees, performance guarantees) and electronic banking services. It currently has 22,528 customers in Laos with an outstanding loan portfolio of USD 48.6 million (average loan size is USD 3,000). 10% of Acledas customer base in from the BoP (2,676 clients).

Inclusive Business Model


BoP as Consumers Enterprises in Lao PDR report the most signicant constraints to business expansion are tax administration, access to nance and workforce skills. Smaller rms suer most from lack of access to formal nance where high levels of collateral and formal accounting are required. Only 3 percent of rms use external nancing for investments and 19 percent have a loan or line of credit from a bank and according to a GTZ study, more than 70% of SMEs surveyed stated they were unable to meet their credit needs. Similarly, 80% of all households in Lao and 90% of poor households in rural areas have an unsatised demand for credit exceeding USD 500 million (2003 gures). The same study found that only nancial services providers were only able to service 7% of the population between 15 and 64 years old. Given the micronance roots of its parent company, Acleda Bank Cambodia, Acleda Lao specically targets medium to low-income entrepreneurs. The bulk of ACLEDA s loans go to micro entrepreneurs selling basic commodities such as rice, sh, produce and handicraft supplies. For example, ACLEDA oers payroll accounts to factories and businesses so they no longer have to make cash payments. This alleviates both the burden and risk of cash transactions and makes it easier for employees to save. While only 10% of Acledas clients are low-income, this number is expected to rise dramatically once Acleda expends beyond cities to rural areas - a key feature of its growth strategy.

Impact to date and future growth plans


Given the large need, Acleda expects to grow to 100,000 customers over the next ve years and expects 40 to 50% of these to come the low-income segment. It plans to expand its service oering to include agricultural loans and other services tailor-made to the unique needs of the low-income rural household.

Challenges
The core challenges faced by Acleda Bank in Lao include capacity building, particularly of new sta being being hired in Acledas rapidly expanding network of service units and branches, increasing the nancial literacy of their potential customer base so they can take full advantage of the Banks services and graduate from informal to formal nancial management practices, developing appropriate nancial services for rural clients were risk and the value proposition are adequately priced.

Sources of Financing and Future Needs


ACLEDA Bank Lao has the following shareholders: ACLEDA Bank Cambodia 39.95%; FMO 25.23%; Triodos-Doen 9.46%; Triodos Fair Share Fund 9.46%; and IFC 15.9%. ACLEDA needs debt nancing of USD 20m over 5 to 10 years at 6-7% interest to support its expansion.

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7. Inclusive Business Case Study - IPR Ltd, Cambodia


Proving access to nance to rural entrepreneurs in Cambodia Sector: Financial Services Location of Operations: 5 provinces in NW and SE Cambodia Year of Establishment: 2003 Turnover: USD 1.58m revenue (2012 est); 2.37m (2014 est) Total assets USD 5.6m (2011); USD 7.2m (2012 est) Net Prot: USD 564K in 2012 est; USD 877K in 2014 (est) Extent of BoP engagement: 3,561 low-income borrowers in 438 villages in 2011;

Company Overview
IPR was originally founded in 2003 as a credit union of the Federation of Cambodian Rice Millers Associations to alleviate the liquidity constraints of rice mill entrepreneurs who lacked access to credit to expand their production. IPR's clients are almost farmers in rural areas and they specically target areas where there is ample potential for agricultural production and where good irrigation systems are available. Small business owners are also targeted by IPR, but they make up a limited number in the portfolio. 72% for rice production, 11% cassava, 17% other crops (i.e. beans and maize), animal husbandry and crafts.

Inclusive Business Model


BoP as Consumers In Cambodia, approximately 1.85 million low-income households (approximately 4.6 million people from the economically active population in 2011) have limited access to nancial services in rural areas (i.e. the national micronance penetration rate is only 41.5% of all households). Similarly, despite the global nancial crisis of 2008-2009, credit penetration in Cambodia, that is the total loan book of commercial banks, specialized banks, and licensed MFIs increased ve fold between 2005 and 2010. Given this market opportunity, IPR exclusively provides credit products to its rural client base and focuses solely on agricultural lending primarily to rice farmers, but also to other farmers who harvest cassava, corn, and sesame along the northwestern border with Thailand. It provides working capital loans (average size is USD 1,100 for up to 12 months at 2 to 3% interest) and investment loans, generally used for acquiring agricultural equipment, land, and other related assets (loans between 12 and 36 months at 2 to 3% interest). IPR only oers securitized loans for up to 50% of collateral value of through a third party guarantor.

Impact to date and future growth plans


Over the next ve years, IPR will aim to increase its client base to 9,000 farmer clients, build its loan portfolio to US$ 10.75 million and achieve US$ 0.87 million in annual operating prot by 2014. Achievement of these objectives will enable IPR to meet it dual bottom---line objectives namely to play a signicant role in the development of the agricultural sector in Cambodia and thereby improve the economic conditions of rural agriculture---related businesses. To achieve these business objectives, IPR will remain to its mission and maintain its overriding focus on providing exible nancial products and customer---service to the Cambodian agricultural sector with a specic focus on farming groups and related players in agricultural business.

Challenges
Given that Cambodia has 35 commercial or specialized banks, and 110 micro-nance institutions (of which only 25 are licensed), IPR faces sti competition, especially from new entrants positioning in IPRs target segment. Other key challenges faced by IPR are as follows: the potential for defaults due to natural disasters; regulatory changes given the informality of the sector in Cambodia; external risks related to natural disasters; product oering is too risky and if implemented poorly could have a high potential for default (namely in balloon payments) and risks related to eectively managing internal controls to prevent fraud.

Sources of Financing and Future Needs


IPR received investments from Leopard Capital (USD 500K), the Luxembourg Micro-nance and Development Fund (LMDF) (USD 950K), and the Cambodian Rural Development Bank (USD 375). IPR is looking to raise USD 1.5m in 2012 and another USD 2.5m -3m in 2013 with a 7-10 year repayment term at 10% interest.

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III. Inclusive Business Opportunities in the Mekong

8. Inclusive Business Case Study - Urmatt Ltd., Thailand


Taking organic rice, its by-products, and its producers into the mainstream market Sector: Agri-business Location of Operations: NE Thailand Year of Establishment: 1982 Turnover: Approximately USD 6m (2011); Net Prot: approximately USD 1.8m (2011) (tbc) Extent of BoP engagement: 7,000 low-income rice farmers in NE Thailand;

Company Overview
Urmatt is a Thailand-based, privately-held, high-growth global packaged food company focused on speciality rice (organic and fair trade) and specialty rice by-products such as rice protein derived from rice bran, rice snacks and sauces derived from broken rice, and bio-fertilizer and biomass from rice husk. Urmatt was founded in 1982 as the worlds rst basmati rice producer outside the Indian sub-continent. It has subsequently evolved into one of the leading organic rice producers in Thailand and is part of a global retail consortium that includes BioAsia (Simply Rice), Axiom Foods (in the United States), Organic Latin America (OLA based in Argentina), Nordic Food partners (in Denmark), and Ceres Organics(in New Zealand) that oer an integrated and diversied product line in organic rice, rice snacks, rice protein and related health products to markets in Asia, Oceania, the US, Europe and the Americas.

Inclusive Business Model


BoP as Suppliers While Thailand is the worlds largest rice exporter (half of Thailands agricultural land is dedicated to rice production), declining demand, increasing production costs, and low protability have forced many small-scale farmers into indebtedness and out of their farms. However, there is growing demand for organic rice which requires only 1/3 the cash capital needed for conventional rice production, is four times more energy ecient, and as a result, farmers can approximately earn almost 4 times more from organic rice than conventional rice farmers. Given that the prospects for growth for organic rice and its by-products are signicant (i.e. organic rice exports to the EU from Thailand are growing at 15% per year), Urmatt has focused exclusively on organic rice and related products in order to meet rising demand, increase margins and company protability, but more importantly to contribute more meaningfully to the livelihoods of the 7,000 contract farmers that supply organic and fair trade rice to Urmatt.

Impact to date and future growth plans


Urmatt currently utilizes a contract farming model with more than 7,000 farmers in NE Thailand who have seen an increase in their productivity and income as part of this model. However, in order to meet growing demand, Urmatt needs additional capital to acquire more paddy but commercial banks in Thailand do not fully understand organic production and are weary of lending money to rice mills that generally operate high volume, low-margin, high-risk business models. As such, Urmatt requires additional capital to grow and to include more farmers within its impactful and protable scheme. With additional investment, Urmatt estimates that an additional 700 to 1,400 rice farmers could be included. Eventually, Urmatt hopes that fully monetizing the by-products of rice and cross-subsidizing its business model will allow its organic rice products to sell for less than conventional rice -- potentially accelerating growth further and rapidly expending its market share of the rice market.

Challenges
While Urmatt is protable and continues to grow, regulatory constraints have compelled it to expand its production base outside of Thailand to meet growing global demand (it has needed to invest in organic rice production in Argentina). Furthermore, lack of access to capital at competitive rates has prevented the company from growing more rapidly and diversifying into other commodities such as organic sugar and dried fruits.

Sources of Financing and Future Needs


To date, Urmatt has been exclusively self-nanced. However, to meet growing demand, Urmatt requires debt between USD 5 million and USD 25 million over 10 years. The companys rate of growth is expected to double in the next two years. Developing the Business Case for an Inclusive Business Private Equity Fund in the Mekong Page 46

III. Inclusive Business Opportunities in the Mekong

9. Inclusive Business Case Study - Nestl, Vietnam


Creating shared value one coee cup at at time Sector: Agri-business Location of Operations: Vietnam Year of Establishment: 1916 and then again in 1995 Turnover: n/a (consolidated at global level) Net Prot: n/a (consolidated at global level) Extent of BoP engagement: As many as 20,000 BoP coee farmers expected over the next ve years.

Company Overview
Nestl is the worlds leading nutrition, health and wellness company. It is the worlds largest food company measures by revenues. Its products include baby food, bottled water, breakfast cereals, coee, dairy products, ice cream, pet foods and snacks. Nestl operates 450 factories in 86 countries and employs 328,000 people.

Inclusive Business Model


BoP as Suppliers and Consumers Nestls sources raw agricultural materials directly from more than 160,000 producers and 600,000 farmers in more than 50 countries worldwide. In Vietnam, the biggest coee exporter after Brazil, Nestl is the largest shipper of robusta beans that are used to make instant drinks. At present, Nestle buys 200,000 tons to 250,000 tons of Vietnamese coee a year. While Nestl sourced between 12,000 to 14,000 tons per year from local growers, it recently increased its demand to more than 60,000 metric tons -- about one third of the total coee that Nestl buys in Vietnam. This Robusta coee in then exported to 23 Nestl facilities around the world for processing - a business which contributed to 25% of Nestl global revenue. As the global coee market is subject to regular price uctuations, particularly aecting small farmers. Nestl is committed to paying fair prices for all raw materials and wherever possible, Nestl operates a direct purchase scheme that ensures a reasonable return to the farmer. The company has a longterm commitment to developing sustainable agriculture and works through industry-wide initiatives like the Common Code for the Coee Community ( 4C ) to do so. Nestl agronomists train and advise farmers in modern methods, in order to lower their production costs, improve earnings and increase skills. This also contributes to higher standards of environmental practice, and helps Nestl to ensure a long-term, sustainable supply of high-quality coee.

Impact to date and future growth plans


The company will continue to develop sustainable coee farming in the country in partnership with the Vietnamese Ministry of Agriculture and Rural Development (MARD). Measures include improving coee productivity through better farming practices and distributing high-yield, disease-resistant plantlets over the next ve years. The initiative is backed by Nestl s global Nescaf Plan which it extended to Vietnam last year. As part of the plan, Nestl looks to source 30,000 tons of coee from around 16,000 Vietnamese farmers annually, helping them obtain better prices and a steady income. This is part of an approach to business Nestl calls Creating Shared Value, which aims to create value for the company s shareholders at the same time as for those communities where it operates. Furthermore, because Nestl believes Vietnams coee consumption will double over the next decade, it has also invested USD 240million in a local facility (Dak Lak) to produce coee for local consumption (soluble coee).

Challenges
One of Nestls key challenges in Vietnam is to increase the quality and productivity of Vietnamese coee farmers through the introduction of new technology and seed and integrating small farmers into their value chain.

Sources of Financing and Future Needs


Rather than seeking nancing for its own initiatives, which are largely self-nanced, Nestl is an active participant on the Public-Private Task Force on Sustainable Agricultural Growth in Vietnam that aggregates key agricultural businesses, government agencies, donors and NGOs. Through this initiative, Nestl has conducted numerous pilots to increase coee farmer productivity and protability. To date, this has resulted in yield increases of 5%, USD$946 increased protability per hectare, and reduced carbon emissions by two and a half times. While the pilots are conanced among various companies, Nestl is potentially exploring a debt nancing scheme (of between USD 3 - 5 million) through which this pilot can be taken to scale under a model Nestl has developed in Cambodia called the Farm Business Advisors Program which enables local entrepreneurs to start small farm advisory businesses. Developing the Business Case for an Inclusive Business Private Equity Fund in the Mekong Page 47

III. Inclusive Business Opportunities in the Mekong

10. Inclusive Business Case Study - First Finance PLC, Cambodia


Unlocking the demand for aordable housing through nancial solutions Sector: Low-Cost Housing Finance Location of Operations: Cambodia Year of Establishment: 2006 Turnover: USD 3,797,023 (total assets 2011) Net Prot: USD 116,150 (2011) Extent of BoP engagement: 1,000 low income Cambodian families

Company Overview
First Finance PLC became the rst nancial institution specialized in housing nance in Cambodia. It provides mortgages, home improvement and home equipment nancing for middle and low-income consumers in Cambodia. By partnering with numerous housing and urban/rural development organizations and providing much needed access to nance, it aims to scale aordable housing across Cambodia.

Inclusive Business Model


BoP as Consumers Cambodia has a signicant housing shortage -- one quarter of Phnom Penhs population live in slum housing (300,000 people) and for the 85% percent of the population living in rural areas, the demand is even greater. First Finances builds the economic stability of low-income Cambodian families by increasing access to rst-time home ownership. The company is focused on providing a long-term Home Loans (15 years) , medium-term Home Improvement Loans (10 years), and Home Equipment loans (5 years) designed specically for purchase of equipment in conjunction with other housing loan products, to underserved low-middle income Cambodian households who do not have access to formal commercial lending. As the founding company of First Finance, First Home PLC, has tested and rened its initial housing nance concept and has conducted studies on the market needs for housing loans and thus provided First Finance and a foundation for growth and expansion.

Impact to date and future growth plans


With the geographic expansion in operation, First Finance, through its housing nance products and services, has positively impacted the lives of over one thousand low-income Cambodians, from dierent social backgrounds and living situations, who have been dreaming of their rst home ownership. First Finance achieved break-even and profitability in 2010, received additional investment in 2011 from Oiko Credit and the Cambodia-Laos Development Fund, and currently had 306 active loans in 2011. First Finance has also actively engaged with aordable housing developers, real estate rms, international and local organizations involved in housing and other key stakeholders to accelerate the development of low-cost housing units as this is key to First Finances long term growth.

Challenges
The main challenge to First Finances long term growth is the availability of homes below USD 15,000 that fall witin the companys target market. Without sucient housing developments, First Finance will not have a suciently expanding customer segment from which to build and grow a successful business. Despite this challenge, First Finance sees improved social performance with a decline in the average loan size, average home value and house hold income of new clients. Another challenge is First Finances liquidity -- as the customer base grows, First Finance will need to have sucient liquidity in order to serve its clients growing nancing needs.

Sources of Financing and Future Needs


First Finance has received funding from Poems PTE Ltd, an investment holding company of the PhillipCapital Group (USD 976k), Insitor Fund SCA (USD 976K), and First Home PLC (337,370). Oiko Credit and the Emerging Market Investments (from the Cambodia-Laos Development Fund) have also each provided approximately USD 800K. As First Finances customer base grows, it will likely require additional debt (estimated at between USD 1 and 3 million).

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III. Inclusive Business Opportunities in the Mekong

11. Inclusive Business Case Study - Sunlabob Renewable Energy Ltd, Lao PDR
Developing last-mile, o-grid renewable energy solutions Sector: Renewable Energy Location of Operations: Laos, Cambodia, Thailand (Asia and Africa) Year of Establishment: 2000 Turnover: More than USD 4m (2011); Net Prot: USD 364.7K (2011) Extent of BoP engagement: 5,450 BoP clients in 2011;

Company Overview
Sunlabob is a Lao commercial company, set up in 2000 and licensed in 2001. The company operates as a protable, full-service renewable energy provider, providing commercially-viable energy services for remote areas underserved by the electrical grid. Sunlabob also focuses on urban areas, conducting energy audits, energy eciency consultancies for buildings and factories, and supplying and installing energy-ecient materials. Furthermore, Sunlabob was also the rst private Energy Saving Company in the Lao PDR to implement solar feed-in systems (hydro and solar plants). Sunlabob has also proven itself to be a reliable consultancy partner for assessment and feasibility studies for large scale infrastructure, combining the experience working in remote areas with applicable standards, common practices and available best quality technology. To date, it has impacted more than 200,000 households worldwide.

Inclusive Business Model


BoP as Consumers Sunlabob develops renewable, o-grid energy solutions for the urban and rural poor in Laos, across Asia and Africa. As 70% of the population of Lao PDR is rural and rural electrication covers less than 60% of the country, there are thousands of local households that rely on unsustainable and often harmful means to meet their energy needs. Sunlabob harnesses abundant biofuel, sun, and hydro resources to extend its own renewable energy solutions to villages 50 km or more beyond the reach of the national grid. Through the development of innovative nancing schemes, public and private partnerships, and a national franchise network empowering local community members, the company has enabled local villagers to overcome the high up-front investment and subsequent maintenance costs, conversely reducing their dependence on charcoal, wood and kerosene. At the same time, Sunlabob ensures that its solutions are based on commercially viable models that avoid continuous subsidies. Its main products include solar lanters, hybrid village grids, solar home systems, solar powered water purication units, and solar water pumps.

Impact to date and future growth plans


While Sunlabobs solutions have impacted more than 200,000 low-income people worldwide, in Laos, Sunlabob has had a long track record of success in Laos -- having successfully installed over 5,600 systems in over 450 villages. Given its strong relationship with the LaosMinistry of Energy and Mines and private energy providers like Electricit de Laos, Sunlabob will continue to expand its portfolio in Lao PDR while continuing its global expansion.

Challenges
Even though Sunlabob has experienced rapid growth, slowing rental fees and reprioritizing direct sales has required a change in strategy focusing on controlling costs and streamlining the companys operations in order to raise gross prots, manage overhead, and renance or convert some of the companys outstanding loans to free-up working capital. Beyond working capital, access to nance in Laos has been limited -- there is a lack of liquidity from commercial banks as Laos is not a Triple A country and foreign investments have also been quite limited.

Sources of Financing and Future Needs


Since its founders investment of USD 500K in 2000 (and early loans from FMO and Triodos Bank in 2006), Sunlabob has been proven to be commercially viable and has been able to break even in 2011, having doubled revenue every year over the past few years (exceeding US$ 4 million). While Sunlabob has been growing quickly, it is at an inection point given that 10% of its revenue comes from rental fees, and more than 90% from direct sales with very tight prot margins. As such the company is looking for equity between USD 1 and USD 5 million for working capital to expand its operations and take advantage of growing demand not only in Lao PDR but also in other parts of Asia and Africa. Sunlabob believes the exit strategy could be through redemption or third-party acquisition.

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III. Inclusive Business Opportunities in the Mekong

12. Inclusive Business Case Study: Hydrologic Social Enterprise, Cambodia 23


Commercializing ceramic lters that produce clean water saving lives and forests Sector: Water and Sanitation Location of Operations: Cambodia Year of Establishment: 2010 Turnover: USD 700,000 (2011); Net Prot: n/a given blended investments (debt and grants) Extent of BoP engagement: 420,000 low-income customers as of February 2012;

Company Overview
Hydrologic(HSE) is a wholly owned subsidiary which iDE set up to commercialize and expand the production and sales of water lters and, in the future, other water, sanitation and hygiene products. Hydrologic was formally registered as a limited company in December 2010. Grants from USAID and PATH and a loan from iDE has enabled Hydrologic to build a new factory and set up its sales network. In 2011 Hydrologic had an income of about US$700,000, 70% from sales and the rest from grants, and employed 41 people.

Inclusive Business Model


BoP as Consumers Untreated water and poor sanitation cause an estimated 10 million cases of diarrhea and 10,000 deaths each year in Cambodia (most of which are children in rural areas). In these areas, less that 5% of the people have piped water and other available water sources are contaminated. As such, many Cambodians boil their water, using wood or charcoal as fuel which in turn has signicant consequences on the environment (namely deforestation -- Cambodia has one of the worlds worst deforestation rates). HSE has developed a ten-liter ceramic water lter that is impregnated with silver nitrate that kills any bacteria that penetrates the ceramic pot. A micro-nance partner, VisionFund, provides six-month loans for village-based sales to improve aordability.

Impact to date and future growth plans


By February 2012, 226,000 lters had been sold implying that 420,000 people now have access to clean drinking water. A recent eld study also found a 46% lower incidence of diarrhea among lter users and the use of largely unsustainable wood has been reduced by 18,000 tons per year, reducing deforestation and cutting greenhouse gas emissions by 41,000 tons per year of CO2 emissions. Furthermore, overall savings from using the water lter (as opposed to time collecting rewood, reduced healthcare costs, etc) has been estimated at US$73/household/year. Having received numerous awards including the Ashden Award in 2012, HSE plans to leverage recent debt investments to double output to produce 8,000 ceramic lters per month and over-time potentially invest in other related products (such as low-cost latrines to improve sanitation).

Sources of Financing and Future Needs


Loans have been secured to double factory capacity to 8,000 lters/month during 2012 from USAID and PATH and to increase sales into rural households. Furthermore, carbon nancing is close to validation that will enable Hydrologic to improve the lters, keep prices low and reach poorer households. Given the Hydrologic has been able to benet both from debt and patient capital (grants) and has been able to leverage strategic partnerships with local micro-nance institutions, additional nancing may be necessary to further expand production and or strengthen the nancing schemes that enable low-income families to purchase the water lter.

23 The information contained in this case study is an abbreviated version of the Ashden Award Case Study Summary that can be

found at www.ashden.org

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III. Inclusive Business Opportunities in the Mekong

13. Inclusive Business Case Study - Shan Maw Myae Co, Ld, Myanmar
Promoting Sustainable Agriculture though local economic development Sector: Agri-business Location of Operations: Myanmar Year of Establishment: 2001. Turnover: n/a Net Prot: n/a Extent of BoP engagement: thousands of low-income farmers

Company Overview
Shan Maw Myae (SMM) is a market-oriented social business and is one of Myanmars largest producers of organic farm products and foods and promotes sustainable agriculture across Myanmar. The company employs more than 200 sta through 50 branch oces and distribution centers around the country. SMM spends more than 50% of its prots on local economic development and public education and has applied many principles of social entrepreneurship for local economic development.

Inclusive Business Model


BoP as Suppliers, Consumers and Distributors In Myanmar, 50% of GDP is derived from agriculture, livestock, sheries and forestry and 63% of the labor force is engaged in the agricultural sector. Because SMM believes that rural poverty is caused by a lack of opportunities, low productivity, and consequently low levels of income, SMM creates opportunities by establishing community enterprises, developing distribution systems that leverage low-income rural entrepreneurs, and most importantly provide technical assistance and inputs to traditional farmers so that they can reap higher income from the sale of premium organic farm products. SMM currently sells inputs to low-income farmers to improve the quality of their crop yields through the use of organic fertilizers, they employ low-income people as distributors of their products, and in some instances they also source specic products from low-income farmers.

Impact to date and future growth plans


SMM has impacted thousands of farmers in Myanmar through their products and services and are actively partnering with a number of international and local organization to further scale their impact (i.e. Mercy Corps). Given increasing openness to foreign investment in Myanmar over the course of the past year and increased intra-regional trade, SMM is looking to continue to develop new products and services for the domestic and international marketplace.

Challenges
One of the main challenges facing SMM is country risk. While increasing openness and reforms have led to Western concessions in terms of lifting trade sanctions and recalibrating foreign direct investment, progress continues to be fragile, especially with regard to economic reforms and good governance. SMM will also require additional investment to expand and diversify its product base.

Sources of Financing and Future Needs


Given limited information available, SMMs current nancing and future needs are unclear. However, given increasing market and investor interest in Myanmar, particularly in sectors that can contribute to economic development, SMM may be well positioned to capitalize on its market niche, proven track record, and value-added model that has both social, environmental and nancial benets.

Developing the Business Case for an Inclusive Business Private Equity Fund in the Mekong Page 51

III. Inclusive Business Opportunities in the Mekong

14. Inclusive Business Case Study - Proximity Designs, Myanmar


Sector: Agri-business and Basic Services Location of Operations: Myanmar Year of Establishment: 2004 Turnover: Social Enterprise - Income USD 2 million; Net Prot: Prots reinvested into social enterprise so products self-sustaining Extent of BoP engagement: 400,000 low-income people.

Company Overview
Proximity designs is a non-prot design venture located in Myanmar (Burma). They design, manufacture and distribute products and services (such as irrigation and rural energy products) for rural families since 2004. From irrigation products to rural nancing, from cash-for-work infrastructure projects to farmer advisory services, Proximity leverage a nation-wide network of agents and dealers to sell their products that dramatically increase incomes and positively impact rural economies throughout Myanmar. They currently employ of 350 people spread throughout 30 teams across the country.

Inclusive Business Model


BoP as Consumers and Distributors Nearly 70% of Myanmar s population is rural, with agriculture accounting for 60% of the country s GDP. Boosting the income of heavily indebted farmers through innovative business models that increase individual productivity (or pool commodities) and build capacity of small and medium-sized farmers can increase the economic mobility and political voice of rural populations. Proximity Designs uses a design-centric approach identifying high-impact opportunities to boost agricultural productivity and increase income for millions of smallholder farm families. The pioneering on-theground enterprise in Myanmar (Burma) designs, builds, and markets aordable products and services that vulnerable rural families use to transform their lives. Proximity leverages its relationships with prestigious design schools and rms to develop innovative and low-cost solutions to critical rural problems such as irrigation systems, access to ogrid energy, etc. Most of these innovations are focused on delivering greater value at a fraction of the cost.

Impact to date and future growth plans


Proximity has sold more than 110,000 products, with an estimated 400,000 people across rural Myanmar achieving higher incomes. The three-year increase in income for a typical irrigation pump user is 300 percent, or $600. By 2015, they plan to serve an additional 240,000 farm families and provide o-gird solar lighting to 250,000 households.

Challenges
Proximity has had enormous success in a very challenging political and socio-economic context that is Myanmar. Notwithstanding, Proximitys challenges likely include the ability to keep pace with the rising demand for its products and services, assuring that product innovations meet local needs, and to align ambition with their fundraising track record.

Sources of Financing and Future Needs


Proximity Designs was one of the winners of the Skoll Foundations Award for Social Entrepreneurship 2012 and has previously secured funding from a plethora of sources ranging from bi-lateral agencies to private donors and foundations. While Proximity is a non-prot social enterprise, it does used market-based solutions to assure the commercial viability of its products and solutions. To support its continuous innovation, Proximity continues to seek additional investment to scale and expand its work in Myanmar. There may be opportunities to consider debt facilities or related investments that can be used to accelerate the scale of Proximitys proven products in the marketplace outside of Proximitys core non-prot structure.

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III. Inclusive Business Opportunities in the Mekong

15. Inclusive Business Case Study, WING, Cambodia


Low-cost, accessible nancial services for the poor in Cambodia Sector: IT and Financial Services Location of Operations: Cambodia Year of Establishment: 2009 Extent of BoP engagement: 350,000 low-income customers (end 2011); More than 1,800 BoP sales agents Company Overview WING is a provider of safe and aordable mobile phone banking services to almost half a million Cambodians, most of whom were previously unbanked. WINGs services allow customers to transfer, store and cash-out their money using a mobile device and also provides airtime recharges for its partner phone networks. Given that Cambodia has the lowest banking penetration rate (96 per 1,000 adults) among developing countries in Southeast Asia, WING offers a mobile platform through which its users can deposit or withdraw cash from designated outlets and also withdraw cash from cashpoints nationwide. They can also send remittances using a secure PIN number. Inclusive Business Model BoP as Consumers and Distributors Part of the challenge of providing nancial services for the low-income segment is that the transaction costs involved in typically managing a large number of small transactions are too high. Given this challenge, WING was originally created in 2008 by ANZ Bank Cambodia who recognized that there was no practical way for banks to eectively serve unbanked customers (largely low-wage manufacturing, construction and rural workers across the country). In a country where only 5% of the 14 million people have bank accounts, WING developed a secure and sustainable mobile payment and micro-savings services that would 1) focus on acquiring unbanked customers who would be able to make low cost and accessible banking transactions; 2) ensure it would be easily accessible, user friendly and would increase the technology take-up for the unbanked, and 3) it would provide a merchant network geographically diverse enough to satisfy customer needs. Impact to date and future growth plans WING estimates it will reach approximately 8 million Cambodians aged 15-55 years in rural and urban areas who do not currently have access to traditional banking services. The anticipated benets include 1) savings in transaction costs of approximately US$16.8 million per year for 560,000 rural receivers; 2) improved nancial literacy in rural areas; 3) an additional 750 merchants/small businesses operating in rural areas to service customers; 4) improved access to low-cost nancial services that will facilitate micro-business activities and give women, in particular, increased security in their nancial transactions; and, 5) records of nancial transactions for rural users that can be used to facilitate access to leans (i.e. credit history). Following ANZs pilot development, WING was sold to Refresh Mobile, a UK-based telecommunications company, who plans to grow turnover to more than US$50 million by providing these services to all 9 mobile operators in the country and customers will have access to more than 12,000 points of sale by mid 2012. WINGs goal as part of Refresh Mobile is to become the number one payment provider in Cambodia (the PayPal of Cambodia) and expand their services into Laos, Vietnam and Thailand. Challenges WINGs main challenges have been: 1) increasing competition from nine new mobile phone operators; 2) accelerating the conversion rate of unbanked customers who have historically relied on informal trusted networks and are unwilling to change their status quo; 3) leveraging existing and familiar distribution networks instead of creating new ones; 4) increasing nancial literacy and mobile phone use among potential customers (given that Cambodia has the lowest mobile penetration rate in SE Asia); and, 5) diversifying its product oering beyond a money transfer service in order to increase competitiveness and drive revenue growth. WINGs operator-agnostic design, unique security features, and diversifying into other services like top-ups have helped WING mitigate these challenges. Sources of Financing and Future Needs ANZ sold WING to Inter-Logistics (parent company of Mobile Refresh) in November 2011 for an undisclosed sum. However, while WING was still part of ANZ Bank, it had leveraged US$120,000 from the IFC for technical assistance and US$1.55 million from AUSAID through the Enterprise Challenge Fund (WING provided a 75% match). Additional nancing may be required to contribute to WINGs expansion as part of Mobile Refreshs value proposition. Developing the Business Case for an Inclusive Business Private Equity Fund in the Mekong Page 53

IV. Conclusions and Recommendations

IV. Conclusions and Recommendations


Private rms are at the heart of the development process. Driven by the quest for prots, rms of all types from farmers and micro-entrepreneurs to local manufacturing companies and multinational enterprises invest in new ideas and new facilities that strengthen the foundation of economic growth and prosperity. They provide more than 90% of jobs creating opportunities for people to apply their talents and improve their situations. They provide the goods and services needed to sustain life and improve living standards. They are also the main source of tax revenues, contributing to public funding for health, education and other services. Firms are thus central actors in the quest for growth and poverty reduction. A Better Investment Climate for Everyone. World Development Report. The World Bank Group, 2005.

The main conclusion from this Market Brief is that the ADB does have a catalytic role to play as an impact investor for inclusive business in the Mekong Region. The ADB is well positioned to share risk with other investors, can strengthen interest and crowd in other investors and donors, can provide the appropriate incentives to ensure appropriate focus on scalable and systemic impact as well as (above) market returns, and can add both liquidity and technical assistance in a way that can be cataDeveloping the Business Case for an Inclusive Business Private Equity Fund in the Mekong Page 54

IV. Conclusions and Recommendations

lytic for the inclusive business cause in the region. Finding the right opportunities however is still more an art than a science as the market has yet to fully recognize and embrace the potential for inclusive business in the region. However, the growth and maturity of social entrepreneurship in the region over the last decade, and the evolution of their nancial needs from start-up to growth capital coupled with the emergence of company interest in creating shared value, has led to another missing middle. There are insucient debt and private equity funds and impact investors targeting these opportunities to assure their growth and accelerate their impact. ADB can be positioned to be the anchor investor that assures the market the inclusive growth requires private sector innovation, risk, and business models that can achieve above market returns and above market impact on the lives of the poor. The recommendations for the Mekong Fund are as follows: Establish the Mekong Fund and accompanying TA facility in the near term to take full advantage of the increased awareness and potential for leverage generated through its fact nding, due diligence and fundraising eorts carried out across the region. Given the interest expressed by both fund managers and companies and a clear market niche (albeit the niches depend on specic country circumstances), the ADB does have a role to play in accelerating inclusive business development by sharing risk, increasing liquidity, and providing access to technical assistance that could increase deal ow and assure investee readiness among high-impact companies in target sectors in the Mekong countries. It is clear from key stakeholders that the ADB could help crowd-in investors and help identify impact-oriented and bankable opportunities in the context of inclusive growth and strengthen the interest in and development of inclusive business models across the region. Rene its investment strategy and fund design to comply with evolving standards, return expectations and risk management criteria. These renements should include a reassessment of geographic scope and the private equity/debt mix in order to better dene a clear route to the anticipated nancial returns. As described briey in this report, the Mekong regions investment strategy will depend heavily on country risk, country context, market opportunities and most importantly, a viable pipeline. Preliminary analysis suggest a viable pipeline exists across key sectors -- namely in agribusiness, nancial services, renewable energy, and basic services and a few key IT-driven and/or logistics-driven market innovations that can benet multiple sectors. As such, the investment strategy for a possible Mekong Fund should set clear investment criteria that outline nancial return and impact expectations (specically being clear about if and where systemic impact should have preferential treatment) in order to assure a balanced investment portfolio across Mekong countries. For example, investing in a contract-farming scheme in Vietnam may not have the same systemic impact as investing in renewable energy in Laos, or increase access to clean water in Cambodia. Brand inclusive business as a means to accelerate the impact of second stage social enterprise opportunities as well as a means for larger companies to share risk when seeking to leverage the BoP as an integral part of their value proposition and business strategy. this report. There has been much debate about the dierence between social enterprise and inclusive business, addressed in part in However, rather than try and draw an academic distinction between the two, the focus should be on viable and impactful business models that generate market returns -- irrespective if the business began and still is a social purpose business or if the business happens to be adding the lowincome segment as an integral part of their business and for business reasons. As such, the ADB can contribute to branding inclusive business as business models that seek to leverage the BoP as an inte-

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IV. Conclusions and Recommendations

gral part of their business model and value proposition -- irrespective of if they are a social enterprise or mainstream business. And, the ADB can and should clarify that from its own investment strategy perspective, it particularly prefers well-established companies and/or companies in their growth stage seeking investment (that is, where the inclusive business model has already been proven to some extent and requires additional nancing to scale). Outline the parameters, scope and functionality for the Technical Assistance Facility in order to ensure its relevance and strategic contribution to the objectives of the Mekong Fund, particularly in the context of risk mitigation and investment readiness of potential opportunities across the region. Given the risk prole of some of these countries and of the companies that could be eventually considered by a fund manager, there is a clear need for a technical assistance facility that in particular contributes to pipeline generation by enhancing investment readiness and can address postinvestment risks that can emerge while implementing an inclusive business model. Interviewees and other key stakeholders have all suggested that such a TA facility should provide tailor-made solutions that are context dependent rather than develop a core set of cookie-cutter management disciplines that would be managed centrally through a core team. The prevailing viewpoint is that the TA facility should include exible and resourceful coordination through which resources can be deployed eectively and eciently where they are needed most and in strong coordination with the eventual fund manager. Finalize the impact assessment parameters and tools to ensure the fund manager and investees are clear as to the expected standards, compliance and reporting mechanisms. Given ADBs focus on impact as a key element for rating fund manager performance, impact metrics and expectations should be outlined upfront in order to manage both fund manager and investee expectations. This will also require factoring the costs of impact assessment and ensuring that these costs can be covered by the TA facility or alternative nancing schemes. Expectation management should also include moderate, or benchmarking in order to provide clarity as to what might be considered substantial,

low impact tailor made to the specic sectors that might be part of the investment strategy. This is critical because it has arguably been dicult to compare adding 10,000 low-income suppliers to a companys value chain vs. providing access to safe drinking water to 10,000 low-income families. Optimize complementarity and alignment with the GMS, public policy incentives and/or other donor/co-investor interests where relevant to maximize opportunities for synergy, risk sharing, and impact at scale. The ADBs GMS Initiative provides signicant opportunities for alignment with the objectives of the fund given that GMS is seeking to unlock the potential of the Mekong through trade, infrastructure, and regional policy harmonization to accelerate growth. GMS investments as such could be targeting key areas core to inclusive business development, especially with regard to infrastructure, logistics and policy incentives. As such, seeking to optimize the Mekong Funds investment strategy by assessing strategic overlaps with GMS priority areas might contribute to more eective risk management, pooling of resources, and where relevant, the potential to create incentives that could spur inclusive business development in the region. Given the high rate of growth, increasing diversication, intra-regional trade, and improving infrastructure, the opportunities for inclusion across the economies of the Mekong as a strategy to mitigate the specter of inequality and social exclusion are notable. Establishing that inclusive business is not a byproduct of business as usual, but rather a core business strategy that can actively and measurably con-

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IV. Conclusions and Recommendations

tribute to inclusive growth through enabling the active and qualied participation of the low-income segment in the creation of shared value, can make a meaningful contribution to addressing some of the regions most dicult social challenges. A Mekong Fund anchored by the Asian Development Bank can provide reasonable condence that these types of business models not only require careful consideration and attention, but also that they can supplement other large-scale development strategies being implemented in the region, critical for the regions sustainable future.

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Appendices

Appendices

Bibliography
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Appendices

Bertelsmann Transformation Project. Shaping Change -- Strategies of Development and Transformation. C o u n t r y R e p o r t s f o r C a m b o d i a , L a o P D R , M y a n m a r, T h a i l a n d , a n d V i e t n a m , 2 0 1 2 . www.bti-project.org/country-reports/aso/ Bridges Ventures and the Parthenon Group. Investing for Impact: Case Studies Across Asset Classes, 2010. Center for Social Initiative Promotion (CSIP) (2008). Preliminary Report on Social Entrepreneurs in Vietnam. Chhabara, Rajesh. Increasing Cambodias Competitiveness Through Corporate Social Responsibility: A SWOT Analysis of CSR in Cambodia. UNDP and CSR Works International, 2008. Council for the Development of Cambodia ,CDC. www.cambodiainvestment.gov.kh Dees, J. Gregory. (1998 and 2001). The Meaning of Social Entrepreneurship. de Jongh, W. Robert, Javier Ayala, Daniel Oporto, Sarah Howe, Manuel Fernandini, Maya P. Gorrez and Noah Beckwith. Establishing an Inclusive Business Private Equity Fund In Vietnam: A Market Scoping Study, Asian Development Bank and SNV, April 2012. Economic Institute of Cambodia. www.eicambodia.org E.T. Jackson and Associates for the Rockefeller Foundation. Next in Building the Impact Investing Industry, July, 2012. European Union Economic and Commercial Counsellors. (2010). Report on Vietnam. Website: www.delvnm.ec.europa.eu. General Statistics Oce of Vietnam. (2009). The current situation of services statistics in Vietnam. Vietnam. Global Finance Magazine. www.gfmag.com Grant Thornton Vietnam. (2011). Private Equity Investment Outlook Quarter 2, 2011. GTZ: Lao-German Programme on Human Resource Development for a Market Economy. Survey 2009: Summary Report. May, 2010. International Business Leaders Forum. Inclusive Business Sourcebook, 2011. International Finance Corporation and ideas42. Wing Mobile Payments: A Product Design Case Study, J.P Morgan. (2010). Impact Investments: An emerging asset class. www.morganmarkets.com. Enterprise 2012 Country Reports for Cambodia, Lao PDR; Thailand, and Vietnam. Achievements, Challenges and Whats

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Koh, Harvey. Ashish Karamchandani, Robert Katz (2012). From Blueprint to Scale: The Case for Philanthropy in Impact Investing. The Monitor Group, April 2012. Lao Statistics Bureau. www.nsc.gov.la London, T.& Stewart Hart. (2011). Next Generation Business Strategies for the Base of the Pyramid: New Approaches for Building Mutual Value. Pearson Education Inc., New Jersey. Making Markets Work for the Poor. Fast Facts: Vietnam Challenge Funds Cassava Project in Quang Tri, 2011. Mennon, Jayant and Anna Cassandra Melendez. Trade and Investment in the Greater Mekong Subregion: Remaining Challenges and the Unnished Policy Agenda. Asian Development Bank Working Paper Series on Regional Economic Integration, May 2011. Ovesen, Jan; Ing-Britt Trankell, Heng Kimvan, and Chen Sochoeun. Rice Farming and Microcredit in Takeo Province, Cambodia: A socio-economic and social anthropological study with special reference to Intean Poalroath Rongroeurng (IPR) micronance institution, May 2012. Phommavong, Thavone. Country Report: ASEAN Training Course on Aquaculture Production. Ministry of Agriculture and Forestry Lao PDR Living Aquatic Resources Research Center, and National Agriculture and Forestry Research Institute, March 2010. Porter, M.E. (2005). National Competitiveness: Issues for Vietnam, Meeting with Prime Minister Phan Van Khai and his delegation. 200506 GCR Vietnam - KC 2005.06.24.ppt. www.isc.hbs.edu. Promoting Inclusive Growth through Business Development at the Base of the Pyramid (Project Note for the revised ADB TA No.6518-REG). Responsible Research. Impact Investing in Emerging Markets, May, 2010. Sriboonchitta, Songsak and Aree Wiboonpoongse. Overview of Contract Farming in Thailand: Lessons Learned. ADBI Discussion Paper No. 112, July 2008. SNV and the World Business Council for Sustainable Development (2011). Inclusive Business: Creating Value in Latin America. May 2011. Sciaroni, Bretton G. Cambodia Economy Outlook 2012. Presentation to the 3rd Cambodia Finance International Conference 2012, Sciaroni and Associates, Phnom Penh, February 2012. Setboonsarng, Sununtar, PingSun Leung, and Adam Stefan. 2008. Rice Contract Farming in Lao PDR: Moving from Subsistence to Commercial Agriculture. ADBI Discussion Paper 90. Tokyo: Asian Development Bank Institute. http://www.adbi.org/discussionpaper/2008/02/25/2492.rice.contract.farming.in.lao.pdr/

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Appendices

Vietnam General Statistics Oce. Website: http://www.gso.gov.vn Vietnam s Economy: Plus One Country. The Economist. September 2, 2010. The World Bank and The International Finance Corporation. (2011). Doing Business 2012: Making a Difference for Entrepreneurs. The World Bank. Washington, DC. World Bank Poverty Net. Website: http://www.worldbank.org/poverty. The World Bank. Bank Group, 2005. World Resources Institute and International Finance Corporation. (2007). The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid. Washington, DC. A Better Investment Climate for Everyone. World Development Report. The World

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Appendices

List of Companies and Stakeholders Reviewed and/or Interviewed


#
1 2 3

Company
ACLEDA Bank*** Allianz An Giang Fruit Vegetables and Foodstu JSC (ANTESCO)

Sector
Financial Services - Micronance Financial Services - Microinsurance Agribusiness - fruits and vegetables

Country
Lao PDR Lao PDR Vietnam

IB Model
Consumer Consumer Supplier

4 5

Angkor Rice (AKR) Bolaven Farms

Agribusiness - commodities Agribsuiness

Cambodia Lao PDR

Supplier Supplier

6 7

CEDAC Coca Cola Vietnam Ltd

Agribusiness - fruits and vegetables Retail

Cambodia Vietnam

Supplier Distribution

8 9 10 11 12 13 14 15

Duc Viet Food JSC ECOM Coee Group FPT Elead JSC Gentraco JSC Grand-Place Green Energy Biomass J.S.C. *** Huong Hoa *** Hydrologic Social Enterprise***

Agribusiness - processed meats Agribusiness - commodities Telecommunications - mobile phones Agribusiness Agribusiness - chocolate Renewable Energy - biomass Agribusiness - commodities Water and Sanitation - water purication

Vietnam Vietnam Vietnam Vietnam Vietnam Vietnam Vietnam Cambodia

Supplier Supplier Consumer Supplier Supplier Supplier Supplier Consumer

16 17 18 19 20 21

Intean Poalroath Rongroeurng Ltd (IPR)*** Interour Vietnam Kim Hang Aluminum Plastic Kien Long Bank KPN Pharma Co, Ltd. Lampang Food Products

Financial Services - micronance Agribusiness - commodities Manufacturing Financial Services - rural banking Agribusiness Agribusiness

Cambodia Vietnam Vietnam Vietnam Lao PDR Thailand

Consumer Supplier Distribution Consumer Supplier Supplier

22 23 24 25

Lao Agro Industry Co., Ltd. Lao Arrowny Corporation Leudnilan Import Export Linfox Logisitcs

Agribusiness Agribusiness - rice Forestry - rattan/furniture Manufacturing

Lao PDR Lao PDR Lao PDR Vietnam

Supplier Supplier Supplier Distributor

Developing the Business Case for an Inclusive Business Private Equity Fund in the Mekong Page 62

Appendices

#
26 27 28 29 30 31

Company
Nha Be Corporation Nestl Vietnam*** Philips Electronics Vietnam Prasac Project Alba Proximity Designs

Sector
Manufacturing - Garment Agribusiness Energy Financial Services - Micronance Agribusiness Agribusiness

Country
Vietnam Vietnam Vietnam Cambodia Cambodia Myanmar

IB Model
Employee Supplier Consumer Consumer Supplier Consumer

32

Rang Dong Plastics

Manufacturing - Recycling of plastic waste

Vietnam

Supplier

33 34 35 36

Sahakreas CEDAC Sathapana Southat Rice Mill*** Sunlabob Renewable Energy Ltd***

Agribusiness - Rice Financial Services - Micronance Agriculture - rice production Renewable Energy - diversied renewable energy solutions

Cambodia Cambodia Lao PDR Lao PDR

Supplier Consumer Supplier Consumer

37 38

Thaneakea Phum (Cambodia) Ltd *** TMA Solutions

Financial Services - Micronance Information Technology - software development

Cambodia Vietnam

Consumer Consumer

39

Urmatt Ltd.***

Agribusiness - diversied rice production

Thailand

Supplier

40 41

ViDeBridge Company Ltd. Wing***

Renewable Energy - biomass Financial Services and Information Technology

Vietnam Cambodia

Supplier Consumer and Distributor

* * * Selected for Case Study.

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