Investigating the potential of an Inclusive Business Fund...
Transcript of Investigating the potential of an Inclusive Business Fund...
Investigating the potential of an
Inclusive Business Fund in
Bangladesh
A Market Scoping Study
July 2013
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 2
© 2013 Asian Development Bank and SNV
Written by Better Stories, Prime Finance and Asset Management Company and Don Taylor and Phil Harman, SNV
Netherlands Development Organisation
The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB), its Board of Governors, or the governments they represent or of SNV. ADB and SNV do not guarantee the accuracy of the data included in this publication and accept no responsibility for any consequence of their use.
By making any designation of our reference to a particular territory or geographic area, or by using the term “country” in this document, ADB and SNV do not intend to make any judgements as to the legal or other status of any territory or area. ADB and SNV encourage printing or copying exclusively for personal and noncommercial use with proper acknowledgement of ADB, SNV and the authors. Users are restricted from reselling, redistributing, or creating derivative works for commercial purposes without the express, written consent of ADB and SNV.
Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines Tel + 63 2 632 4444 Fax + 63 2 636 4444 www.adb.org
SNV Netherlands Development Organisation Dr. Kuyperstraat 5 2514 BA,The Hague, The Netherlands Tel +31 70 344 0244 Fax +31 70 385 5531 www.snvworld.org
or more information on the ADB s inclusi e usiness initiati e, lease isit http://www.adb.org/themes/poverty/inclusive-business-base-pyramid
or more information on the SNV’s inclusi e usiness a roach, lease isit http://www.snvworld.org/en/inclusive-business.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 3
Table of contents
List of figures ........................................................................................................................................... 4 List of abbreviations ................................................................................................................................ 5 Executive summary ................................................................................................................................. 6
Background ........................................................................................................................................................................... 6 Approach ............................................................................................................................................................................... 7 Findings ................................................................................................................................................................................. 7
Background to the Study ...................................................................................................................... 11 ADB’s Inclusi e Business initiati e ...................................................................................................................................... 11 SNV and Inclusive Business ................................................................................................................................................. 14 Purpose and methodology of the study .............................................................................................................................. 15
I. Macro-economic environment .......................................................................................................... 19 Consistently strong economic growth ................................................................................................................................ 20 Foreign direct investment has picked up dramatically and has room to increase further .................................................. 21 Foreign direct investment is focused on industry and services .......................................................................................... 22 Financial stability and markets ............................................................................................................................................ 25 Financial markets have skewed allocation of capital .......................................................................................................... 26 Current institutional financing situation ............................................................................................................................. 26
II. Poverty, the BOP and the opportunity for Inclusive Business .......................................................... 30 Access to key goods and services ........................................................................................................................................ 31 Labour market ..................................................................................................................................................................... 31 Regional variation in poverty .............................................................................................................................................. 32 Distribution of companies by size ....................................................................................................................................... 33
III. Findings: Private sector interest in Inclusive Business in Bangladesh ............................................ 36 Current engagement with the BOP ..................................................................................................................................... 36 Perceived benefits of engaging the BOP for Inclusive Businesses ...................................................................................... 38 Benefits of engaging the BOP, for the BOP ......................................................................................................................... 41 Inclusive Business critical success factors ........................................................................................................................... 44 Key challenges to the growth of Inclusive Business ............................................................................................................ 47
IV. Financing Inclusive Business ............................................................................................................ 51 Analysis of findings of fund manager survey ...................................................................................................................... 55 Fund management obstacles and interest .......................................................................................................................... 61 Co-investor mapping ........................................................................................................................................................... 65 Donor mapping ................................................................................................................................................................... 66
Conclusions ........................................................................................................................................... 68 Need .................................................................................................................................................................................... 69 Interest................................................................................................................................................................................ 70 Readiness ............................................................................................................................................................................ 70
Strategy and recommendations ........................................................................................................... 72 Steps to be taken: ............................................................................................................................................................... 72 Size of investment and enterprise ...................................................................................................................................... 72 Priority sectors .................................................................................................................................................................... 73 Fund details ......................................................................................................................................................................... 73
Appendices ............................................................................................................................................ 74 Appendix 1: An important macro trend: Bangladesh's demographic dividend ................................................................. 74 Appendix 2: Business environment and economic progress............................................................................................... 76 Appendix 3: Analysis of company sample ........................................................................................................................... 77 Appendix 4. Case studies .................................................................................................................................................... 80 Appendix 5: Current engagement with the BOP ................................................................................................................ 86 Appendix 6: Fund managers ............................................................................................................................................... 95 Appendix 7: Co-investors .................................................................................................................................................... 99 Appendix 8: Overview of relevant donor partners........................................................................................................... 101 Appendix 9. Private sector mapping survey ...................................................................................................................... 104 Appendix 10. Fund manager & co-investor survey ........................................................................................................... 113
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 4
List of figures
Figure 1. GDP growth in Bangladesh from 1991 to 2011 .................................................................................... 19 Figure 2. GDP growth in Bangladesh from 1991 to 2011 .................................................................................... 20 Figure 3. Net FDI has soared since 2002 (needs fixing) ....................................................................................... 21 Figure 4. Ratio of FDI/GDP ................................................................................................................................... 22 Figure 5. Telecommunications investment has taken over as the major target of FDI ....................................... 23 Figure 6. Allocation of FDI 1996-2010 ................................................................................................................. 23 Figure 7. Trends in GDP at current price (million US$) in Bangladesh, by sector: 1981/82 to 2005/06 .............. 24 Figure 8. Bangladesh has a lower debt/GDP ratio than most comparable nations in the region ....................... 25 Figure 9. Loan defaults in percentage of outstanding loans ................................................................................ 27 Figure 10. Private credit growth, monthly, since February 2012 ....................................................................... 28 Figure 11. Representation of income levels and percentage population size .................................................... 30 Figure 12. Poverty headcount ratio has fallen significantly over the past 20 years ........................................... 30 Figure 13. Employment and growth by sector .................................................................................................... 32 Figure 14. Maps of Poverty Reduction in Bangladesh between 2000 and 2005: Old Zilla level .......................... 33 Figure 15. Distribution of employment by company size, 2003 .......................................................................... 34 Figure 16. Location of industries by division in Bangladesh 2001-03 .................................................................. 35 Figure 17. BOP models according to sector ......................................................................................................... 36 Figure 18. Benefits of engaging the BOP for Inclusive Businesses....................................................................... 38 Figure 19. Benefits of engaging the BOP, for the BOP ......................................................................................... 41 Figure 20. Drivers of business growth ................................................................................................................. 45 Figure 21. Key challenges to the growth of Inclusive Business ............................................................................ 48 Figure 22. Source of finance for Inclusive Business* ........................................................................................... 49 Figure 23. Current funding availability by BOP segment ..................................................................................... 50 Figure 24. Bangladesh stock market trends ......................................................................................................... 51 Figure 25. At 21% of GDP, Bangladesh's stock market is catching up to the BRIC nations ................................. 52 Figure 26. Bangladesh has a lower debt/GDP ratio than most comparable nations in the region ..................... 53 Figure 27. Economic expectations over the short- and medium-term ................................................................ 54 Figure 28. Very attractive vs. most viable industries to integrate low income segment .................................... 56 Figure 29. Most important factors when making a private equity investment in Bangladesh............................ 58 Figure 30. Most important concerns when investing in Bangladeshi companies ............................................... 59 Figure 31. Most important factors when making a private equity investment in a BOP venture ....................... 60 Figure 32. Concerns of fund managers in BOP focussed funds ........................................................................... 61 Figure 33. Obstacles in managing a BoP focused fund ........................................................................................ 62 Figure 34. Most important factor to measure the success of a BoP focused PE fund ......................................... 62 Figure 35. Most attractive exit option ................................................................................................................. 64 Figure 36. Fund manager interest in investing in potential ADB fund ................................................................. 64 Figure 37. Deposit interest rates at Bangkok Commerce Bank ........................................................................... 66 Figure 38. Bangladeshi population age groups in 2012 ....................................................................................... 75 Figure 39. Fertility rates over the past 50 years .................................................................................................. 75 Figure 40. Recent trends of macro-economic indicators ..................................................................................... 76 Figure 41. Global Competitiveness Index ............................................................................................................ 76 Figure 42. Wealth and health .............................................................................................................................. 77 Figure 43. Industry sectors of the market scoping company sample .................................................................. 78 Figure 44. Market scoping companies showing sector, size, growth potential & BOP model ............................ 79 Figure 45. BOP models according to sector ......................................................................................................... 86 Figure 46. Estimated deal sizes according to the different types of financial institutions in Bangladesh ........... 96 Figure 47. Current activities of key bilateral aid agencies and DFIs in private sector development ................. 101
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 5
List of abbreviations
ADB Asian Development Bank
BDT Bangladesh Thaka
BOP Base of the economic Pyramid
CSR Corporate Social Responsibility
EC European Commission
EU European Union
FDI Foreign Direct Investment
GDP Gross domestic product
IB Inclusive business
IPO Initial Public Offering
IRR Internal Rate of Return
IT Information Technology
NGO Non Government Organisation
R&D Research and Development
SME Small and Medium Enterprises
SNV Netherlands Development Organization
SOE State-Owned Enterprises
UNDP United Nations Development Programme
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 6
Executive summary
This market scoping study examines the potential of setting up an Inclusive Business Fund in
Bangladesh. The study answers three questions:
1. Is there private sector interest and are there viable opportunities to support Inclusive
Business development in Bangladesh?
2. Is there sufficient capacity and readiness of social, political, and business stakeholders to
invest and develop Inclusive Business in Bangladesh?
3. What would be the most appropriate investment strategy to catalyse and further unlock the
potential for Inclusive Business in Bangladesh?
The answers to the first two questions are yes, with conditions. The answer to the third questions
requires separate interventions.
These are summarized below and detailed at the end of the body of this report.
Background
Bangladesh is poor country (on the list of the UN's least developed nations) has a large population (142
million in 2011), and rapid economic growth (forecast at around 6.3 percent for the five years to 2016).
Around 43 percent of the population lives below the international poverty line.
The combination of high economic growth and widespread poverty create potential for projects to have
a high impact on the living standards of the poor. In particular, well directed and sustainable
interventions can potentially direct the economic growth to both help business and help those at the
bottom of the pyramid, and have a positive impact on economic growth rather than a negative one.
Businesses that make money and make a positive contribution to the bottom of the pyramid are
commonly referred to as "inclusive businesses."
Within this context, the Asian Development Bank (ADB) in conjunction with SNV Netherlands
Development Organisation (SNV) commissioned this market scoping study to assess the relevance,
o ortunity and strategy required to de elo a usiness case for “Inclusi e Business” de elo ment and
investment in Bangladesh – in other words, business opportunities that deliver market- or above-market
returns while making a meaningful and substantial contribution to improving the livelihoods of the poor.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 7
Approach
The analysis used a four-tiered approach that assessed the following: i) the opportunity to develop
inclusive business approaches in Bangladesh; ii) the presence or absence of an enabling environment for
inclusive business development; iii) the level of interest from the private sector in making their
businesses more inclusive of the poor; and, iv) the current state of the private equity market in
Bangladesh and potential interest and expectations of institutional investors in financing inclusive
business ventures.
During the course of this study, 55 private sector businesses and 12 fund managers were interviewed
along these lines to answer the three questions of the study.
Findings
The information gathered and analysed for this study confirmed that there is a distinct opportunity for
Inclusive Business development and related financing in Bangladesh. Whilst the Bangladesh political,
economic and social environment has been characterised by political turmoil, weak governance, energy
shortages, and the costs of unplanned urbanisation, the country has shown significant resilience and
made significant progress in economic development since its independence in 1971. With proper
planning for such potential risks coupled with commensurate pricing, ADB could feasibly deploy a fund
of around US$ 50 million within a 5-year time frame potentially as part of a broader regional fund. In
short, for the ADB, financing a portfolio of inclusive businesses in Bangladesh is distinctly plausible but
with a range of conditions that need to be accounted for.
Opportunity to develop inclusive business approaches in Bangladesh:
The economy is in transition. Bangladesh's economy is transforming from a primary industry
Jute-exporting economy to a manufacturing economy based on textiles. While this has been
caused in part by the scarcity of land, high population density and infrastructure constraints, the
significance of the manufacturing and services sector is unusually high compared to countries in
a similar stage of development.
Widespread poverty offers high impact social returns. About 43 percent of the Bangladeshi
population (more than 60 million people) earn an income of less than US$ 1.25 per day placing
them below the international poverty line, and about 48 percent of the population (68 million)
earn an income of less than US$ 3 per day making them vulnerable to poverty. The BOP
therefore represents the majority of the Bangladeshi population;
Based upon the Multidimensional Poverty Index (MPI), 58% percent of Bangladeshi households
suffer from multiple dimensions of poverty (and a further 21 percent are vulnerable to multiple
dimensions within education, health and other living conditions.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 8
Enabling environment for inclusive business development:
Significant policy reforms in the last three decades have created a more market-based economy,
mostly due to a gradual deregulation and liberalisation process aimed at fostering private
sector-led development.
Bangladeshis have an existing general awareness of Inclusive Business models providing an
excellent foundation for further expansion in the sector. This is partially because NGOs helped
drive development by filling gaps in service delivery. This is something that is particular to
Bangladesh which has spurred development innovation including micro-finance. There is further
potential for the business models developed by some of these NGOs that have borne fruit to be
used by the private sector.
The legal structure of foreign investment is well established in Bangladesh. Growth in foreign
direct investment over the past ten years has averaged 37.4 percent (albeit from a low base)
and is outperforming India (35.7 percent), Pakistan (11.4 percent), Sri Lanka (12.8 percent),
Nepal (20.6 percent) and Vietnam (17.5 percent). Textile and clothing manufacturing are the
key contributors to expansion in industrial output -- a result of Bangladesh’s referential
European Union (EU) import rules.
Bangladesh has a “low cost edge” o er its com etitors articularly in terms of wages.
Competitor countries such as China are increasingly seeing upward pressure on wages.
Companies that engage the BOP strongly felt that a poor business climate and regulatory
environment, poor infrastructure, and lack of access to capital were the most critical challenges
to the growth of their businesses.
Companies engaged in Inclusive Business identify growing consumer confidence, increased
domestic consumption and increased access to technology as the three most critical factors to
their usiness’ success in Bangladesh.
Private Sector Interest:
There is considerable interest and engagement in Inclusive Business. About 85 percent of firms
surveyed recognize the importance of the BOP in their respective business models, whilst 72
percent are also implementing a specific business strategy and / or goal to engage the low-
income segment. Companies engage the BOP most notably as a supply of skilled and unskilled
labour (43 percent), as a consumer base (39 percent), as then as either suppliers or distributors
within their value chain (22 percent, and 15 percent respectively).
A significant majority of companies (76 percent) expressed an interest in accessing financing. In
order to accelerate their growth into these low-income market opportunities debt was the most
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 9
preferred form of financing (58 percent) followed by equity (37 percent), and then guarantee (5
percent).
67 percent of companies requested financial assistance of US$ 1 million to US$ 10 million, which
is fairly evenly distributed between those who require between US$ 1 million to US$ 5 million
(32 percent), and those who require between US$ 6 million to US$ 10 million (35 percent). An
average Internal Rate of Return (IRR) of 16 percent was projected.
Capital Markets and Private Equity Market:
Private equity is a relatively new concept in Bangladesh reflected in the fact that there are only
two private equity fund managers operating businesses in Bangladesh (both relatively new
entrants), and country’s first enture ca ital company has only just started up. There are,
however, a number companies that invest their own funds in private companies.
Fund managers and co-investors had heterogeneous expectations on the performance of the
Bangladeshi economy in the short-term, with nearly half holding positive outlooks for the
economy over the next 12 months, and the rest holding a negative or neutral position. This
negativity may be due to issues such as a recent currency depreciation, liquidity shortage, rate
hikes, and uncertainty over the upcoming national election. Over the next 5 years however,
respondents were unanimously positive about the economy;
Fund managers and co-investors strongly view Energy and Agriculture as the most attractive
sectors to integrate the low income segment. The power demand-supply gap and government
incentives are possible reasons for this. The significant involvement of the Bangladeshi
population in Agriculture (most of whom are BOP) is a likely reason for it to be identified as an
attractive sector for the low income segment.
The quality of the management team is seen as the most important factor when making private
equity investment in Bangladesh. Cash flow, company track record and transparency in business
activities are also key factors when investing private equity. With regard to BOP ventures, fund
managers consider the viability of the business model and the potential for financial return as
the most important factors when making a private equity investment -- just as they would for a
non-BOP venture.
The lack of transparency and the lack of existing management skills are seen as the major
problems. Poor business strategy and business plan are also key concerns. In Bangladesh
business plans are rarely developed, and if done, are often superficial, thereby making it difficult
for companies to materialize goals. In BOP focused funds a lack of skills and management
experience are seen as the most critical issues.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 10
Recommendations
Inclusive business fund: There is strong demand for companies for financing both from smaller
companies in the growth phase and larger companies. A fund size of up to $50 million could be
deployed. The fund could be either funded in tranches of be part of a regional fund.
Technical assistance: A tailored technical assistance facility is critical. This could include support
with innovative business models as well as pre-investment services.
ADB role: The role of the ADB to anchor any fund is important as it provides credibility to other
investors. ADB’s leadershi on inclusi e usiness can hel assuage concerns of other in estors
who may perceive that companies working with the BOP have increased investment risk.
Staged approach: A staged approach could be considered where companies are initially
provided Technical Assistance to improve or establish inclusive business models. This could
increase the pipeline for a fund that is established in two to three years.
Deal size: Opportunities range from $1 million to $10 million
Sector: Sector agnostic with a skew to agriculture, textile & garments, food & beverage and
Manufacturing.
Currency: The fund should be denominated in US dollars with a currency swap agreement in
Bangladesh to allow local currency investments without taking on any currency risk.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 11
Background to the Study
Over the past two decades, the Asia and the Pacific region has sharply reduced its share of population
living in poverty to 21% ($1.25 per capita income/expenditure at purchasing power parity of 2005) and
47% ($2), as of 2008.
However, poverty and the vulnerabilities associated with it remain entrenched. When a wider definition
of poverty is applied (less than US$ 4 per day), almost 3 billion people, roughly 82 percent of the Asian
population is considered part of the Base of the Pyramid (BOP) as defined by the World Resources
Institute.1
The private sector is the key contributor to the economic boom in Asia. However, it is clear that it has
yet to fully realize its potential in creating shared value, which is to promote business models that
integrate the low-income segment in unique and innovative ways that generate company growth while
creating value for the low-income segment and directly contributing to poverty reduction.
ADB’s Inclusive Business initiative
Inclusive growth is one of the three strategic pillars of ADB's Strategy 2020, which aims to broaden
economic and social opportunities for lower-income and excluded groups. Inclusive business
For the purpose of this scoping study, Inclusive Business is defined by the ADB as follows:
Profit making companies that bring systemic impact at scale to the poor and vulnerable
people under the US$ 3 international poverty line. These Inclusive Businesses are
focused on making a reasonable profit (an IRR of 10-20%), while contributing to systemic
impact on the lives of the poor. This can by specifically including the poor as consumers
(new markets for affordable goods and services), distributors (new distribution
networks), suppliers (new sources of supply / inputs); and employees (previously
untapped sourced of skilled and unskilled labour coupled with improvements in labour
conditions beyond local labour law compliance).
In the Bangladesh scenario, we redefine "reasonable profit" as 10-20% above available interest rates, or
17-37%:
The current prime rate (overnight cash rate offered to banks by the central bank) is 7.25%, and
has ranged between 4.5% in 2009 and 8.87% in 2008.
While the "prime rate" set by the central bank is currently 7.25%, lending rates for private
businesses start at around 17% (lower for trade finance) and extend to well above the "ceiling
1 World Resources Institute & International Finance Corporation 2007
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 12
rate" set by the government of 37%. We therefore used an IRR of 17-37% as a reasonable target
profit rate for SMEs.
Inclusive Businesses, are often medium-sized, well-established, viable businesses who are seeking to
accelerate growth by pursuing new market segments and / or distribution channels, and / or are focused
on mitigating supply chain, labour and reputational risks whilst at the same time actively pursuing
market opportunities. They can also be successful social enterprises with a proven business model that
are seeking scale. Inclusive businesses maximize these opportunities and address these risks by
integrating the low-income segment into their value chain in such a way that they contribute
meaningfully to a com any’s ottom line y increasing rofits and reducing costs on the one hand, and
on the other, they provide income and employment opportunities for the low-income segment and / or
access to goods and services that improve their livelihoods in a sustainable manner. As such, Inclusive
Businesses aim to contribute to systemic impact on the lives of the poor by including the poor as
consumers, distributors, suppliers, and employees.
Inclusive Businesses differ from social enterprises and corporate social responsibility activities in their
realized profit making motive / ability to offer market returns, as well as the scale of positive
externalities generated. Many Inclusive Businesses, particularly those that have attained scale in
operations, deliver market returns or above market returns on par with commercial businesses enabling
them to access a large spectrum of commercially-oriented funding sources including stock markets.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 13
Characteristics of Inclusive Businesses
Inclusive Businesses tend to have the following characteristics that integrate both definitional and strategic /
tactical considerations:
1. Strictly for-profit;
2. Core business is strictly Inclusive Business;
3. Must include the low-income segment within their business model through one or more of the
following ways: as suppliers, as consumers, workers / employees and as distributors;
4. Must generate financial returns (amount depends on either investment criteria set by an impact
investor, company ambition, strategy and business model or a combination of both).
5. Must generate social returns (scale and scope depends on the investment criteria set by an impact
investor, company ambition, strategy and business model, or a combination of both).
6. Designed from the start with scale in mind to maximize and optimize their route to impact and to
maximize the creation of company value.
7. Do not seek trade-offs between financial and social returns. Rather, they continuously seek solutions
through which both can be optimized simultaneously.
8. Often require blended capital priced for their level of risk and relevant stage of development.
9. Actively assess and measure both social and economic performance in a standardized manner.
10. Normally evolve from social enterprises seeking to scale their proven (social purpose) business model
or mid- to large-sized established companies seeking to create shared value through supply chain,
labor-related and/or product innovation.
Beyond these standard attributes, for the purpose of a potential fund ADB is seeking to identify Inclusive
Businesses that:
11. Achieve a gross financial return in line with the market
12. Measurably and meaningfully impact at least 5,000 people during the investment period.2
13. timi e their usinesse alue ro osition in such a way that it also addresses a systemic and rele ant
poverty-related issue in a specific geographic context.
14. Demonstrate a clear route to impact.
15. Identify and manage pre- and post-investment risks.
The above criteria has important implications in terms of selecting companies – particularly in terms of
the maturity of the investment opportunity and investee, the potential depth and breadth of the social
impact, the financial return, and risk.
2 Total impact is case dependent. The number of beneficiaries may vary based on the local context, business model
and opportunity
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 14
SNV and Inclusive Business
SNV (the Netherlands Development Agency) is a partner of the ADB in this initiative and is managing the
studies in Vietnam, Pakistan, Indonesia and Bangladesh. SNV is an international development
organisation of Dutch origin committed to eliminating poverty and inequity in emerging markets
worldwide. With more than 1,300 staff located in more than 100 offices in 35 countries across Asia,
Africa, the Balkans and Latin America, SNV provides a unique blend of integrated services and solutions
tailor-made to the specific needs of our public and private sector clients that are critical to their
sustainable growth and performance. In Asia, SNV has country offices in Laos, Vietnam, Bhutan,
Cambodia, Nepal, Indonesia and Bangladesh.
For decades, SNV has developed and leveraged market-based solutions and innovations to accelerate
economic development opportunities for the low-income population. One such innovation SNV has up-
scaled, in partnership with the World Business Council for Sustainable Development is called Inclusive
Business.
SNV has aggressively positioned, leveraged and up-scaled Inclusive Business in Latin America with a
range of strategic partners. These include the WBCSD, Inter-American Development Bank, Andean
Development Corporation, and more than 150 national and multi-national companies and also
government actors. SNV is now advancing a similar approach in Asia and Africa.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 15
Purpose and methodology of the study
The purpose of this study is to assess the potential for setting up an inclusive business fund focusing on
providing capital (debt and/or equity) to inclusive businesses.
The main objective of this study is to assess the potential for an Inclusive Business private equity fund in
Bangladesh. The analysis focused on exploring the following three topic areas:
The analysis used a three-tiered approach that assessed (1) the enabling macro-economic environment
for Inclusive Business development in Bangladesh: (2) the level of interest from the private sector in
making their businesses more inclusive of the poor; and (3) the current state of the private equity
market in Bangladesh and potential interest and expectations of institutional investors in financing
Inclusive Business ventures.
Need
•Do inclusive businesses have access to the capital they need to achieve their objectives?
•Are other financial organizations providing capital at rates below what could be considered a reasonable risk-weighted return?
Interest
•Are the companies in Bangladesh interested in Inclusive Business?
•Are they interested in Inclusive Business private equity funding?
•What terms and conditions the companies would prefer?
Readiness
•Is the macro-economic condition favourable to Inclusive Business?
•Are the companies ready for Inclusive Business?
•Are there enough skill sets in the market on Inclusive Business?
•What is the level of appetite of the key stakeholders?
Strategy
•What are the steps needed to be taken in response to the above?
•What size of enterprise and investment should the fund consider?
•What are the priority sectors?
•What type of instruments would be most suitable?
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 16
Approach
To successfully design and execute this project, the feasibility study focused on leveraging both primary
and secondary sources of information. Primary information (both qualitative and quantitative)
consisted of personal interviews with 55 companies (via the Private Sector Mapping component) in
Dhaka and the peri-urban area surrounding Dhaka from a cross-section of the Bangladeshi economy and
12 private equity funds, 4 co-investors, and other related stakeholders in Bangladesh. Secondary
research and information gathered was sourced from a mix of national government statistics and cross-
referenced with independent research and reports from established institutions such as the ADB, World
Bank, and World Economic Forum among others. The full questionnaires used can be found in Appendix
2 and Appendix 3.
Survey methodology
The study relied on primary information from a non-randomised selection of companies and investment
funds active in Bangladesh. The results show that opportunities exist, but the small sample size and
non-random selection do not lend themselves to meaningful statistical inference about the size of the
potential IB investment sector or number of investible companies in Bangladesh. The results presented
only refer to the firms involved in this study. On the other hand, most of the investment funds active in
Bangladesh were interviewed so the results are likely to be reflective of the broader sector.
Enabling Environment
Private sector interst
Private equity market viability
•Assess if the current economic, market, political conditions favour the development and growth of Inclusive Business in Bangladesh and the potential impact on the BOP
•Establish the degree to which companies are currently involved in or willing to be involved in Inclusive Business, what they consider to be the perceived benefits, and what they perceive to be the critical arriers to entry into this “emerging market”.
•Assess the current state of the private equity market in Bangladesh, determine the interest of institutional investors in an Inclusive Business private equity fund, and assess expectations for rates of return, risks, sector preferences, deal size, and term.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 17
To define a viable pipeline of companies for the fund that are interested in and/or already practicing
Inclusive Business, an interview guide was developed to capture important information from the
inter iewees, with s ecific em hasis on two aria les (i) com anies’ interest and knowledge of
Inclusive Business, or business initiatives that incorporate low-income o ulations, and (ii) com anies’
interest in accessing debt and / or equity financing for the support and growth of their business
initiatives that include BOP populations. The interview guide included questions about specific aspects
of the companies (employees, size, revenues, market share, products / services); the com anies’
relationship with the BOP (business model, stage of implementation, rationale for working with low-
income o ulations, alliances esta lished for Inclusi e Business im lementation); the com anies’
financing (past and current financing, interest in financing specifically focused on Inclusive Business
development, specific characteristics of such financing); as well as whether or not the companies are
interested in follow-up information with regard to financial and / or technical assistance for their
Inclusive Business models.
Data collection instruments were also designed to accompany the interview guide. Considering that the
interview guide consisted of mainly close-ended questions, a core data collection instrument was used
for quantitative information, which was also utilised for subsequent analysis. An additional data
collection instrument was used for more qualitative data.
Company sample selection:
In order to define a company sample, selection criteria were first determined; these included:
Number: 55 firms interviewed
Size: Medium to large Bangladeshi or multinational companies
Legal criteria: Focus on joint stock and limited liability companies
Interest in the bottom of the pyramid: Companies should be already working, or have interest
in working with the BOP, and see profit potential in expanding in this area
Business model: Increased focus on business models with the poor as consumers and / or
distributors as well as producers and / or employees were included
Industry sectors: Sector diversity with an emphasis on including non-traditional sectors that
have the potential for innovation within the Inclusive Business marketplace
Interest in financing: As often as possible, these companies should be interested in financing to
support a business model that includes the low-income segment
For private equity funds: In order to assess the potential viability of an Inclusive Business focused private
equity fund in Bangladesh, interviews were held with 13 fund managers/ equity funds in Bangladesh.
The focus of the interviews was to capture important information about (i) industry attractiveness; (ii)
investment obstacles; (iii) Bangladeshi economic outlook, and (iv) social investing in Bangladesh.
Questions were focused both on the private equity market in general and private equity when applied to
BOP markets. The interview guide included questions about the investment criteria, sectoral prospects,
risks and opportunities, expected conditions and returns, in addition to interest in managing and
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 18
prospects for raising capital for an Inclusive Business Venture Fund. As with the case of the company
interviews, data collection instruments were also designed and used to accompany the standard
interview guide.
Investment fund sample collection:
In order to define the limited investment fund sample, criteria were determined as follows:
Number: 10 to 20 investment funds to be interviewed
Size: Medium to large Bangladeshi or multinational (foreign backed or regional) investment
funds – ranging from US$ 30 million to over US$ 1 billion under management (average US$ 100
million under management)
Legal criteria: Focus on private equity, asset management, and social investment funds
Interest in the poor: Funds operating in Bangladesh generally do not list the BOP as a central
focus of their investment portfolio – funds were selected based on potential interest and / or
experience with ventures that may consider investments in the BOP
Business model: A range of asset classes and risk profiles
Industry sector: Funds with either a diversified investment or focused sector approach
Interest in investing: Where possible, identify funds that have either shown or may be
interesting in considering BOP venture investments
Because private equity funds in Bangladesh are generally BOP-agnostic (they are focused on more
growth and risk related criteria), funds were also identified based on their perceived track record with
companies that engage with the BOP or companies who have or are considering sustainability criteria in
their investment strategy.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 19
I. Macro-economic environment
Bangladesh, officially the People's Republic of Bangladesh, is
located in South Asia, bordering India and Myanmar.
It has a population of 161 million, making It the world's eighth-most
populous country.
After independence from Britain in 1947, the country because East
Pakistan, separated from the main country of Pakistan by 1,500km
of India.
This proved to be economically and politically unworkable, and the
country split from Pakistan in 1971 following a civil war.
After being established as its own country, Bangladesh adopted a secular constitution, despite being
89.5% Muslim.
The initial government proved to be unstable, with a series of coups from 1975 to 1981. From 1981 to
1991, the country was ruled by military backed rule. Democracy was restored in 1991 and apart from a
brief period of military rule in 2007-2008, has endured in relative stability.
The economy began expanding in the early 1980s and has growth has accelerated to around 6% per year
(nominal) for the last ten years, or about 4% on a purchasing power parity basis.
Figure 1. GDP growth in Bangladesh from 1991 to 2011
Despite rapid economic growth, Bangladesh remains one of the poorest countries in the world, ranked
152 out of 181 by the World Bank.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 20
Consistently strong economic growth
The combination of high population and low income make Bangladesh a mid-ranking economy,
comparable to Vietnam, New Zealand, and Angola. For the moment.
The combination of stable government, open markets, and increasing foreign direct investment have
contributed to strong and accelerating economic growth.
The economy has been experiencing strong growth since the 1990s, with GDP averaging 4.4 percent
between 1991 and 1995, 5.2 percent from 1996 to 2000, 5.3 percent from 2001 to 2005, and 6.3
percent from 2006 to 2011. Moreover, the Bangladesh economy is expected to continue to expand with
three key factors underpinning GDP growth – labour, capital and technology – all favourable.
Figure 2. GDP growth in Bangladesh from 1991 to 2011
Source: World Bank 2012
At the end of 2011 the country’s er ca ita GDP was US$ 735, a significant increase from the US$ 287 at
the end of 1991. This represents a compound average per capita GDP growth rate of 4.8 percent.
This comes despite rampant corruption (Bangladesh ranks 144 in terms of corruption by Transparency
International -- behind Pakistan, Nigeria, and Russia) and a slow, inefficient bureaucracy. This is usually
a red flag for investors. However, Bangladesh has a good reputation for protecting investors is ranked
24th in terms of protecting investors by the World Bank DB Index.
This has helped attract foreign investment, which has picked up markedly over the past ten years.
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
1991 1996 2001 2006 2011
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 21
Foreign direct investment has picked up dramatically and has room to increase
further
Foreign direct investment was negligible 20 years ago. However, Bangladesh has become an attractive
place to invest, initially for light industry, and more recently in the telecommunications sector. Net
foreign direct investment soared from 2001, peaking in 2008 at the onset of the global financial crisis.
Even amid the ongoing crisis/slowdown, net foreign direct investment has stabilized at around the $800
million per year mark.
Foreign direct investment is an important source of foreign exchange. With a stock exchange
capitalization of just 1.1 billion as recently as 2001, indirect investments beyond a few million dollars
were nigh on impossible.
Figure 3. Net FDI has soared since 2002 (needs fixing)
Source: World Bank 2012
Even with the markedly higher level of foreign direct investment since 2002, Bangladesh still has a lower
FDI as a percentage of gross domestic product. This suggests that an increase in FDI is both sustainable
and likely.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 22
Figure 4. Ratio of FDI/GDP
Source: World Bank 2012
This is an important consideration when developing and encouraging inclusive business, because if companies
successfully begin inclusive businesses ahead of the foreign direct investment they are more likely to reap the
rewards and share the benefits.
Foreign direct investment is focused on industry and services
The lion's share of FDI is directed into the growth and capital intensive area of telecommunications. This is
particularly pertinent to inclusive business because a lack of infrastructure has been cited as one of the key
reasons for not investing in inclusive businesses. In addition, improving education should expand the workforce of
skilled workers -- an important requirement for effective use of more sophisticated telecommunications and
internet service provision.
0.55%
0.91%
0.96%
1.14%
1.43%
7.52%
Nepal
Bangladesh
Sri Lanka
Pakistan
India
Vietnam
Bangladesh still attracts a relatively small amount of FDI as a ratio of its GDP
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 23
Figure 5. Telecommunications investment has taken over as the major target of FDI
Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign Direct Investment in
Bangladesh (1971-2010), Board of Investment.
Figure 6. Allocation of FDI 1996-2010
Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign Direct Investment in
Bangladesh (1971-2010), Board of Investment.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1996-2000 2001-2005 2006-2010
Telecommunication
Gas & Petroleum
Banking
Textiles & Weaving
Power
Other
9
13
40
61
80
135
677
1,333
1,357
1,571
2,339
Metal products
Computer software
Leather products
Insurance
Agriculture
Chemical/Pharmaceuticals
Power
Textiles & Weaving
Banking
Gas & Petroleum
Telecommunications
Millions of USD (15-year cumulative)
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 24
The combination of foreign direct investment and the stage of Bangladesh's economic development --
where economies typically move from an agrarian base to services and industry -- have contributed to
rapid economic growth in services and industry, while agrarian sectors such as agriculture, fisheries, and
forestry have grown at a much lower pace.
Rising wages in competing low cost countries (i.e. China) is likely to help continue to expand the light
manufacturing industries -- particularly textiles. In 2009, textile exports accounted for 80% of
Bangladesh merchandise exports.
The textile and clothing manufacturing will remain the largest contributor to expansion in industrial
output in part due to Bangladeshi textile exporters continuing to benefit from preferential EU import
rules (duty-free access to the EU is granted if imported components do not exceed 70 percent); an
advantage Bangladesh has over its main competitors, notably China, Pakistan, India and Sri Lanka,
whose goods are liable for duty in the EU because they are no longer classified by the UN as least-
developed nations. 3
The economy, like its neighbouring countries, was traditionally based on agriculture. Even now,
agriculture is an important part of the economy, contributing 17% of GDP and employing 45% of the
labour force.
Figure 7. Trends in GDP at current price (million US$) in Bangladesh, by sector: 1981/82 to 2005/06
Source: Deb, U. et al 2008
3 Deb, U. et al 2008
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
1981/82 1991/92 1995/96 1999/00 2005/06
Services
Industry
Agriculture
Crop
Fisheries
Livestock
Forestry
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 25
Increased foreign direct investment, combined with export earnings and remittances from overseas
workers, has increased the pool of funds available for lending to companies. However, inefficiencies in
the capital markets have created significant distortions in terms of interest rates and capital allocation.
Financial stability and markets
In addition to GDP growth, which we can consider to be the equivalent of the top line of an income
statement, it is becoming increasingly important to consider the country's balance sheet -- sovereign
risk. This has been largely ignored in the past because the world has had a long period of economic
stability during which time only a few countries (such as Argentina) have gone bankrupt. This period is
coming to an end, in Europe at least, and it is becoming increasingly pertinent for investors to ask if they
will be able to get their money back out of the country.
In this respect, Bangladesh has an enviably low debt/GDP ratio of just 32 percent -- less than half India's
68% and well below the danger level of 100% where countries tend to default.
Figure 8. Bangladesh has a lower debt/GDP ratio than most comparable nations in the region
Source: World Bank estimates 2012 (except for Bangladesh: CIA World Factbook estimate 2012)
While the national government's balance sheet looks relatively strong, the same can't be said for banks
and other financial institutions due to significant distortions in terms of interest rates and capital
allocation.
0 50 100 150 200 250
China
Bangladesh
Thailand
Vietnam
Pakistan
India
USA
Japan
Debt to GDP ratio 2012
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 26
Financial markets have skewed allocation of capital
A combination of inefficiency, opacity, and corruption has created an unusually diverse spread in
interest rates. The current interbank rate of 7.5% provides the base rate for banks' cost of funds.
Developed markets tend to operate at an average spread of around 3-4%. That is, if banks borrow at
7.5%, they tend to lend at 10.5-11.5%, on average.
However, in Bangladesh, there is a significant spread between preferential loans (typically 10-12%) and
regular commercial loans (17% and up).
The unusually high spread of 6+ percentage points represents a combination of perceived risk and
skewed allocation of funds.
The problem with this high spread is that it makes access to capital particularly difficult for small and
medium sized enterprises (SMEs) that don't have a long track record or a close relationship with a bank.
The result of companies with good relationships with banks getting access to a limited pool of funds at
preferential rates is that companies that really should have access to the capital are shut out of the
capital markets (other than mortgage lending) or forced to pay prohibitively high interest rates.
Current institutional financing situation
The past ten years has seen a significant inflow of institutional financing into the SME sector, both
government banks and private banks, with further inflow from non-bank financial institutions and
foreign banks.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 27
Source: Bangladesh Bank
More recently, since mid-2012, the government has been pushing commercial and private banks to
increase their lending to SMEs, asking them to allocate 10% of their loan portfolio to SME lending.
This resulted in better access to credit for some SMEs, higher loan default rates for government and
private local banks, and a number of banking scandals. This has led to a significant misallocation of
capital, which is now manifesting itself in loan defaults.
Figure 9. Loan defaults in percentage of outstanding loans
Private local banks 53%
State Owned Banks 35%
Specialised banks 7%
Non bank financial
institutions 3%
Foreign banks 2%
Total: BDT434 billion = USD5.5 billion
3.2
4.9
17.7
24.1
Foreign banks
Private banks
State banks
Specialised banks
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 28
Source: Bangladesh Bank
As of 31st December 2012, 10.03% of all bank loans were in default, up from 7.27% two years before.
The vast majority of these loans are from state banks.
Bangladesh Bank’s former De uty Go ernment I rahim Khaled ga e four reasons for the high default
rates: corruption, mismanagement in state-owned banks, dull business and high interest rates.
The reasons are not important to this report. But the results are.
Figure 10. Private credit growth, monthly, since February 2012
Source: Bangladesh Bank
Reducing credit and increasing scrutiny is a typical knee-jerk reaction following a banking scandal
anywhere in the world. This could go three ways:
Improved risk management and the development of discounted cashflow lending,
Higher collateral requirements, or
A return to business as usual when the dust settles.
If this does indeed lead to improved risk management and cashflow lending (loans based on
expectations of future cash generation by the company), Bangladesh companies will be able to reap
19.6 19.5
18.2 18.4
19.7 20.3
19.9 19.9
18.4
17.4 16.6
14.8 14.0
year on year growth (%)
Growth in private sector credit slows down
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 29
significant benefits from improving their corporate governance and reporting. The impact on the fund
would be positive as this would expand the pool of companies with decent enough corporate
governance to lend to or invest in.
On the other hand, if this reverts to higher collateral and/or back to business as usual, the need for a
fund will increase.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 30
II. Poverty, the BOP and the opportunity for Inclusive
Business
In Bangladesh, poverty, the BOP and the general population are closely related given the fact that about
43 percent of the Bangladeshi population (over 60 million people) may be identified as being under the
international poverty line of US$ 1.25 per day, and 48 percent of the population (68 million people) earn
an income of less than US$ 3 per day, making them vulnerable to poverty.
Figure 11. Representation of income levels and percentage population size
Bangladesh has made significant progress in poverty reduction over the past 20 years. One key reason
for is family planning empowering women. In 1975, eight percent of women of child-bearing age were
using contraception (or had partners who were), in 2010 the number was over 60 percent. Similarly, the
fertility rate has fallen from 6.3 In 1975 to 2.3 today. This is contributing to the "demographic dividend"
as outlined in the appendices .
Figure 12. Poverty headcount ratio has fallen significantly over the past 20 years
Source: World Bank
20
30
40
50
60
1992 1996 2000 2005 2010
millions of people below
the poverty line
Absolute poverty down by 44% in 18 years
52% More than
US$ 3 per day
48% Less than
US$ 3 per day
43% Less than
US$ 1.25 per day
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 31
Access to key goods and services
The Bangladeshi quality of life can be gauged according to the quality of access to key goods and
services such as latrines, drinking water, electricity, and information and communication technology.
Some key findings from a 2010 Bangladesh Household Income and Expenditure Survey (HIES) include:4
At the national level most of the heads of households (38.5 percent) live in a house made of CI
sheet / wood in the walls, whilst 16.7 percent live with walls made of mud / brick / wood;
In 2010, 18.4 percent of households had access to a sanitary latrine, 17.1 percent with a pucca
(water sealed) toilet, 20 percent with a katcha (temporary) toilet, and 4.4 percent use open
space (this is a significant reduction from 11.3 percent in 2005);
Access to drinking water is mostly positive, with 85.4 percent of the population using tube well
water, 10.6 percent supply water, and only 4 percent using other sources of water such as
ponds, rivers, canals and wells;
The use of supply water increased by 3 percent in 2010 with respect to 2005;
In 2010, 55.2 percent of households reported to have access to electricity at the national level
(42.5 percent rural, 90.1 percent urban);
Households containing telephones total 2.1 percent nationally and 63.7 percent of households
use mobile phones;
3 percent of households nationally report to have ownership of a computer with use of e-mail
facility reported 1.4 percent of households.
The above data represent both challenges in increasing access to basic goods and services to a broader
cross section of the Bangladesh population and opportunities for companies with innovate business
models that better service the BOP.
Labour market
The Agriculture, Forestry & Fisheries Sector (26 million people in 2010) is still the most significant in
terms of employment, followed by Trade, Hotel & Restaurants (8.4 million people) and then
Manufacturing (6.7 million people). However, in terms of employment growth between 2002-03 and
2010, the largest percentage increases can be found in Finance and Business Services & Real Estate (70
percent increase), Construction (42.3 percent increase), and Manufacturing (35.8 percent increase). The
increase is the manufacturing base and the services sector such as retail and tourism offers
opportunities for the poor to move into the formal labour market.
In absolute terms, most of the employment is still coming from agriculture and manufacturing.
4 Bangladesh Bureau of Statistics 2010, Report of the Household Income & Expenditure Survey 2010, Bangladesh
Bureau of Statistics Division, Ministry of Planning, Bangladesh
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 32
Figure 13. Employment and growth by sector
Rural industries (agriculture, forestry, fisheries) continue to provide
the largest number of jobs
Source: Bangladesh Bureau of Statistics 2010
Regional variation in poverty
Poverty in Bangladesh is characterized by regional variation. According to a 2011 UNDP report,
Bangladesh ranks 112th in respect to human poverty. Of the 75 percent of the Bangladeshi population
that li e in rural areas, a out 18 ercent are also classified as “hard-core oor” on a daily calorie intake
asis ( elow 1,805 Kcal / erson), and a out 40 ercent as “ oor” ( elow 2,122 Kcal / erson).
Factors such as tendency to natural disasters, distribution and quality of land, access to education and
health facilities, level of infrastructure development, employment opportunities, and dietary and
hygiene practices are all determinants of geographical regions of poverty in Bangladesh.5
In general, the eastern part of Bangladesh has had the most significant reductions in poverty, which may
be largely attributed to its near proximity to Dhaka zilla (district), which is the economic hub of
Bangladesh and receives the lion's share of foreign direct investment. In contrast, the western part of
Bangladesh has seen a much smaller reduction in poverty, with no pattern of convergence among the 64
zillas (see Figure 11).
5 Bangladesh Bureau of Statistics & UN World Food Programme 2004
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 33
Figure 14. Maps of Poverty Reduction in Bangladesh between 2000 and 2005: Old Zilla level
Year 2000
Year 2005
Source: World Bank 2007
At a national level, monthly household nominal income was estimated by the Ministry of Finance,
Government of Bangladesh at US$88.27, however in the rural areas it is estimated at US$74.70 and
US$128.21 in the urban areas. Average monthly household expenditure on the other hand, is estimated
at US$ 75.16 at the national level, US$ 65.18 in rural areas, and US$ 104.56 in urban areas. In 2005, per
capita nominal expenditure at the national level was US$ 70.40, US$ 63.29 in the rural areas, and US$
101.89 in the urban areas.
Whilst improvements are being made, they are often in the urban areas, and with Bangladesh
urbanising fast, a new suite of urban social problems arise. For example, Dhaka, capital of Bangladesh
has an estimated population of some 15 million people which makes it one of the 10 largest cities in the
world, however it remains highly poor and crowded, and many of its inhabitants live in slum areas.
Distribution of companies by size
The vast majority of companies in Bangladesh are micro to medium (less than 100 employees), focusing
on services. This is a particularly relevant factor with regards to the potential of different types of funds.
Rural-urban distribution and employment
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 34
Small manufacturing enterprises are almost evenly distributed between rural and urban areas both in
terms of number of establishments (52% and 48% respectively), and employment (51% and 49%
respectively). In the case of medium manufacturing enterprises, there is a higher incidence of both
urban establishments and urban employment (57% for both counts). Rural location for medium units
constitutes 43 per cent in terms of both establishments and employment.
As the vast majority of the population is rural, a focus solely on large companies is less likely to
contribute to improved welfare for the rural poor, even when the companies are considered to be
inclusive businesses.
85% of all employment is provided by small and medium sized companies. As these appear to be a
proxy for the rural poor, the potential impact of an integrated business fund will be directly related to
how well the businesses assisted with the fund can help the micro businesses.
Figure 15. Distribution of employment by company size, 2003
Source: A.K.M. Helal uz Zaman, Md. Jahirul Islam, Small and Medium Enterprises Development in
Bangladesh: Problems and Prospects, ASA University Review, Vol. 5 No. 1, January–June, 2011
8,272
1,317
1,680
Small (1-9)
Medium (10-99)
Large (100+)
Unit: thousands of employees
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 35
Figure 16. Location of industries by division in Bangladesh 2001-03
Note: Small is defined as 1-9 employees, Medium as 10-99, Large as 100+
Source: A.K.M. Helal uz Zaman, Md. Jahirul Islam, Small and Medium Enterprises Development in
Bangladesh: Problems and Prospects, ASA University Review, Vol. 5 No. 1, January–June, 2011
The Barisal Division, which covers the west delta region, is one of the poorest of Bangladesh's 7
administrative regions, and is a traditional rice basket -- it used to be known as the Crop house of
Bengal. Agriculture is still the dominant industry. Barisal also has the second highest literary rate of
Bangladesh's 7 administrative regions after Dhaka.
These three factors make it an obvious target for inclusive business. However, with only around 4% of
the population employed by large companies, engagement with SMEs will be critical to success.
0% 20% 40% 60% 80% 100%
Barisal
Sylhet
Khulna
Rajshashi
Chittagong
Dhaka
Even in Dhaka, the vast majority of people are employed by small sized enterprises
Small Medium Large
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 36
III. Findings: Private sector interest in Inclusive Business
in Bangladesh
Incor orating the oor into a com any’s usiness with new and sometimes untraditional usiness
models presents challenges, which, when overcome, can open opportunities for the businesses and the
communities in and with which they work. This section discusses the benefits and challenges of working
with the BOP, as identified by the companies which were interviewed. Given this BOP market
opportunity and context, a market scoping exercise was undertaken to assess and validate if and how
the private sector are taking advantage of this BOP market opportunity in Bangladesh, and the
perceived benefits and obstacles.
The 55 companies included both private and listed companies as well as local affiliates of multinational
corporations as well as social enterprises. The range of industries was selected based on potential
growth in these sectors at the BOP. Growth industries were considered the primary focus as these are
the industries where companies will require capital infusion.
A detailed analysis of the company sample is included in the appendices.
Current engagement with the BOP
Whilst all four modes of engaging the BOP – as consumers, distributors, suppliers, or employees are
evident across multiple sectors, the employee and consumer models are most strongly represented.
Figure 17. BOP models according to sector
Source: SNV & BetterStories Private Sector Interviews 2012
0% 20% 40% 60% 80% 100%
Agriculture/Agribusiness
Banking & Finance
Consumer products/retail
Energy
Pharma/Biotech
Other
Manufacturing
Employee Supplier Distributor Consumer
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 37
The type and range of BOP engagement models vary considerably from sector to sector. In banking and
finance for example, the BOP is primarily engaged in just two ways; as consumers of the financial
services, or within micro-finance organisations, also as employees. Such microfinance companies are
spread throughout the country and may typically employ between 5 to 100 staff often directly from the
BOP in district offices, although the salary level of such micro-finance employees may be a matter of
contention in consideration of Inclusive Business principles of engagement with BOP employees.
Beyond micro-finance, which isn't strictly IB, financial institutions are also expanding their mobile
networks, which potentially bring more useful payment solutions and other banking solutions to the
rural communities.
In comparison to the more limited BOP engagement models seen in banking and finance, within the
consumer products and retail sector the full range of BOP models are engaged – as suppliers of goods,
deliverers of goods, employees, and as product consumers.
An analysis of each of the four observed modes of engaging the BOP – as consumers, distributors,
suppliers, or employees is provided in the appendix.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 38
Perceived benefits of engaging the BOP for Inclusive Businesses
For most businesses that we interviewed, engaging the bottom of the pyramid is akin to corporate social
responsibility (CSR). Most of the companies don't even consider normal business priorities of profit,
costs, and market, at least according to the survey results. Rather, they see engaging with the BOP as an
opportunity to improve the company's reputation while helping out one's fellow man.
For most Inclusive Businesses that engage the BOP population a range of benefits are identified that
include broad social gains such as being able to play a part in contributing to sustainable development
and creating shared value, through to specific company benefits such as improving company reputation
and brand, and offering a cheap labour force.
Figure 18. Benefits of engaging the BOP for Inclusive Businesses
Source: SNV & BetterStories Private Sector Interviews 2012
Contribute to sustainable development
The majority of Inclusive Businesses surveyed who are engaging with the BOP population believed that
the overriding benefit was to be able to contribute to sustainable development. Whilst this is a core
objective of most non-profits, for most private sector companies it is more likely to be connected to
ancillary CSR objectives enacted by management.
0 5 10 15 20 25 30
Lower transaction costs in supply/distribution
Other
Improved profits
Favourable engagement with national gov't
Improved results for CSR report
Stable supply of critical inputs in supply chain
New, highly profitable consumer market
Improved sales
Cheap labour supply
NR
Create shared value
Improved reputation/brand equity
Contribute to sustainable development
From the company's standpoint, the main reasons for engaging the BOP is to look better, or seem like a better global citizen
rank 1 rank 2 rank 3
If your company is planning to engage with the BOP, what are the benefits to the company? Please rank the top 3 benefits.
Normal business priorities
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 39
Despite their answers, however, we found that several companies engage the BOP as a part of their core
business:
• Singer Bangladesh focuses on being involved with projects that have a good long term
ision. Its own “Singer Sewing Academy” for exam le, em owers rural and im o erished
women in the early stage of life as well as students through the provision of training in
sewing skills. This not only benefits the BOP population who receive skills training and an
potential income stream, but also the company who benefits through the sale of their
products back to the BOP population as consumers.
• Lal Teer manufactures innovative hybrid varieties of seeds for BOP farmers that are resistant
or tolerant to pests, diseases, drought and salinity and suited to the climate and soil of
tropical countries. The company is also undertaking research increasing the milk giving
capacity and higher yield of meat of cattle and buffalo. The company has a strict
environmental guidelines governing the use of chemicals, waste management, and water
and energy use, and offers a range of education and literacy initiatives such as the provision
of scholarships through to the operation of a college.
• Advanced Chemical Industries (ACI) has also integrated the ideals of sustainable
development into its business ethos. Identifying food security as a basic issue affecting the
people of Bangladesh, ACI went into business with the goal of ensuring the people have
access to food by working to ensure the farmer producers can grow their crops and manage
their farms with the best agricultural products available.
Improved reputation
Whilst providing a quality product or service is typically considered to be the overriding criteria to
develop a good brand reputation, Inclusive Businesses also feel that they are able to gain an improved
reputation in the eyes of the consumers by making specific efforts to engage with the BOP population.
By hiring and looking after the BOP as employees, and proactively engaging with the BOP in the supply
and distribution chain, and by developing highly tailored products and services that directly meet the
needs of the BOP consumer, Inclusive Businesses believe their reputation is enhanced within the
marketplace which will in turn create brand equity.
Engaging the BOP helps to build acceptance of a company amongst that sector of the population as it is
seen as aligning with their specific needs rather than just seeking to make profit out of them which in
turn leads to more sales of their product to target BOP consumers.
Genuine and deep engagement with the BOP that leads to the development of a reputation of a
usiness that is committed to caring for the country’s most needy can also assist usinesses to gain the
buy-in from regulators and value chain partners to help further business development or expansion
aspirations.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 40
Some companies such as BD Food, also recognise the return benefits of including the BOP in the
production system as they become conscious about good quality food and then become converted
consumers of the com any’s own roducts, whilst also informing others of the com any’s quality
products.
Create shared value
Creating shared value doesn't actually sound like business, but in the business of caring and curing, the
perception of shared value can be better marketing than paid advertising. Inclusive Businesses in
Bangladesh believe that caring about the low income group is not only beneficial for the BOP population
but is also good for their own businesses.
GlaxoSmithKline (GSK) for exam le, has a glo al strategy called “Action for Access” that hel s im ro e
access to medicine, accines, and healthcare infrastructure in “de elo ing” countries. Under the
programme, medicine can typically be 25 percent cheaper than prices paid elsewhere. Whilst the
com any’s rofit margins might e reduced in com arison to “de elo ed” countries, the com any gains
access to a significantly large and growing marketplace of consumers. Some 20 percent of profits made
in Bangladesh are re-invested into healthcare infrastructure projects; essential for effective healthcare
delivery, with educational support programmes, medicine donations, healthcare projects, and
community olunteering days (“ range Days”) other rojects acti ely ursued y the com any to
benefit the BOP.
Cheap labour supply
It is perhaps not surprising that many Inclusive Businesses consider the BOP population who are by
definition low-income earners, as a cheap supply of labour for their companies both as employees and
through the supply chain. Whilst most Inclusive Businesses specifically pointed out that they paid
minimum wage or the average industry award wage, the benefit of employing a cheap labour force was
acknowledged by many, and often seen as critical to the success of the business.
Many companies such as Lanka Bangla Finance and Panna Group identify strong domestic competition
as a major challenge to their success. Keeping wages low is therefore one way in the company can
remain competitive in the marketplace.
For many Inclusive Businesses that employ the BOP a trade-off needs to be made; whilst companies can
obtain a cheaper labour force, companies such as Viyellatex Limited acknowledge that additional
training and capacity building is required due to the BOP population that they are engaging typically
possessing more limited education and skills compared to other segments of the population. For
Inclusive Businesses, engaging the BOP as employees is typically not about automatic wage increases,
but about improvement of capacities, performance, productivity, and loyalty thereby leading to a higher
potential income as a result of the improved worker performance, improved quality, higher productivity,
and minimisation of costs (e.g. from recruitment, reduced production, percentage of losses or errors
etc).
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 41
New market, improved sales, stable supply of critical inputs in supply chain
New market access interest, improved sales and critical inputs in supply chain were other strongly cited
benefits for Inclusive Businesses in engaging the BOP. For companies, the 68 million low-income earners
represent a considerable consumer market for their products and services who can potentially drive
sales growth if tapped into effectively. Moreover, the BOP are suppliers of critical inputs into company
products and services; not surprising given some 26 million Bangladeshis working in agriculture, forestry
and fisheries, for example, and most of whom also represent the BOP. Without access to the products
supplied by the BOP Inclusive Businesses would be paying higher prices for the same locally made
products or alternatively have to import them at a higher cost, which is many cases may also make the
business unviable.
Benefits of engaging the BOP, for the BOP
Inclusive Businesses see a range of benefits for the BOP that range from employment and income
enefits through to the B P o ulation’s a ility to access roducts and ser ices that are tailor-made to
their needs. Many Inclusive Businesses indicated that they are also contributing to sustainable
development commonly through CSR activities, access to technical assistance, know-how and vocational
training.
Figure 19. Benefits of engaging the BOP, for the BOP
Source: SNV & BetterStories Private Sector Interviews 2012
0 5 10 15 20 25 30
Other
Access to housing
Secure and long-term customer
No response
Access to financial services
Access to technology
Access to new markets
Improved nutrition
Access to credit
Access to basic services
Access to new products and services
Access to technical assistance/training
Increased income for suppliers/distributors
Employment opportunities
Employment benefits, income, and services seen as key benefits for BOP
Rank 1 Rank 2 Rank 3
Question: If your company is plans to engage with the BOP, what benefits to the BOP do you aim to achieve? Please rank the top 3 benefits.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 42
Employment opportunities
Due to a range of factors the BOP population face a number of challenges to successfully gaining
employment in the formal labour market, these might include cultural barriers such as women
traditionally being required to not leave the family home, through to limited education and skills
qualifications, or geographical barriers such as rural isolation. With a majority of Inclusive Businesses
engaging the BOP population as employees through a range of innovative strategies, the BOP is able to
obtain employment when they ordinarily might not be able.
Fashion and lifestyle product retailer, Aarong, engages a BOP population of some 65,000 people through
its 13 production centres that have been specifically located in areas accessible to the BOP population.
Fair Price International (FPI) trains underprivileged rural girls who have not been able to complete their
studies or ha e oor li ing conditions as “Info Ladies” who tra el from door-to-door by bicycle to
communicate general information to the many of the women of the BOP who are unable to leave the
house.
Inclusive Businesses who prioritise the employment of the BOP population such as Apex Adelchi
Footwear Limited will typically provide in-house technical skills development training to enable the
people to work in their company when they ordinarily would not be able.
Case study: Grameen Shakti
Background: ounded y Professor Mohammad Younus, Grameen Shakti is one Bangladesh’s most successful market-based renewable energy social development programmes, reaching millions of rural villagers across the country. Based upon the development of Solar Home Systems and other renewable energy technologies, Grameen Shakti claims to be one of the largest and fastest growing rural-based renewable energy companies in the world. As of December 2009, Grameen Shakti has installed more than 320,000 Solar Home Systems in Bangladesh’s rural areas, equating to almost 9,000 Solar Home Systems installed per month. The company has also introduced Improved Cooking Stoves and Bio-gas to rural households, identifying a need for a fuel efficient and cost effective source of energy for simple purposes such as home cooking. Waste from the Bio-gas process can also be used as fertilizer to assist indirectly in food security. The company attributes its success to its unique approach which blends market and social forces together in order to ring the world’s most u -to-date technology to the impoverished rural people of Bangladesh.
Serving the BOP: Grameen Shakti aims to bring green energy, improved health, income and green jobs to the rural BOP population of Bangladesh. Grameen Shakti works directly with the low income segment as consumers of their renewable energy products. The company estimates that they have accessed at least 1,000,000 families with their Solar Home System up to 2012. An integral part of the company sales strategy to the BOP is to offer soft credit and step-by-step installments of payment to make their products more affordable to their customer base. Product pricing is extensively researched in order to ensure the average family will have the capacity to make the installment payments without significantly impacting on their household budget. The technology offers villagers a permanent and clean source of energy for their basic power requirements that is cost-effective.
Growth potential: Due to the high cost of research and development, Grameen Shakti initially had conservative expectations for growth, selling only 228 Solar House Systems from 1996 to 1997. Since then the volume of Solar House Systems installed has skyrocketed, taking the company three years to reach four digit sales of their product, four years to reach five digit sales, and a subsequent four years to reach six digit sales. By the end of 2012 the company had installed 1,000,000 Solar Home Systems. The company has had similar success with its Bio-gas
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 43
plants; installing only 30 units in 2005, the company has since installed 24,206 Bio-gas units by 2012. The company is expecting similar growth with its Improved Cooking Stoves. Whilst there is considerable demand for all three of Grameen Shakti’s renewable energy products, the company has expressed that it is experiencing supply chain management setbacks. The company also identified insufficient skilled manpower as an obstacle to serving the level of demand. Access to finance is also seen as an obstacle to growth due to the prohibitively high interest rates offered by commercial banks.
Financial needs: Whilst Grameen Shakti claims to be financially self-sufficient, they are seeking a low interest loan of around $600,000 for use in training field workers and labourers.
Increased income for suppliers or distributors
Intrinsically linked to employment (frequently for women), Inclusive Businesses also identify increased
income for BOP suppliers and distributors as a key benefit of their engagement. Due to efforts made by
the Inclusive Businesses these suppliers and distributors are able to earn a higher income than they
would otherwise typically be able to obtain from a non-inclusive business.
Rahim Afrooz Superstore for example, has increased the income of its suppliers by building the capacity
of small and medium suppliers in ways to increase the volume of production, thereby leading to an
increased, steady and more reliable income for the BOP suppliers. This may equally be achieved by
working with the BOP to improve the scale, productivity, quality and variety of the goods or services
supplied.
Many companies that employ door-to-door distribution strategies take in previously unemployed
members of the BOP population thereby not only providing them with a job, but also a new source of
income.
FPI on the other hand contributes to increasing the income of suppliers by purchasing products directly
from B P su liers such as farmers through their many “telecentres” at fair rices. By remo ing the
middle men, FPI is able to ensure a higher price is paid to the farmer, and the consumer gets a lower
price for the good. Moreover, because FPI also provides farmers with information about the mechanics
of the supply chain including market price updates, suppliers are better protected from exploitative
middle men.
Access to new products & services tailor made to their needs that contribute to their livelihoods
The provision of new products and services specifically tailored to BOP consumers is commonly seen by
Inclusive Businesses as a core benefit. Renata Limited, a company with a core business in medicine,
develops inexpensive products that can be accessed by BOP consumers such as antibiotics and birth
control ills. The com any’s successful a y s rinkles product was also specifically designed to address
the nutritional needs of children at the base of the pyramid.
Likewise, financial institute INAFI has undertaken extensive research of the BOP population to ensure its
micro-insurance and remittance services specifically respond to the needs of the BOP population that
includes outpatient, inpatient and compensation at an affordable rate and a streamlined service that
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 44
ena les claims to e settled quickly. INA I’s strategy therefore ro ides the B P o ulation with access
to micro-insurance that they could not obtain elsewhere.
Access to technical assistance, know-how & vocational training
Identified as a benefit to the BOP population by a significant number of Inclusive Businesses is their
access to technical assistance, know-how and vocational training. With such training BOP employees,
distributors and suppliers are empowered with new livelihoods, more efficient ways of working that
result in increased productivity and potentially higher incomes.
GETCO Agro Vision for example, runs awareness raising, capacity building and training programmes for
BOP farmers relating to their products and services. In order to introduce new hybrid varieties of
different types of vegetables farmers are educated in routine training sessions in the field.
The training undertaken by FPI of underprivileged rural girls as “Info Ladies” to ro ide information to
BOP farmers and their families and also retail FPI products not only gives the Info Ladies a job and
income, but also builds their confidence, and increases their sales and entrepreneurial skills. In addition,
the farmer benefits with better know-how on how to use the product and ways in which to improve his
/ her farming practice, thereby achieving better results and a higher income.
TdK (Bangladesh) Limited, manufacturer and exporter of leather and jute products, specifically identifies
skills training of BOP employees in its business strategy in order to grow its number of suppliers and
employee base. This not only helps the company, but serves the BOP with skills and jobs that they may
not ordinarily have been able to access.
Access to basic services
Inclusive Businesses also strongly identified access to basic services as a key benefit that can companies
can help contribute to the BOP. As a whole, the BOP are typically characterised as having varying but
generally inadequate levels of access to basic services such as water, sanitation, health and education.
Typically Inclusive Businesses will customise these products and services in consideration of the
challenges and issues that are specific to the BOP, for example, the production of low-tech alternative
cook stoves, low cost solar cells, or low-priced micro-insurance with efficient turnaround with claims.
Inclusive Businesses who target the BOP, therefore identify these gaps as potential business
opportunities. By engaging the BOP, Inclusive Businesses are therefore not only helping to develop and
deliver goods and services based upon a strong business model for growth, but are also helping the BOP
to increase their quality of life.
Inclusive Business critical success factors
Inclusive Businesses see a growing consumer confidence as the largest opportunity for business
expansion. This is followed by rise in domestic consumption, increased access to technology, company
innovation, export opportunities, and new customer segments.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 45
These can be roughly divided into:
Increased market size (growing consumer confidence and consumption, export opportunities,
and new customer segments in the base of the pyramid); and
Improved company operations (increased access to technology and Company innovation)
Breaking the critical success factors down in this way helps to prioritize assistance to companies
operating in the BOP.
Figure 20. Drivers of business growth
Source: SNV & BetterStories Private Sector Interviews 2012
Increased market size
• Growing consumer confidence
Bangladesh’s consistently growing GDP that has a eraged a out 5 ercent o er the last 15 years has
carried with it a growing middle class and an increasing ability and interest to spend. Moreover, with
many local Bangladeshi companies maturing into competiti e ex orters, “Made in Bangladesh” has
never held so much acceptance, credibility and pride in the minds of local consumers than it does today.
0 5 10 15 20 25 30 35
M&A opportunities for company to expand
Government incentives
Lower input costs
Increased access to capital
Favourable business climate
New customer segments in the BOP
Increasing export opportunities
Company innovation
Increased access to technology
Rise in domestic consumption
Growing consumer confidence
Market size and company operations are seen as the main drivers of growth (or prerequisites for growth)
Rank 1 Rank 2 Rank 3
Increased market size
Improved company operations
What do you see as the 3 main opportunities to accelerate the growth of your company? Please rank the top 3 from highest to lowestbarrier.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 46
Bangladeshi consumers are more willing to spend – and spend on locally made products – than they
have ever been before.
• Rise in domestic consumption
With the growing middle class and increasing purchasing capacity of people at the BOP, domestic
consum tion is rising strongly. Dhaka, the ca ital of Bangladesh was formally known as the “City of
Mosques” ut is erha s now etter known as the city of sho ing malls. The country is caught up in a
spending spree, with new restaurants, superstores, chain retail shops and markets seemingly being
opened up every day all over the country. With a rise in absolute income, the Bangladeshi people have
increased discretionary income and increasingly purchasing lifestyle products and experiences such as
domestic and overseas vacations.
Indeed, the economic trends are that this will not only continue, but will increase as the population
gradually shifts from a young age-group bracket (two-thirds of the population are under 35 years old) to
working age.
The rise in consumer confidence and spending, particularly on locally made products, creates natural
opportunities for Inclusive Business in employment, distribution, and consumption.
• Growing export opportunities
Bangladesh has also been enjoying a growth in exports. Whilst it still remains largely dependent on
remittances and ready-made garments, companies feel confident that there is a high potential for a
number of sectors including Information Technology, Pharmaceuticals, and Agro-processing to become
increasingly export oriented over the next few decades.
Whereas Bangladesh has traditionally been an importer of electronics until five years ago, typically
assembling parts to produce finished ones, companies such as Walton, have identified significant export
opportunities within the Middle East, whilst Pran Foods with their agro-processed products have found
export markets in India, Bhutan and Myanmar.
Increased access to technology
Bangladesh is fast moving to adopt all the latest technologies that it can get; it is estimated for example
that 85 percent of its population now owns a mobile phone -- 100 million active users -- and 20 percent
have internet access. For businesses, process automation is becoming increasingly popular and local
software developer companies are rising in number to help meet the challenge. Bangladeshi companies
increasingly see sourcing the latest technology as critical to doing businesses.
Technology is not only helping companies in Bangladesh to develop new products and increase sales,
but the rising pool of talent and technological know-how is also helping the country to build a reputation
in the region of being a new Research & Development Hu , attracting some of the world’s leading
innovative companies. Samsung, for example, has opened a Research and Development (R&D) centre in
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 47
Dhaka, and Google has started direct recruitment of Bangladeshi engineers. Local companies like
Incepta Pharmaceuticals are also investing hugely in new product development, technology transfer and
alternative medicine.
Com anies also see technology as a huge “leveller” for the B P who can access ser ices through
technology that would ordinarily be out of reach. Mobile money service bKash for example, utilises
mobile phones and mobile stalls to enable people to undertake financial transactions without having to
access a bank. The exponential growth of the company is testimony to the transformative power of
technology to the BOP and their willingness to adopt new approaches, as well as the clear economic
benefits that it can have for companies when used well to target a clear socio-economic gap.
Company innovation &
Whilst companies see innovation as integral to success and new ground is being broken, there are
considerable opportunities yet to be harnessed. With a little facilitation there is the opportunity for
significant gains. Technology company Onnorokom Group, for example, locally developed an electronic
voting machine that has helped save the government a huge amount of foreign currency by negating its
need to import the costly technology from overseas.
Key challenges to the growth of Inclusive Business
Inclusive Businesses identify a range of barriers to the growth of their companies that range from the
challenges of a poor business climate and regulatory environment, through to the effects of poor
infrastructure, and a lack of access to capital.
Most of these challenges are environmental and beyond the ability of a single company to address.
However, the third highest ranked barrier -- and equal highest priority -- was access to capital, which can
indeed be partially addressed by a fund.
The fourth highest ranked barrier -- high cost of inputs -- becomes a strong reason to engage in inclusive
business. Corporate governance will most likely be addressed to some extent through changes need to
access capital.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 48
Figure 21. Key challenges to the growth of Inclusive Business
Source: SNV & BetterStories Private Sector Interviews 2012
Poor business climate and regulatory environment
According to the Inclusive Businesses surveyed, there is significant room for improvement in terms of
the business climate. Companies are being held back by a lack of inclusive public policies addressing key
bottlenecks or alternatively policies that do not help create an enabling environment for Inclusive
Business investments to flourish. In Bangladesh national and local government bureaucracy and a
general lack of predictability or consistency in the application of regulations is constraining the
development of the private sector.
Government can attract much more direct foreign investment and encourage investment from local and
non-resident Bangladeshis alike by streamlining the bureaucracy an adopting a more consultative and
participatory approach to changes in regulations.
Poor infrastructure
Many Inclusive Businesses believe that the growth of their industries, in particular Manufacturing and
Real Estate, has been stalled over last few years largely due to a lack of sufficient power, energy and
good telecommunications.
0 5 10 15 20 25 30
High labor costs
Competition from international companies
Saturated customer base
Competition from domestic companies
Lack of access to competitive technology
Poor corporate governance
High cost of inputs
Lack of government incentives
Lack of Access to Capital
Poor Infrastructure
Poor business and regulatory climate
No. Respondents
Access to capital is a key challenge for growth, as is the cost of inputs; labour costs are not
Rank 1 Rank 2 Rank 3
What do you see as the 3 main barriers to the growth of your company? Please rank the top 3 with 1 being the most significant barrier
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 49
With sufficient electricity and gas to power new plants and factories Bangladesh would be able to make
significantly faster progress in terms of creation of new jobs and rising income, directly benefitting the
BOP population.
Lack of access to capital
Both the low-income population as well as companies have difficulty in accessing finance when entering
into Inclusive Business engagements. Alternatively, there may be limited flexibility in the terms of the
provision of capital making it difficult for companies to invest in Inclusive Business projects. For the
BOP, there can be difficulties in accessing secure loans and other forms of financing that would allow
them to participate in an Inclusive Business model or improve their livelihoods.
Companies have, on the one hand, complained about a lack of capital, but on the other stated that they
have always been able to find the money when needed. This may have been largely true for most of the
big-sized companies and as well as the relatively small ones.
Figure 22. Source of finance for Inclusive Business*
* Representative only of those who responded to the question
Source: SNV & BetterStories Private Sector Interviews 2012
Banks and financial institutions in Bangladesh have traditionally favoured large companies with a strong
track record of performance making bank loans the most used source of capital. Smaller companies can
also access bank credit if they have real assets to use as collateral. Those that don't have collateral can't
access bank credit because banks don't offer cashflow based lending. These companies have usually
managed to obtain micro-finance from NGOs or credit from friends and families.
Equity
32%
Debt
45%
Guarantee
7%
Grant
16%
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 50
Innovative, fast-growing and medium-sized companies can therefore often suffer from a lack of capital
at the time of critical growth. Often, such as within the IT sector, banks do not have the capacity to
assess such companies, or on other occasions do not realise the sector potential, which was the case of
the Pharmaceuticals sector at the beginning.
The concept of equity capital is also far from being understood or hailed by companies in Bangladesh.
Many of the large family-run businesses have a lack of references to conceptualise the role of equity
capital which has hampered its widespread adoption. As a result, whist there is clearly great potential (a
number of big players are currently eyeing Bangladesh as the next market to explore), this has resulted
in fewer players in the Bangladeshi equity capital market.
Note on limitations of this study
This is a non-random sample of companies known to be engaging the BOP in some way. As a result,
many of them already have accessed funding from non-traditional sources, such as NGOs, government
grants, and funds.
Based on how these companies engaged the BOP, up to 63% of companies had access to funding for
their BOP ventures.
Figure 23. Current funding availability by BOP segment
Source: SNV & BetterStories Private Sector Interviews 2012
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 51
IV. Financing Inclusive Business
Bangladesh has a robust equity market that can provide a useful guide to the potential opportunities
and risks of establishing such a fund in Bangladesh. At the same time, the latest research by JP Morgan
and the Global Impact Investment Network indicates an emerging industry around impact investing in
other parts of the world that provides useful information with regard to the establishment of an impact
investment fund in Bangladesh.
In addition, Bangladesh has a rapidly growing stock market which by itself isn't necessarily an avenue to
IB, but does provide a larger public database of companies operating in inclusive businesses.
Figure 24. Bangladesh stock market trends
Source: World Bank 2011
As part of the market scoping effort, interviews were conducted with 13 fund managers / equity
investors in order to assess the viability of an ADB-anchored Inclusive Business fund in Bangladesh and
to identify key factors such as attractive industries in which to invest as well as possible constraints. An
additional four interviews of potential co- investors was also conducted with both corporate entities and
high net-worth individuals, in order to gain a further insight into interest in the Inclusive Business fund.
The full questionnaire can be found in the Appendix 3. Information imparted from participants was then
coupled with a review of relevant literature in order to build a broader picture of the Bangladeshi
private equity market and trends.
0
5
10
15
20
25
50
100
150
200
250
300
350
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Number of listed companies (left axis)
Market cap in $USD billion (right axis)
Market cap/GDP in percent (right axis)
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 52
Bangladesh has a robust and growing equity market
Like most emerging markets, the stock market of Bangladesh is dominated by equity securities. There
are only three listed bonds in the bourses of Bangladesh. Growth in the equity portion of the market is
strong with a compound average growth rate of 35.3 percent from 2001 to 2011. At the same time
market capitalization as a percentage of GDP has also increased from 2.4 percent in 2001 to 21.3
percent in 2011. The number of listed companies has increased each year from 2001 to 2009. This fell
dramatically in 2010 as small companies with poor transparency or corporate governance -- as well as
normal attrition -- were delisted by the listing authorities.. Listing authorities and the government of
Bangladesh have now prioritising transparency and corporate governance as key areas for
improvement. Market capitalization of 2009 increased by 122 percent as delisted companies
constituted only a small portion of total market capitalization of the country.
Figure 25. At 21% of GDP, Bangladesh's stock market is catching up to the BRIC nations
Sources: Bloomberg, IMF
Despite its rapid growth over the past ten years, Bangladesh stock markets are still in their infancy, with a market
capitalization to GDP ratio of just 21%% in 2011 -- about a quarter of that of slightly more advanced emerging
markets.
Sovereign risk is very low for an emerging market
Just a few years ago, investors hardly took sovereign risk into account -- checking out Standard & Poors'
or Moody's ratings was enough due diligence to suit most investors. Events in Europe have brought into
sharp relief the dangers of ignoring sovereign risk or depending on the guidance of ratings agencies.
55
63
95
21
27
38
40
Bangladesh 2011
China
Brazil
India
2004
2010
Ratio of stock market capitalization to GDP (percent)
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 53
One of the most important indicators of sovereign risk is the ratio of government debt to GDP. Given
that governments can typically tap into 10-30% of GDP as tax revenue and then save just a fraction of
that to pay down debt, a debt/GDP ratio begins to get become a concern at around 50% and is usually
out of control at 120%.
The public debt to GDP ratio in Bangladesh is 32 percent in contrast to India and Pakistan which have
ratios of 68 percent and 62 ercent res ecti ely. In addition, Bangladesh’s external de t to GDP ratio is
21.6 percent (less than 50 percent is typically considered safe), and the country has the capacity to
continue investing in infrastructure and industry without expanding its external debt thanks to its high
level of remittances from overseas workers. Low external debt and high level of remittances combine to
reduce the sovereign risk for fixed income investment in Bangladesh, increasing the availability of funds
with lower yields. This provides a strategic advantage for an Inclusive Business Fund in Bangladesh.
Infrastructure and industry investments in Bangladesh are likely to bridge the economic divide often
caused by geographic distances and lack of easy and affordable communications.
Figure 26. Bangladesh has a lower debt/GDP ratio than most comparable nations in the region
Source: World Bank estimates 2012 except for Bangladesh (CIA World Factbook estimate 2012)
Portfolio investment still in its infancy
A major issue with the Bangladeshi equity market is its high volatility -- typical of immature stock
markets -- which results in portfolio investment being very low. Equity research is also not well
established, being a minor market -- about 1% the size of Google in 2005. Nevertheless, as the market
capitalization continues to grow, it is reasonable to expect more in-depth market research and stock
market information to be developed.
0 50 100 150 200 250
China
Bangladesh
Thailand
Vietnam
Pakistan
India
USA
Japan
Debt to GDP ratio 2012
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 54
Positive economic expectations
Fund managers had mixed expectations on the performance of the Bangladeshi economy in the short-
term. Of the 12 interviewees, seven were positive about the economy for the next 12 months, five were
negative and four were neutral. The negativity may attributable to the current global economic
downturn and uncertainty over the upcoming national election.
With regard to the state of the economy over the next 5 years, all interviewees held positive views, with
a general belief that progress would be made in removing road blocks such as a lack of access to energy
for businesses.
Figure 27. Economic expectations over the short- and medium-term
Source: Fund Manager & Co-Investor Interviews 2012
Unlike many developing countries, private equity is a new concept in Bangladesh. Only two private
equity fund managers are operating businesses in Bangladesh, both of which are relatively new
entrants. There are also a number of other investment companies that invest their own funds in private
companies. Bangladesh has also only recently seen the establishment of its first venture capital
company ut this situation is likely to grow quickly gi en Bangladesh’s strong economic erformance.
A summary of the funds interviewed is included in the appendices.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 55
Analysis of findings of fund manager survey
The 12 fund managers were asked to rank different sectors according to how attractive they considered
them and how viable they considered the sectors for investing in the BOP.
Fund managers were also polled about their concerns about investing in these companies and what they
considered the most important points to consider when making investments.
Our analysis shows that:
There was a direct correlation between what fund managers considered attractive investments
and what they considered to be viable for involving the bottom of the pyramid
Energy and agriculture are the most attractive sectors for both investment and involving the
bottom of the pyramid. IT, Hospitality & tourism, Manufacturing, Pharmaceuticals and
biotechnology, Education, Food & beverage, and Retail are also considered to be attractive.
Management team quality was the only thing more important than corporate governance when
making private equity investments in Bangladesh.
Corporate governance (transparency, clarity of financial reporting, board oversight) is fund
managers' number one concern when investing in Bangladeshi companies.
The two most important factors to consider when making private equity decisions in BOP
ventures were standard business investment decisions that apply to all companies: Viability of
the business model; and Financial returns.
At the end of the day, this is still a business decision and should be based first and foremost on
the viability of the business and potential for financial rewards.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 56
Figure 28. Very attractive vs. most viable industries to integrate low income segment
Source: Fund Manager & Co-Investor Interviews 2012
With the single exception of Agriculture, fund managers ranked the attractiveness of the industry as an
investment within one vote of the viability of the industry for involving the bottom of the pyramid
through inclusive business.
Agriculture is the very unsurprising standout, being the largest employment segment in the country and
is generally associated with the bottom of the pyramid.
Energy and agriculture are the most attractive sectors
Nine out of twelve survey respondents identified the energy and agriculture sectors as the most
attractive for profitable investment.
Bangladesh has an acute energy shortage and much of the population -- mainly the BOP -- doesn't have
access to grid power. The power shortage is one reason why the Energy sector is seen as lucrative for
investment. According to the Bangladesh Power Development Board, the average demand for
electricity is 7,500 MW per day while electricity production is only 5,000 MW. The government of
0 2 4 6 8 10 12
Forestry
Life insurance
Oil, gas, and resources
Real estate
Textiles & garments
Water & sanitation
Banking & finance
Transport & logistics
Retail
Food & beverage
Education
Pharma & biotech
Manufacturing
Hospitality & tourism
IT
Energy
Agriculture
There is a clear correlation between industries that fund managers consider attractive and that are most viable for IB
Most viable to integrate BOP
Most attractive
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 57
Bangladesh is encouraging the establishment of power plants by guaranteeing fixed returns to power
companies and is also providing subsidies to power companies for fuel price and exchange rate
fluctuation risks.
IT, Hospitality & tourism, Manufacturing, Pharmaceuticals and biotechnology, Education, Food &
beverage, and Retail are also considered to be attractive industries for investment
Information Technology (IT) has enormous potential to involve the BOP thanks to the rapid spread of
mobile telephones and the build-out of the mobile network. As of June 2012, Bangladesh had 100
million mobile phone users, making it the 12th largest mobile phone market in the world.
The textiles & garment, manufacturing and food & beverage sectors are also voted as being viable
industries to integrate the low income segment. Manufacturing (including that of textiles & garments) is
a boom industry in Bangladesh, employing some 6.7 million people, and receiving preferential treatment
by EU countries. The selection of Food and Beverage Products as a viable industry for the low income
segment may e a least artly due to Bangladesh’s gains in GDP growth and increased a ility to s end
amongst other things.
Education and Pharmaceuticals & biotechnology are generally attractive in a country with the
demographics of Bangladesh -- reaping a demographic dividend -- where a combination of a young
population and markedly lower birth rate mean people can spend more on each member of their family
in terms of education and health.
Transparency second only to management team quality in importance when investing in private
equity in Bangladesh
The quality of the management team is generally considered to be the key factor when deciding to
invest in a company. This was reflected in the survey.
Importantly, transparency was ranked second. This is a very different result from what we would expect
to see in the developed markets of North America and Europe where transparency is expected.
Companies with less transparency in their business activities will require a higher level of due diligence
by the fund managers. This is a particular concern in Bangladesh.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 58
Figure 29. Most important factors when making a private equity investment in Bangladesh
Source: Fund Manager & Co-Investor Interviews 2012
The same skills that are most important are also the key concerns: Management and Transparency
Fund managers viewed transparency and a lack of business skills as the main concern when making an
investment in Bangladeshi companies. Poor business strategy and planning can also be viewed as
business skills, while corporate governance and financial reporting are both closely related to
transparency.
The companies that can demonstrate good management and good corporate governance will clearly get
better access to capital as professional fund managers take over from state development banks. This
should result in positive outcomes through encouraging better corporate governance and merit-based
promotion.
0
1
1
2
2
2
3
4
6
6
8
13
Other reputable investors
Operational/Cultural fit
Speed at which value can be created
Brands/Products
Corporate responsibility
Strategic fit with fund
Anticipated return
Growth history & projections
Cashflow
Company track record
Transparency in business activities
Management team quality
Number of votes
Transparency second only to management team quality in importance when investing in private equity in Bangladesh
When considering the following most important factors in making a private equity or related investment in Bangladesh, please select and rank the top three below (1 being the most important):
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 59
Figure 30. Most important concerns when investing in Bangladeshi companies
Source: Fund Manager & Co-Investor Interviews 2012
At the end of the day, this is still a business decision and should be based first and foremost on the
viability of the business and potential for financial rewards.
While investing in the bottom of the pyramid may be beneficial to society, fund managers made it very
clear that it is still a financial investment in a company, which has to be viable and profitable. This works
heavily in favour of IB because companies that are providing a valuable product or service will gain
access to capital and be able to grow at an accelerated rate.
0
0
1
2
3
4
4
5
6
7
8
9
No CSR
Issues with current shareholders
Lack of other investors & finance streams
Limited or no company track record
Difficulty to exit
Unclear financial reporting
Conflict of interest
Significant reputational issues
Poor corporate governance
Poor business strategy & plan
Lack of management skills
Lack of transparency
number of votes
Management skill and Transparency are the two biggest risks when investing in Bangladesh
What would be the most important concerns/risks when making investments in Bangladesh? Please select up to 3 of the following concerns/risks
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 60
Figure 31. Most important factors when making a private equity investment in a BOP venture
Source: Fund Manager & Co-Investor Interviews 2012
With the business models of Inclusive Businesses being different to the “ usiness as usual” a roach,
whereby companies work to create both social return and financial return, the challenge of achieving
both objectives is considered by fund managers to be difficult, and a concern when making an
investment decision into an Inclusive Business. There are also some difficulties in measuring social
returns (there is no universally accepted metrics in which to measure it), which make it all the more
challenging to meet a goal of generating social return when investing in an Inclusive Business. Finally,
the track record of the investee company is also seen as a significant consideration. If a company does
not have sufficient experience investing in inclusive businesses it will be difficult to generate a proper
mix of financial and social returns.
1
1
1
1
2
2
3
3
5
6
11
12
Prospects for growth
Presence of other reputable investors
Innovation potential
Percent contributinon of IB to company
Quality of product/service
Overall company reputation/brand
Strategic alignment with investment strategy
Clear pathway to exit
Track record of company with BOP
Potential for social returns
Potential for financial returns
Viability of the business model
number of votes
As with any investment, the viability of the business and financial returns are the most important factors to consider for investing in a BOP venture
When considering (or if you were to consider) the most important factors in making a private equity investment in an Inclusive Business venture in Bangladesh, please select and rank the top 3 most important factors.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 61
At the bottom of the pyramid, management skills and experience are critical
Fund managers unanimously responded that a lack of skills and experience of management is a critical
issue when investing in Bangladeshi companies focused on the BOP. As Inclusive Business is first and
foremost a business, management skills and experience are critical for success. In Bangladesh however,
there is typically a deficit in the skills and knowledge required to manage an Inclusive Business.
Figure 32. Concerns of fund managers in BOP focussed funds
Source: Fund Manager & Co-Investor Interviews 2012
Fund management obstacles and interest
The investors surveyed were asked about their concerns about setting up a fund, what the obstacles
were, and whether they were interested in managing the fund.
Ten out of twelve investors believe that fund managers in Bangladesh do not have the required
experience to manage a BOP focused equity fund. That may be a potential obstacle. Given, though that
eight out of 15 fund managers and co-investors expressed an interest in running the fund, it may be
partly a case of self-interest determining the answer.
Nevertheless, this does highlight the fact that fund managers in a BOP focused fund will have to spend
significant amount of time researching the companies and getting to know the management.
0
1
2
2
3
3
3
4
5
5
5
12
No Corporate Social Responsibility
Lack of other investors & finance streams
Significant reputational issues
Risks associate with BOP
Weak prospects for socail impact
Weak prospects for financial return
Difficulty to exit
Poor business strategy & plan
Unclear financial reporting
Limited company track record with BOP
Lack of grand funds/TA facility
Lack of management skills & experience
number of votes
Management skills and experience are fund managers' greatest concerns
Which of the following issues would you consider the top 3 greatest concerns when making inclusive business investments in Bangladesh?
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 62
In this regard, offering a combination of interventions and training prior to any investment would
increase the benefit to the fund managers, the fund principals, and the companies themselves.
A pipeline of companies will be critical success factors
In the chart below, we have highlighted the lack of viable pipeline companies, even though this is a
middle ranking item in the survey.
The point is that if a fund is put together and a management team put in place, then the first three
obstacles -- fund management expertise, negative perception, and investor interest -- become moot.
The first things the fund will need will be technical assistance support and a pipeline of viable
companies.
Figure 33. Obstacles in managing a BoP focused fund
Source: Fund Manager & Co-Investor Interviews 2012
Measures of success for a BOP focused private equity fund
In the survey, fund managers were asked how they would measure success of a BOP focused private
equity fund. The answer contrasted with that shown in Figure 31 on page 60 in which financial
returns and viability of the business were clearly ahead of social returns.
What we can conclude from this is that individual investments must be first and foremost financial
investments that provide a positive medium to long term financial return. However, the fund overall
should focus on those profitable companies that engage the BOP in socially positive ways.
Figure 34. Most important factor to measure the success of a BoP focused PE fund
0
2
2
4
4
4
4
7
9
10
Ethical reasons
Perceived risks far outweigh returns
Lack of multilateral funder interest
Lack of standard metrics
Lack of government incentives
Lack of viable pipeline companies
Lack of techinical assistance support
Lack of investor interest
Negative perception on returns
Lack of fund management expertise
number of votes
Fund management expertise and perception on returns beat out investor interest as largest obstacles to setting up a fund
If you were to create an Inclusive Business-Focused Private Equity Fund in Bangladesh, what would be the greatest obstacles to effectively capitalizing and managing a successful fund (please select
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 63
Source: Fund Manager & Co-Investor Interviews 2012
Initial public offering the most attractive exit option
Forty percent of interviewed fund managers considered a stockmarket Initial Public Offering (IPO) as the
most attractive exit option. This provides a relatively straightforward way to exit from large investments
with a significant profit. The growing volume of publicly traded shares on the stock market makes this
option increasingly viable.
Twenty seven percent of fund managers thought secondary sale (i.e. selling the investee company to
another private equity fund), as the most attractive option. Trade sale (selling the investee company to
other strategic seller), was considered as the third most attractive way to divest from a company. As
there are only two private equity fund managers operating their business in Bangladesh and merger and
acquisition is not o ular, these two o tions are ehind IP in the fund managers’ choice. nly 13
percent of fund managers considered refinancing as an attractive way to exit from an investment.
Refinancing may not be a very good option for large investments.
The broad range of exit strategy preferences are as likely determined by the industry and type of
investment as the market or the company. For example. a small investment of $1 million
0% 20% 40% 60% 80% 100%
Social return only, 8
Greater Social return, 25 Equal social and
financial return, 50 Financial return only,
17
Most managers consider social returns to be at least as important as social returns
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 64
Figure 35. Most attractive exit option
Source: Fund Manager & Co-Investor Interviews 2012
Despite the perceived lack of fund management skills, most fund managers are interested in
managing the fund
Of the fund managers and co-investors interviewed, eight would be interested to manage a potential
ADB Inclusive Business fund, with a further two potentially interested based upon specific terms and
conditions. Five fund managers and co-investors were not interested to manage the fund.
Having an anchor investment by ADB was strongly identified as being required in order to provide
credibility and trust and attract further investors.
This is as one would expect: money is available to be made and fund managers want to make it.
Figure 36. Fund manager interest in investing in potential ADB fund
Source: Fund Manager & Co-Investor Interviews 2012
IPO
40%
Secondary sale
27%
Trade sale
20%
Refinancing
13%
Interested, 8 Uninterested, 5
Depends on terms &
conditions, 2
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 65
The key is not in finding someone to manage the fund for a 2-3% commission, however. While a good
fund manager is essential, it is significantly more important to ensure that the fund manager has access
to the right information.
In the world of Bangladeshi business, which is considered to be far less transparent than more
developed markets, it is going to be very useful -- and financially rewarding -- to be working with the
companies entering the inclusive business area well before they are ready to accept funding.
Co-investor mapping
As private equity and inclusive business are relatively new concepts in Bangladesh, it may be difficult to
raise funds within the country for this type of fund. However, some of the interviewed investors did
express interest in investing a portion of an ADB sponsored private equity fund, with some investors also
providing a conditional willingness to invest in the fund.
These four investors interviewed were:
• Industrial and Infrastructure Development Finance Company Limited
• Prime Prudential Fund Limited
• Caravel Management, LLC.
• Professor Mahbub Ahmed
Coinvestor details are summarized in the appendices.
Interviews with co-investors found that:
1. Investors generally expect a financial return of above the risk-free weight of 12.5% that can be
earned in a one year fixed deposit.
2. Business viability and potential for financial returns are the key reasons to invest in IB
1. Investors generally expect a financial return of above the risk-free weight of 12.5% that can be
earned in a one year fixed deposit.
In relation to financial return, 50 percent of co-investors are interested to invest in the fund only for
generating financial return. These investors are treating the fund as they would any other investment
opportunity and are not as interested in the social return created by the fund.
These investors expect to make a profit of well above the risk-free rate. The current commercial rate for
one year term deposits is 12.5% in Bangladeshi taka and 6.5% in US dollars.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 66
Figure 37. Deposit interest rates at Bangkok Commerce Bank
Fixed Deposit Receipt Interest Rate
i) FDR for 01 (One) month. 12.00%
ii) FDR for 03 (Three) months. 12.50%
iii)FDR for 06 (Six) months. 12.50%
iv)FDR for 01 (One) year. 12.50%
v)FDR for above 01 (One) year. 12.00%
Source: Bangkok Commerce Bank website
A smaller portion of co-investors (25 percent), would however invest in the fund for social returns.
These investors have other businesses from where they generate their desired financial return and are
willing to invest in this solely to create a social impact. The remaining 25 percent of investors are
interested in counting both financial and social return. These investors do not mind to get a lower
financial return compared to the return of other investments. They will forgo financial return in order to
make a positive impact on society.
2. Business viability and potential for financial returns are the key reasons to invest in IB
Funds and fund managers consider that the investment itself should follow normal investment criteria -
- management, growth and profit, track record, etc.
This aligns closely with what potential co-investors are suggesting about the fund's targeted internal
rate of return.
Moreover, the discipline of investing in the most profitable companies helps avoid misallocation of
capital -- one of the drivers of high interest rates -- and rewards companies do business well.
It should be noted that while there are plenty of companies that work with the BOP in some form or
other, finding a company working with the BOP, making profit, and actually needing finance can be
difficult without partners or associates on the ground working closely with the inclusive businesses who
understand the business properly and has a good idea of the management capability.
Donor mapping
The donor scan section aims to provide a map of the activities and priorities that donors are engaged in
within private sector development in Bangladesh. The scan seeks to assess the current state of play and
interest of donors in partnering with a potential ADB Inclusive Business Fund as either a co-investor or in
the provision of a technical assistance facility.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 67
A rapid assessment indicated that the donor landscape in Bangladesh is mature, with 21 multilateral
organizations, 26 international NGOs, and 61 embassies / country initiatives / bilateral missions, making
a total of more than 100 donor organisations in the country. There are also a significant number of
Bangladeshi NGOs.
In order to gain a detailed insight into the industry, eight key informant interviews were conducted
which focused on issues such as the viability of an Inclusive Business Fund in Bangladesh, the possible
sectors such a fund should focus on, obstacles to establishing an inclusive business fund, and the
likelihood of raising capital for the fund. These interviews were supplemented with desk research to
broaden the number of donors covered and to gain more in-depth information.
The overview of relevant donor partners is in the appendices.
Summary of findings
Donors are targeting Information, Communication & Technology (ICT), in addition to Agriculture and
Textiles. The ICT sector in Bangladesh has potential to develop due to comparative advantages like
cheap labour (the average wage for a programmer in Bangladesh is about half of that of an Indian
programmer). Bangladesh is producing about 7,000 ICT related graduates a year from 21 public
universities and 51 private universities. A large number of Bangladeshi students are also studying
overseas in computer related subjects, especially in India. As wage levels rise in India, Bangladesh has
an opportunity to attract more outsourcing of back office operations. In addition, Bangladeshis
generally have better English skills compared to Chinese and Vietnamese which is a significant
advantage for global companies.
Most donors saw a technical facility linked to the fund as essential. There was a general view that the
technical assistance needed to be flexible, and could range from marketing and helping to introduce
sustainable standards in agriculture and textiles, through to pre-investment support on corporate
governance. The needs of smaller firms are also likely to vary greatly form larger ones. As such, local
providers should be used to provide services whenever possible.
There is a growing interest in private sector engagement and inclusive business within the donor
community in Bangladesh. This is driven by the growing belief that market based solutions are more
sustainable and deliver at scale. The strong performance of the Bangladesh economy fuelled by a
growing business class also makes the investment landscape more promising.
A number of potential partner including DFID were very keen to learn more about the proposed fund
due to its potential alignment with their own country priorities, although it is too early for donors to
express commitment to supporting an Inclusive Business fund in Bangladesh.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 68
Conclusions
Referring to our approach, we can make several broad conclusions about the environment, interest, and
viability.
Enabling Environment
Private sector interst
Private equity market viability
•The current market and business conditions favour the development and growth of Inclusive Business in Bangladesh and has a wide range of potential impacts on the BOP
•Companies currently have limited and selective involvement with inclusive business.
•Most see the benefit as largely soft benefits, such as reputation and creating shared value.
•Few saw involvement in IB as a direct path to improved profits.
• Critical barriers include understanding of IB and Corporate Governance
•The private equity market in Bangladesh is almost non-existant. However, the traded equity market is growing strongly and offers a clear exit strategy.
•Key concerns with investing in Bangladesh IB companies are the perceived lack of management skills and poor corporate governance.
•Returns should exceed the risk-free rate of 12.5% and deal sizes should be between $1-$10 million.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 69
The detailed conclusions are based on the original questions to be answered by this study:
Need
Companies don't have access to the capital they need to achieve their objective, and consider this as
one of their key challenges to growth.
This stems from the fact that banks in Bangladesh don't offer cashflow based lending to small and
medium sized companies.
Limited funding is also available from a range of NGOs, based on specific sector and/or geographic
preferences.
Need
•Do inclusive businesses have access to the capital they need to achieve their objectives?
•Are other financial organizations providing capital at rates below what could be considered a reasonable risk-weighted return?
Interest
•Are the companies in Bangladesh interested in Inclusive Business?
•Are they interested in Inclusive Business private equity funding?
•What terms and conditions the companies would prefer?
Readiness
•Is the macro-economic condition favourable to Inclusive Business?
•Are the companies ready for Inclusive Business?
•Are there enough skill sets in the market on Inclusive Business?
•What is the level of appetite of the key stakeholders?
Strategy
•What are the steps needed to be taken in response to the above?
•What size of enterprise and investment should the fund consider?
•What are the priority sectors?
•What type of instruments would be most suitable?
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 70
Interest
The companies interviewed were all interested in engaging the BOP. However not many saw it as
Inclusive Business. Some saw it as corporate social responsibility, while others saw it as a function
of their core business. There wasn't a broad appreciation of precisely what Inclusive Business is.
A significant majority of companies (76 percent) expressed an interest in leveraging financing
streams in order to accelerate their growth into low-income market opportunities. Not all were
open to private equity financing -- most preferred debt to equity (58%) and some preferred a
guarantee (5%). As a rule, they preferred low interest soft loans at well below both the bank lending
rate of 17% and the risk free rate (bank deposit rate) of 12.5%. We can't criticise them for that --
any business in the world would prefer these terms.
These were open ended questions and didn't force companies to choose between market rate loans
and equity, which would change these findings.
Readiness
With the Bangladesh economy booming, a government supporting international financing, and the
explosion in telecommunications throughout the country, the macro economic conditions highly
0 5 10 15 20 25 30
High labor costs
Competition from international companies
Saturated customer base
Competition from domestic companies
Lack of access to competitive technology
Poor corporate governance
High cost of inputs
Lack of government incentives
Lack of Access to Capital
Poor Infrastructure
Poor business and regulatory climate
No. Respondents
Access to capital is a key challenge for growth
Rank 1 Rank 2 Rank 3
What do you see as the 3 main barriers to the growth of your company? Please rank the top 3 with 1 being the most significant barrier
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 71
favour Inclusive Business. The main drawback is the high level of regulation and inefficiency within
the government.
In general, the companies interviewed were ready for Inclusive Business, all having some
involvement with the bottom of the pyramid already. However, one area where investors in
particular are concerned about the readiness of Bangladesh companies is with their corporate
governance. The companies surveyed for this study were drawn from a non-random sample of
Bangladesh businesses so the level of corporate governance cannot be extrapolated into the
broader business population. Based on the concerns voiced by fund managers and investors,
Bangladesh companies need to make significant improvements to their corporate governance --
transparency, financial reporting, board oversight -- before they will be ready to accept funding.
In addition, fund managers highlighted a possible shortage of true IB companies in the pipeline.
Without more companies engaging the bottom of the pyramid through Inclusive Business as a core
strategy -- rather than an offshoot of corporate social responsibility -- it may be difficult for any
sizable fund to be fully invested in true IB companies.
In terms of skills, there is a general perception that Bangladesh companies are lacking in business
management skills. Specifically referring to Inclusive Business skills, these are as non-existent as the
understanding of what Inclusive Business actually is. The companies surveyed had skills in dealing
with the BOP which could be easily adopted to IB with some training or intervention.
The level of interest of all key stakeholders was not assessed. The managers surveyed were
universally interested in Inclusive Business. We have to assume that shareholders will be interested
in any venture that is going to make a decent profit. Other key stakeholders -- employees and
customers -- don't have a lot of say in business decisions.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 72
Strategy and recommendations
Steps to be taken:
Develop inclusive business awareness and offer technical assistance
• Bangladesh companies and related stakeholders need to understand that Inclusive Business
is self-sustaining and profitable. An awareness building campaign is necessary to convince
companies that involving the BOP in Inclusive Business is profitable and offers significant
growth opportunities.
• A tailored technical assistance facility is critical. This should include support with innovative
business models and pre-investment services, particularly with regards to corporate
governance,
Set up a fund
• There is clear potential for an IB fund. The ADB should set up a US dollar fund to invest in
inclusive businesses in Bangladesh.
• The fund should explore the possibility of a currency swap with either the Bank of
Bangladesh or a commercial bank to neutralize currency risk.
• The fund should be flexible enough to invest according to the opportunities available rather
than be fully invested immediately. This could be done either through staged funding of the
facility over 3-4 years, or making the fund a part of a regional IB fund.
• The ADB should anchor the fund as lead investor. This is critical as it provides credibility to
other in estors. ADB’s leadershi on inclusi e usiness can hel assuage concerns of other
investors who may perceive that companies working with the BOP increase investment risk
Take a staged approach
Offer technical assistance through ADB or other NGOs with business models and corporate governance
over a period of 2-3 years before injecting equity into the company. This gives the company time to
grow large enough to need the funding, will help the company develop a level of corporate governance
that fund managers require, and give fund managers more confidence in the company's business model.
Size of investment and enterprise
Enterprises should be large enough for a significant investment to still be a minority stake and small
enough for any investment to have a significant impact. The minimum enterprise value should be
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 73
around $5 million and the maximum enterprise value $50 million. Enterprise value is defined as market
value (or estimated market value) plus net debt.
The size of each investment should be US$1 to US$10 million. Smaller investments than $1 million will
burden the fund with high due diligence costs. The study also found that $10 million would cover the
Inclusive Business needs of most, with working capital and capital investment (e.g. machinery, building
etc.) being the most commonly required form of use.
Priority sectors
In terms of prioritizing investments, the fund should focus on inclusive businesses that offer superior returns
first and foremost. The sector priorities should be used to look for possible investments rather make
investment decisions.
The priority sector should be agriculture because of the high percentage of BOP engaged in agriculture and it
was considered the most attractive sector for investment, both overall and for inclusive business.
Secondary sectors include Energy, IT, Hospitality & tourism, Manufacturing, Education, Food & beverage, and
retail.
These sector priorities should not preclude the fund from investing in any other sector where an Inclusive
Business offers superior potential.
Fund details
The fund should be a US dollar fund with, if possible, a currency swap agreement with a bank to make all
investments in Bangladesh taka.
Proposed fund size US$ 50 million (either staged funding or part of a regional fund)
Investment time frame 5 years
IRR 15 percent
Financing instrument Private Equity/Debt
Investment exit strategy Initial Public Offering (IPO)
Investment exit time frame 5-7 years
Total tenure of fund 12 years
Target segment & deal size US$ 1 million to US$ 10 million
Investment geographic focus Any of Bangladesh’s se en di isions
IB priority sectors & BOP
engagement
Sector agnostic with a skew to Agriculture, Energy, IT, Hospitality & tourism,
Manufacturing, Education, Food & beverage, and retail
Fund denomination US dollar with currency swap
Fee structure Management fees (2.5 percent of total committed capital), Carried interest (20
percent of returned fund above initial capital)
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 74
Appendices
Appendix 1: An important macro trend: Bangladesh's demographic dividend 74
Appendix 2: Business environment and economic progress 76
Appendix 3: Analysis of company sample 77
Appendix 4. Case studies 80
Appendix 5: Current engagement with the BOP 86
Appendix 6: Fund managers 95
Appendix 7: Co-investors 99
Appendix 8: Overview of relevant donor partners 101
Appendix 9. Private sector mapping survey 104
Appendix 10. Fund manager & co-investor survey 113
Appendix 1: An important macro trend: Bangladesh's demographic dividend
Bangladesh is about to reap a demographic dividend. That is,
1. A high number of youth achieving working age and entering the workforce
2. Lower fertility rates mean parents can spend more time and finances educating each child.
Sixty ercent of Bangladesh’s o ulation is under 30 years of age, with its median age eing 24 years old
(34 percent under 15 years of age). This ratio is similar to other Developing Countries, and lower than
countries such as Korea, Taiwan, and Singapore which have already gone through this phase.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 75
Figure 38. Bangladeshi population age groups in 2012
Source: Ministry of Health & Family Welfare 2012
Fertility rates in Bangladesh have fallen dramatically over the past 30 years, infant deaths also fallen.
This enables parents to spend more time and money educating their fewer children, which historically
has led to high economic growth (Japan in the 50s and 60s, Korea and Taiwan in the 70s and 80s, China
and Vietnam currently).
Figure 39. Fertility rates over the past 50 years
Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population
Prospects: The 2010 Revision
There are also other specific advantages to Inclusive Businesses of a large young population such as their
quick adoption of technology bringing new scalable opportunities such as financial inclusion through
mobile platforms.
15-49 years old
52%
≤ 14 years old
34%
50-59 years old
7%
≥ 60 years old
7%
012345678
Fertility Rates have fallen by two thirds since 1970
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 76
Appendix 2: Business environment and economic progress
Lack of infrastructure, corruption and bureaucracy are big hindrances to doing businesses in the country.
Nonetheless, Bangladesh ranks 24th in terms of “Protecting In estors” which is est in the South Asia
region according to the DB Index of the World Bank. It has also shown enviable resilience to external
economic shocks such as the US recessions in 2002 and 2008 and the economic crisis of South East Asia
in 1997, but is facing a slow down due to internal crises such as the stock market crash of 2009 to 2011,
large bank loan scams in 2012, and a significant energy shortage from 2009 to 2012. Climate and
environment induced shocks such as flooding are also significant challenges that impact on the
economic progress of the country.
Figure 40. Recent trends of macro-economic indicators
Indicator Unit / Growth 2008-09 (Actual)
2009-10 (Actual)
2010-11 (Actual)
2011-12 (till April)
Real GDP Growth (%) 5.7 6.1 6.7 6.3
Inflation YoY growth (%) 6.7 7.3 8.8 10.8
Credit to private sector YoY growth (%) 14.6 24.2 25.8 19.4*
Export US $ Billion (Growth %) 15.6 (10.3) 16.2 (4.1) 22.9 (41.5) 19.8 (8.4)
Import US $ Billion (Growth %) 22.5 (4.1) 23.7 (5.5) 33.6 (41.8) 29.8 (8.7)
Remittances US $ Billion (Growth %) 9.7 (22.4) 11.0 (13.4) 11.7 (6.0) 10.6 (10.4)
Current account balance US $ Billion (% of GDP) 2.4 (2.7) 3.7 (3.7) 1.0 (0.9) 0.45* (0.5)
Foreign exchange reserve US $ Billion (in months of Imports) 7.5 (3.8) 10.7 (5.1) 10.9 (3.7) 9.5# (3.0)
Exchange rate (average) Taka / US $ (Depreciation %) 68.8 (0.3) 69.2 (0.6) 71.2 (2.9) 81.9%
(15.0) *Jul-Mar, 2012 #Reserve 29 May 2012 %Average rate 29 May 2012 Source: Bangladesh Bank 2013
Des ite these significant challenges, the largely ositi e outlook in ratings y Moody’s and Standard &
Poor remains unchanged. Moody's rating has put Bangladesh on a par with the Philippines, three steps
ahead of Pakistan, and one step higher than that of Sri Lanka, but below India. Easy repatriation of
profit (no stringent condition applicable), no investment ceiling overall (even to particular industries),6 a
huge untapped area for investment in infrastructure development, and a lower cost of labour have
made Bangladesh an attractive business case for foreign and local investments. Moreover, Bangladesh
has received positive forecasts from a range of international economic analysts; JP Morgan has included
Bangladesh among the ‘ rontier our’ for its im ressi e economic and usiness otential; Goldman
Sachs has du ed it one of the “next ele en nations to watch” for romising economic growth; and
Morgan Stanley has predicted that the FDI inflow to Bangladesh will reach US$ 5 billion by 2015.
Despite these positive outlooks, the Global Competitiveness Index 2011-12 indicates Bangladesh still has
some way to go.
Figure 41. Global Competitiveness Index
Global Competitiveness Index Rank Score
GCI 2011–2012 108 3.7
GCI 2010–2011 (out of 139) 107 3.6
6 Bangladesh Bank 2013
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 77
GCI 2009–2010 (out of 133) 106 3.6
Basic requirements (60.0%) 112 3.8
Institutions 112 3.3
Infrastructure 134 2.2
Macroeconomic environment 75 4.7
Health and primary education 108 5.0
Efficiency enhancers (35.0%) 99 3.7
Higher education and training 126 2.8
Goods market efficiency 81 4.1
Labour market efficiency 100 4.0
Financial market development 67 4.1
Technological readiness 122 2.8
Market size 49 4.3
Innovation and sophistication factors (5.0%) 113 3.0
Business sophistication 98 3.5
Innovation 124 2.6
Source: World Economic Forum 2012
Figure 42. Wealth and health
Indicator Year Bangladesh India Pakistan
Income per person $ PPP
*
1990 540 874 1200
2011 1909 3663 2786
Life experience at birth, years
1990 59 58 61
2010 69 65 65
Infant (aged <1) deaths per 100 live births
1990 97 81 95
2011 37 47 59
Child (aged <5) deaths per 1,000 Live births
1990 139 114 122
2011 46 61 72
Child (aged <5) deaths per 1,000 Live births
1990 800 600 490
2010 194 200 260
Child (aged <5) deaths per 1,000 Live births
1990 64 59 48
2008 94 66 80
Child (aged <5) deaths per 1,000 Live births
1991 38 49 no
2009 77 74 61
Child (aged <5) deaths per 1,000 Live births
1990 62 60 39
2007 36 44 31
Source: World Bank; UNCIEF; WHO; National Statistics purchasing-power parity
The significant decrease in infant mortality rates over the past 21 years has resulted in a significant skew
towards a younger generation, commonly referred to by economists to as "demographic dividend"
because of the medium-term benefits to the economy.
Appendix 3: Analysis of company sample
The company sample included a diverse range of industries, company sizes, and types of relationships
with the BOP. As shown below, the 55 companies interviewed covered the following sectors:
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 78
Manufacturing (25 percent; 14 companies); Banking & Finance (13 percent; 7 companies); Food &
Beverage Products (11 percent; 6 companies); Energy (11 percent; 6 companies); Agriculture (9 percent;
5 companies); Information Technology (9 percent; 5 companies); Pharmaceuticals & Biotechnology (7
percent; 4 companies); Retail (5 percent; 3 companies); and, finally, other industries represent the
remaining 9 percent of companies in the sample.
Figure 43. Industry sectors of the market scoping company sample
“ thers” includes Education; Health Insurance; il, Gas & Natural Resources; Pro erty & Construction
Source: SNV & BetterStories Private Sector Interviews 2012
The sample included both private and listed companies as well as local affiliates of multinational
corporations as well as social enterprises.
The range of industries was selected based on potential growth in these sectors at the BOP. Growth
industries were considered the primary focus as these are the industries where companies will require
capital infusion.
The table below lists the businesses surveyed the size of the company, the estimated growth potential
and the BOP business model in terms of employed, suppliers, distributors or consumers. The data from
the surveys was used to prepare the table, however in some cases when data was not provided a best
estimate was used.
Retail
5%
Pharmaceuticals &
Biotechnology
7%
Agriculture
9%
Information
Technology
9%
Others
9%
Energy
11%
Food & Beverage
Products
11%
Banking & Finance
13%
Manufacturing
26%
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 79
Figure 44. Market scoping companies showing sector, size, growth potential & BOP model
Name Products / Sector Size Potential growth
BOP model
E S D C
Consumer Products / Retail
Aarong Apparels and home accessories L VH Rahim Afrooz Superstores Ltd.A37 Retail superstore chain L VH
JITA Bangladesh Rural distribution of consumer products S M Pran Foods Ltd Agro processing L VH
Kazi & Kazi Tea Estate Production, packaging, dist., exports & domestic M VH
Nestle Bangladesh Processed food and beverages L VH
BD Food Agro processing L M Grameen Danone Foods Ltd Fortified yoghurt for children M M Pharmaceuticals / Biotechnology
Incepta Pharmaceuticals & Biotechnology M VH Renata Limited Pharma & Biotech; Health & nutrition L H ACI(Advanced Chemical Industries) Ltd Pharma, consumer brands and agribusiness L H Manufacturing / Light Manufacturing
Otobi Furniture M VH
German Bangla Bicycles Ltd Bicycle exporters L VH
Fortuna Shoes Ltd Footware M VH Viyellatex Ltd Garments L VH
Bata Shoe Company (Bangladesh) Ltd Shoes, bags, socks, belts etc L M
Monno Ceramic Industries Ltd Tableware (e.g. plates, bowls, mugs etc) L M
Well Group (Sanji Textile) Fabrics L M
Singer Bangladesh Ltd Electronics consumer goods L H Energypac Power Generation Ltd Green bulbs L H
Apex Adelchi Footwear Ltd Shoes, sandals, exporters L H DBL Group Manufacturing of textiles and garments M H TdK (Bangladesh) Ltd Leather goods, jute and recycled products M M
Energy
Grameen Shakti Solar systems M VH Panna Group Batteries M H Rahimafrooz Renewable Energy Solar systems M H Dimensions Ltd Diesel gens, hydraulic hose piping, solar panels M L
Beximco Petroleum Petrol S M
Allied Solar Energy Limited Supply solar components and install mini-grids M VH Banking / Finance
BRAC Bank Ltd SME banking, technology adoption L VH ASA Micro financier with ancillary services L VH bKash Banking and fin services; focus on low income group M VH INAFI Network organisation of microfinance lenders S M LankaBangla Finance Banking and financial services (including microfinance) L M Agriculture / Agribusiness
Multimode Group (Lal Teer) Hybrid seeds, research, biotech, development L VH World Fish Centre Research M L
iDE Training and capacity building for rural enterprises S M Neo Inventions Fish fillet export M H
GETCO Limited (agricultural arm) Manufacturing and sale of organic and hybrid seeds L H Other
Bestway Group Real estate, property, const (including low cost housing) L H Fair Price International Ltd Producer's rights body S M
Jaago Foundation Education provider for disadvantaged children S M
Joyita Livelihoods capacity building for impoverished women S L
NR = No Response; SIZE (refers to annual turnover & no. employees): S = Small, M = Medium, L = Large; GROWTH (refers to forecast potential : L
= Low, M = Moderate, H = High, VH = Very High
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 80
Appendix 4. Case studies
bKash Limited
Background: bKash Ltd, a subsidiary of BRAC Bank, is a joint venture between BRAC Bank Ltd
(Bangladesh), and Money in Motion LLC (USA). With a vision of ensuring the people of Bangladesh have
access to a road range of financial ser ices, Kash’s focus is on hel ing the low income masses of
Bangladesh to achieve broader financial inclusion through the provision of services that are convenient,
affordable and reliable.
Serving the BOP: According to bKash, approximately seventy percent of people in Bangladesh live in
rural areas however only about 15 percent have access to formal financial services. These people need
to either receive money from relatives or family members from distant locations to whom they depend,
or to access finances in order to purchase essential consumer products and services. Identifying a real
consumer need and potentially huge market segment, bKash works in collaboration with telecom
networks to provide a secure, fast and affordable money transfer and mobile banking services to the
lesser-served remote population of Bangladesh.
Growth potential: Formed in 2011, bKash operates its mobile banking system through 3,600 distribution
networks serving a customer base of some 70,000 registered users. With almost 75 million people
falling within mobile network coverage, the company sees potential for considerable further growth
articularly due to a fa oura le regulatory framework and Bangladesh’s continued inadequate anking
infrastructure that restricts a large segment of the population from accessing financial services. The
company acknowledges however, that illiteracy poses the biggest barrier to its growth due to it being
linked to limitations in the uptake of new technology.
Financial needs: The company has shown interest to receive a fund of US$ 5 to US$ 10 million
preferably in equity however debt would also be considered providing there are SMART terms and
conditions, and a viable goal. In the past equity Investment was their main source of funding (49
percent).
Case study 2: Aarong
Background: Aarong is Bangladesh’s largest retail chain of fashion and lifestyle roducts such as
clothing, household items and jewelry. Originally a project of the Ayesha Abed Foundation (established
1978), Aarong is the result of the oundation’s efforts to ro ide a enues for employment and income
generation for underprivileged rural women. Today, Aarong has a reputation for selling good quality
products to both local Bangladeshis as well as non-residents, a result of comprehensive quality
assurance measures. Approximately 70 percent of Aarong-retailed products are apparels, and 30
percent are home accessories.
Serving the BOP: Aarong has also institutionalized large-scale female participation in its supplier-base as
producers of indigenous handicraft goods in Bangladesh. Initially established to create job opportunities
for rural women in just one rural community, today the company estimates that it provides direct
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 81
employment to some 1,500 low-income earners as staff – of which more than 1,000 are retail associates
– in their 11 stores located across the country. It is estimated that a BOP population of some 35,000
mostly women artisans are directly engaged by the company (and a further 30,000 indirectly) through
its 13 production centres specifically located in urban and rural areas accessible to the BOP. When
multiplier effects are considered, the company estimates that it benefits some 320,000 people across
the country, of which the majority fall into the low-income segment of the population. The company
also provides a range of additional services for employees and suppliers including vocational training,
the supply of raw materials for producers, credit facilities, day care services, free medical check-ups, and
financial assistance for the treatment of illnesses.
Growth potential: Aarong has significant grounds to grow beyond its existing 11 stores. With
Bangladesh’s 150 million eo le shifting towards working age there is significant and realistic
expectations for growth resulting from an bourgeoning middle-class and increases in discretionary
spending on consumer products. With the development of a strong extension plan the company
believes it would be able to engage many more women as artisan suppliers in other parts of the country.
Moreover, the company has yet to tap into additional sales opportunities afforded by global boom in
internet shopping and e-commerce which may open up new domestic and export markets. Key
obstacles for growth according to the company include the absence of fair market competition, along
with the lack of equilibrium in international trade exchange [please add a few words to explain what the
“lack of equili rium in international trade exchange” actually means – needs to be more specific].
Financial needs: The company has shown interest to receive a fund of US$ 10 to US$ 12 million at an
interest rate of between 8 percent to 10 percent for working capital. In the past equity Investment was
their main source of funding (49 percent). The company has been borrowing from BRAC at a 12 percent
interest rate.
Case study 3: Lal Teer (Multimode Group)
Background: Identifying a gap in the market, in 1995 Multimode and Simon Groot of the Netherlands
set up Lal Teer to develop and sell customized hybrid seeds to local farmers. Despite economic and
technological constraints, extensive research and collaboration with local communities from 64 districts
has turned the venture into the largest biotechnology and seed production company in Bangladesh. Key
products developed by Lal Teer include the development of seeds resistant or tolerant to pests and
diseases and adverse climatic conditions, as well as higher yielding livestock in the production of milk
and meat. The com any estimates that o er 35 ercent of Multimode’s re enue is now deri ed from
this sector.
Servicing the BOP: The end benefit of the Lal Teer products to the BOP includes greater food security
and increased income through higher-yielding and more resilient crops and livestock, and improved
health resulting from the increased nutritional value provided in its products and by- roducts. Lal Teer’s
products, pricing and distribution strategies, and its management provisions are specifically designed to
access and benefit the BOP segment of the population. The company considers its agricultural business
as entirely geared towards the BOP, primarily as consumers (75 percent BOP), and then as suppliers (50
percent BOP), employees (50 percent BOP), and distributors (45 percent BOP). The company estimates
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 82
that it directly employs approximately 500 people from the low-income segment, and over 250,000
people indirectly from the low-income segment. Lal Teer has hired and trained between 10,000 to
12,000 farmers in how to improve production. These farmers also have the option to sell surplus seeds
obtained from crops grown back to Lal Teer; this way, the BOP comprises the consumer base, as well as
the supplier and distribution chains. The company is highly engaged in CSR activities (from education
and training through to fair employment and working conditions and environmental sustainability).
Growth potential: Lal Teer has ositi e growth ex ectations o er the next twenty years. The com any’s
brand of around 50 hybrid vegetable, jute, and cereal seeds, are currently marketed to rural farmers
through approximately 5,000 stores and mobile vendors, with the company estimating it has
approximately 80 percent of the market share, and 100 percent of the export market share to countries
in the region lus a handful of Euro ean countries. n account of Lal Teer’s quality seeds, the company
expects further growth. With the highest percentage of the Bangladeshi population involved in
agriculture [what percent is it?] and also predominantly representing the BOP group, the company
considers its farmer consumer base of its vegetable and cereal seeds as the largest emerging consumer
market in Bangladesh. Lal Teer is also the only brand that exports hybrid vegetable and cereal seeds
from Bangladesh, giving it 100 percent market share of the export hybrid seed market. The company is
confident it now has the potential to significantly cut into the Chinese hybrid seed market.
Financial needs: Lal Teer (Multimode Group) is interested in further investment in the BOP to increase
company growth and profitability as well as gain a first-mover advantage in the market segment. In
particular, Multimode is interested in setting up an investment fund to finance research and
development (especially in livestock), grants, or long-term equity-based financing. Financial assistance
is also needed to build additional infrastructure including the purchase of land, office buildings, labs, and
cow sheds. The company requires approximately US$ 3 million for seed projects, expansion and
working capital, and a further US$ 10 million for livestock development. The company prefers soft long-
term financing in the form of equity and debt at an IRR of about 20 percent over 10 years.
Case study 4: Grameen Shakti:
Background: ounded y Professor Mohammad Younus, Grameen Shakti is one Bangladesh’s most
successful market-based renewable energy social development programmes, reaching millions of rural
villagers across the country. Based upon the development of Solar Home Systems and other renewable
energy technologies, Grameen Shakti claims to be one of the largest and fastest growing rural-based
renewable energy companies in the world. As of December 2009, Grameen Shakti has installed more
than 320,000 Solar Home Systems in Bangladesh’s rural areas, equating to almost 9,000 Solar Home
Systems installed per month. The company has also introduced Improved Cooking Stoves and Bio-gas to
rural households, identifying a need for a fuel efficient and cost effective source of energy for simple
purposes such as home cooking. Waste from the Bio-gas process can also be used as fertilizer to assist
indirectly in food security. The company attributes its success to its unique approach which blends
market and social forces together in order to ring the world’s most u -to-date technology to the
impoverished rural people of Bangladesh.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 83
Servicing the BOP: Grameen Shakti aims to bring green energy, improved health, income and green jobs
to the rural BOP population of Bangladesh [Please explain a little more about how the company is
ringing “im ro ed health, income and green jo s”]. Grameen Shakti works directly with the low
income segment as consumers of their renewable energy products. The company estimates that they
have accessed at least 1,000,000 families with their Solar Home System up to 2012. An integral part of
the company sales strategy to the BOP is to offer soft credit and step-by-step instalments of payment to
make their products more affordable to their customer base. Product pricing is extensively researched
in order to ensure the average family will have the capacity to make the instalment payments without
significantly impacting on their household budget. The technology offers villagers a permanent and
clean source of energy for their basic power requirements that is cost-effective.
Growth potential: Due to the high cost of research and development, Grameen Shakti initially had
conservative expectations for growth, selling only 228 Solar House Systems from 1996 to 1997. Since
then the volume of Solar House Systems installed has skyrocketed, taking the company three years to
reach four digit sales of their product, four years to reach five digit sales, and a subsequent four years to
reach six digit sales. By the end of 2012 the company had installed 1,000,000 Solar Home Systems. The
company has had similar success with its Bio-gas plants; installing only 30 units in 2005, the company
has since installed 24,206 Bio-gas units by 2012. The company is expecting similar growth with its
Improved Cooking Stoves. Whilst there is considerable demand for all three of Grameen Shakti’s
renewable energy products, the company has expressed that it is experiencing supply chain
management setbacks. The company also identified insufficient skilled manpower as an obstacle to
serving the level of demand [Is this insufficient staff to install the products? Please can you check? I
found the English a little confusing to understand]. Access to finance is also seen as an obstacle to
growth due to the inhibitive high interest rates offered by commercial banks.
Financial needs: Whilst Grameen Shakti claims to be financially self-sufficient, they would be open to
taking US$ 612,670 for use in training field workers and labourers. The company would expect flexible
financing arrangements with a low or zero interest rate for a period of five years.
Case study 5: JITA Bangladesh
Background: JITA Bangladesh is a joint venture Social Business between CARE International and Danone
Communities dedicated to empowering women through an extensive network of enterprises, creating
employment opportunities and improving access to market. Established in December 2011, JITA is
considered to be a leading example in Bangladesh of an NGO project (the CARE Rural Sales Program)
that has successfully transformed into an independent Social Business. The Rural Sales Program model
involves using local rural women as door-to-door sellers who buy different company products from JITA-
a ointed local entre reneurs (‘hu managers’). The system is ased on commissions for different
participants from private companies. Major multinational companies like Unilever, Bata, and BiC as well
as local companies like Square and Lalteer Seeds are current partners in the rural sales activity. JITA is
also increasingly focusing on developing consumer knowledge, education and awareness in areas such
as nutrition, hygiene, and high yield vegetable seeds by partnering with related companies in order to
enable companies to deliver product-related information and knowledge to consumers. Recently JITA
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 84
has opened a new business arm devoted to gaining market insights, understanding consumer demand,
geographical market mixes, and socio-economic patterns and changes over time with the purpose of
supporting companies with new ideas, to identify product development opportunities, launch new
products, test markets and develop Inclusive Businesses.
Serving the BOP: The JITA door-to-door distribution network is generating a sustainable source of
income for poor marginalized women who take and directly sell products to other members of the BOP
located in Bangladesh’s rural areas. Starting with just 26 sales women in 2005, the number of Aparajitas
has since reached 2,600 by the end of 2011. The sales women typically earn an income between US$ 12
to US$ 38 [is this daily, monthly? Unconverted value provided was BDT 1000-3000] which provides the
economic means to enjoy a higher standard of living for themselves and their families. JITA distributed
products now reaches more than 10 million consumers across Bangladesh, most of whom are from the
BOP. JITA has also established more than 100 local entrepreneur / hub managers in scarce local job
markets, and created employment opportunities for a further 200 appointed product delivery men (JITA
Ser ice Persons). JITA’s ‘Health / Hygiene & Nutrition’ campaigns create rural awareness regarding to
different aspects of rural life.
Growth potential: JITA reports that the expansion of the Rural Sales Programme operation with
different private partner companies was swift and required only a single initial investment from Danone
Communities in order to become the first social enter rise in CARE’s history. The strength of its growth
has lead the organisation to believe that it has tapped into a massive market with a bright, prosperous
future. Today, JITA aims to empower some 12,000 women as door-to-door sales women and become a
create a far more sustainable and successful position in the Social Business arena, which would never
have been possible if it had remained as an NGO project. The business also has expectations of being
able to create 450 successful local entrepreneurs by covering 450 Bangladeshi Sub-Districts.
Financial requirements: JITA is seeking to outsource an equity fund of approximately US$ 550,000 for
the year of 2013 with minor shareholding facilities and a profit share of 33 percent for Danone and 67%
by CARE Bangladesh [does this actually add up? Please double check figures. I cannot find this
information in the survey spread sheet].
Case study 6: Viyellatex Group
Background: The business model of Viyellatex Group, a renowned Bangladeshi textile and apparel
manufacturing group established in 1996, is comprised of design and product development, sample,
knitting, dyeing, washing, cutting, sewing and finishing sections. The Vieyellatex Client list includes
prominent brands such as Puma, Marks & Spencer, Esprit, S.Oliver, Hugo Boss, Philip Van Heusen and
Decathlon amongst others. A 100 percent export-oriented organization, the Group has successfully
etched its brand name worldwide as a reliable manufacturer of textile products. The Viyellatex Group
has recently diversified its businesses into tea plantations, logistical management and services, and
power generation.
Serving the BOP: Viyellatex’s strategy to engage the low income segment is rimarily through the
creation of new jobs. With an increase in export volumes the company requires an expanded labor
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 85
force that will focus on hiring from the BOP segment of the Bangladeshi population. Currently
a roximately 90 ercent of Viyellatex’s total la or force of 1,188 em loyees is directly linked with the
BOP. A signatory of the UN Global Compact since 2009, the company places CSR as a central edifice of
its ethics. Key focus areas of the company have been in health and education. Social development
activities undertaken by Viyellatex Group include employing some 60 physically challenged people into
its mainstream workforce, establishing seven pre-primary schools for underprivileged children in
association with Save The Children (USAID), organizing annual Eye Camps for the local community
(benefiting some 5,000 atients to date), and organi ing quarterly clinics for workers’ children,
benefiting over 350 children since 2009.
Growth potential: Beginning with just six lines in 1996, Viyellatex Group now has grown to more than
135 lines with a current average production capacity of 2.5 million per month and an approximate 2.2
percent to 2.5 percent market share in national exports (worth some US$ 13 billion) during the fiscal
year 2010 to 2011. The company estimates its average annual growth rate to date as about 8 percent
[please check this figure – I am not sure I have put it within the correct context]. The company has
positive expectations for further growth and expansion and intends to not only employ more members
of the BOP as employees, but also integrate the BOP into their business model within the textile sector
as suppliers in backward and forward linkages [not sure how the forward linkages work for suppliers –
can you please provide a small explanation of a few words?].
Financial requirements: In the future Viyellatex Group would potentially be interested in receiving
funding of US$ 10 million in the form of debt to enable business expansion. [Please provide further
information on financing terms and conditions if available].
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 86
Appendix 5: Current engagement with the BOP
Whilst all four modes of engaging the BOP – as consumers, distributors, suppliers, or employees are
evident across multiple sectors, the employee and consumer models are most strongly represented.
Figure 45. BOP models according to sector
Source: SNV & BetterStories Private Sector Interviews 2012
The type and range of BOP engagement models vary considerably from sector to sector. In banking and
finance for example, the BOP is primarily engaged in just two ways; as consumers of the financial
services, or within micro-finance organisations, also as employees. Such microfinance companies are
spread throughout the country and may typically employ between 5 to 100 staff often directly from the
BOP in district offices, although the salary level of such micro-finance employees may be a matter of
contention in consideration of Inclusive Business principles of engagement with BOP employees.
Beyond micro-finance, which isn't strictly IB, financial institutions are also expanding their mobile
networks, which potentially bring more useful payment solutions and other banking solutions to the
rural communities.
In comparison to the more limited BOP engagement models seen in banking and finance, within the
consumer products and retail sector the full range of BOP models are engaged – as suppliers of goods,
deliverers of goods, employees, and as product consumers.
An analysis of each of the four observed modes of engaging the BOP – as consumers, distributors,
suppliers, or employees is provided below.
0% 20% 40% 60% 80% 100%
Agriculture/Agribusiness
Banking & Finance
Consumer products/retail
Energy
Pharma/Biotech
Other
Manufacturing
Employee Supplier Distributor Consumer
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 87
Consumer model
For Inclusive Businesses, adopting a consumer BOP model involves providing basic goods or services that
are specifically developed to serve the needs of the BOP population, with affordability being the most
common key feature.
IB organisations that are strongly focused on serving the BOP will often undertake market research to
understand the needs of the BOP market as well as their specific limitations in being able to access
particular products or services. The International Network of Alternative Financial Institutions (INAFI)
provides micro-insurance and remittance services to some 115,000 members of the BOP. Through a
demand and affordability survey of some 3,000 respondents, INAFI identified that rural poor are
vulnerable and prone to a different set of risks compared to other segments of the population. They
also found that the low-income group needed social protection including outpatient, inpatient and
compensation at an affordable rate and with a streamlined service that could enable claims to be settled
quickly. However, start-up and operational costs to service the geographically spread BOP population
was estimated to be prohibitively high. One way INAFI overcame this was to partner with 14 NGOs
which enabled them to operate their micro-insurance scheme through the NG ’s 140 ranches across
Bangladesh.
For renewable energy Inclusive Businesses engaging the BOP as consumers of their products is about
providing energy to those off the grid or by providing cheaper, less polluting energy. For those who are
off the grid (and unlikely to be connected for some time to come), renewable energy offers a life
changing experience that poses little to no negative effects on health, unlike firewood for example, that
can cause a range of health impacts.
Panna Group for example, is a manufacturer of various types of batteries (e,g, pasengaka, IPS, Solar and
PBC) that almost exclusively serves the domestic market. With a focus on the BOP as the consumers of
its products, Panna Group set up the Panna Rural Development Foundation (PRDF), a social enterprise
to provide sustainable energy solutions and services to the rural households and businesses of
Bangladesh. In order to ena le the B P to take u PRD ’s renewa le energy roducts, customers are
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 88
provided with a complete package of product, service and consumer financing through a micro-credit
and cash purchase system. The micro-credit facility operates from PRDFs own invested money.
Another strategy to engage the BOP as consumers is to run awareness raising, capacity building and
training programmes for target communities of Inclusive Business products or services. GETCO Agro
Vision produces high quality F1 Hybrid, OP and organic vegetable seeds primarily for domestic
consumption. GETCO sells its agro-products to BOP farmers by providing minimal prices and developing
roducts that fill an identified need, such as the farmer’s need to e a le to increase the roduction of
otatoes in order to fill the country’s shortfall of su ly. In order to introduce new hy rid arieties of
different types of vegetables farmers are educated in routine training sessions in the field.
Case study: bKash Limited
Background: bKash Ltd, a subsidiary of BRAC Bank, is a joint venture between BRAC Bank Ltd (Bangladesh), and Money in Motion LLC (USA). With a vision of ensuring the people of Bangladesh have access to a broad range of financial ser ices, Kash’s focus is on hel ing the low income masses of Bangladesh to achie e roader financial inclusion through the provision of services that are convenient, affordable and reliable.
Serving the BOP: According to bKash, approximately 70 percent of people in Bangladesh live in rural areas however only about 15 percent have access to formal financial services. These people need to either receive money from relatives or family members from distant locations to whom they depend, or to access finances in order to purchase essential consumer products and services. Identifying a real consumer need and potentially huge market segment, bKash works in collaboration with telecom networks to provide a secure, fast and affordable money transfer and mobile banking services to the lesser-served remote population of Bangladesh.
Growth potential: Formed in 2011, bKash operates its mobile banking system through 3,600 distribution networks serving a customer base of some 70,000 registered users. With almost 95 million mobile phones in the country, the company sees potential for considerable further growth particularly due to a favourable regulatory framework and Bangladesh’s continued inadequate anking infrastructure that restricts a large segment of the population from accessing financial services. Currently, only around 10% of the population have bank accounts, and most don't have access to physical bank branches. The company acknowledges however, that illiteracy poses the biggest barrier to its growth due to it being linked to limitations in the uptake of new technology.
Financial needs: The company has shown interest to receive a fund of US$ 5 to US$ 10 million preferably in equity
however debt would also be considered providing there are SMART terms and conditions, and a viable goal. In the
past equity Investment was their main source of funding (49 percent).
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 89
Distributor model
Distributor BOP models used by Inclusive Businesses do not feature strongly in any one sector but
instead are commonplace across a range of sectors, most notably within the consumer products and
retail sector, manufacturing, and agriculture / agribusiness.
The use of door-to-door sales is a common distribution method employed by Inclusive Businesses as it
allows the BOP to become involved without the need of additional resources. Grameen Danone Foods
engages some 600 people from the low-income group as distributors of its dairy food products and has
found that local distributers are also more trusted by the local community.
Similarly, footwear manufacturer, Bata Shoe Company (Bangladesh) Ltd, uses the BOP as a part of its
distri ution strategy. In Bangladesh’s many isolated laces, working through the connections of the
JITA / CARE joint venture social business (see Case Study following), rural women are engaged to sell
Bata shoes door-to-door as a part of a Rural Sales Programme. This not only creates a source of income
for the women but also increases their entrepreneurial skills and is a source of empowerment. Due to
the success of the programme Bata is considering to make the programme a part of its core distribution
model and help it meet its Corporate Social Responsibility requirements.
Some Inclusive Businesses on the other hand, implement capacity building of distributors to increase
efficiency and sales. GETCO Agrio Technologies Ltd manufactures high quality and high yielding seeds
that are priced to be accessible to BOP farmer producers. The seeds are distributed through a highly
developed network of distributors and retailers who are provided with training and technical advice
which not only helps to improve efficiencies for the company but ultimately also increases sales.
Instead of using a distributorship, Lal Teer from the Multimode Group, an agri-business research and
development organisation, introduced a retail marketing model that involves reaching grassroots level
farmers through the deployment of mobile seed vendors in villages. To promote new varieties of seeds
or other agricultural products Field Days are run and farmer information booths operated in village
haats (a local weekly bazaar).
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 90
Case study: JITA Bangladesh
Background: JITA Bangladesh is a joint venture Social Business between CARE International and Danone Communities dedicated to empowering women through an extensive network of enterprises, creating employment opportunities and improving access to market. Established in December 2011, JITA is considered to be a leading example in Bangladesh of an NGO project (the CARE Rural Sales Program) that has successfully transformed into an independent Social Business. The Rural Sales Program model involves using local rural women as door-to-door sellers who buy different company products from JITA-a ointed local entre reneurs (‘hu managers’). The system is ased on commissions for different artici ants from ri ate com anies. Major multinational companies like Unilever, Bata, and BiC as well as local companies like Square and Lalteer Seeds are current partners in the rural sales activity. JITA is also increasingly focusing on developing consumer knowledge, education and awareness in areas such as nutrition, hygiene, and high yield vegetable seeds by partnering with related companies in order to enable companies to deliver product-related information and knowledge to consumers. Recently JITA has opened a new business arm devoted to gaining market insights, understanding consumer demand, geographical market mixes, and socio-economic patterns and changes over time with the purpose of supporting companies with new ideas, to identify product development opportunities, launch new products, test markets and develop Inclusive Businesses.
Serving the BOP: The JITA door-to-door distribution network is generating a sustainable source of income for poor marginali ed women who take and directly sell roducts to other mem ers of the B P located in Bangladesh’s rural areas. Starting with just 26 sales women in 2005, the number of Aparajitas has since reached 2,600 by the end of 2011. The sales women typically earn a monthly income of between US$ 12 to US$ 38 which provides the economic means to enjoy a higher standard of living for themselves and their families. JITA distributed products now reaches more than 10 million consumers across Bangladesh, most of whom are from the BOP. JITA has also established more than 100 local entrepreneur / hub managers in scarce local job markets, and created employment opportunities for a further 200 appointed product deli ery men (JITA Ser ice Persons). JITA’s ‘Health / Hygiene & Nutrition’ cam aigns create rural awareness regarding to different as ects of rural life.
Growth potential: JITA reports that the expansion of the Rural Sales Programme operation with different private partner companies was swift and required only a single initial investment from Danone Communities in order to ecome the first social enter rise in CARE’s history. The strength of its growth has lead the organisation to elie e that it has tapped into a massive market with a bright, prosperous future. Today, JITA aims to empower some 12,000 women as door-to-door sales women and become a create a far more sustainable and successful position in the Social Business arena, which would never have been possible if it had remained as an NGO project. The business also has expectations of being able to create 450 successful local entrepreneurs by covering 450 Bangladeshi Sub-Districts.
Financial requirements: JITA is seeking US$ 550,000 to then provide loans to its network or entrepreneurs.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 91
Supplier model
Those in the retail sector most heavily engage the BOP as suppliers of key inputs, with agriculture and
manufacturing also a natural fit.
Rahim Afrooz Su erstores, one of Bangladesh’s largest chain of retail stores, engages the low income
group primarily as suppliers of fresh agricultural-based products. After a recent merger with another
leading superstore in the country, PQS, Rahim Afooz Superstores has enhanced its previously low
margins by overcoming an identified supply chain setback, whilst at the same time expanded its number
of retail chain outlets. To achieve this the company undertook a joint initiative with a business
innovation facility that assisted it to build the capacity of small and medium fresh produce suppliers
through the provision of technical assistance, know-how, and vocational training, thereby developing a
range of robust supply chains. This has benefited the company by better ensuring stability in the supply
of critical inputs and ultimately increased sales. Moreover, with the BOP engaged not only as suppliers
but also as customers, Rahim Afrooz Superstores can better ensure that the products it sells are
compatible with customer needs.
Whilst Pran Foods, another retailer, engages some 30,000 people as employees (of which 18,000 are
from the BOP), an even more impressive 70,000 people from the BOP are associated with the company
as farmers. One of the key Pran Foods supplier model engagement strategies was to introduce mango
plants to new parts of Bangladesh that previously had not grown the fruit. People were encouraged to
get involved in mango production through the provision of free mango plants and the incentive of a buy-
back guarantee. With the suppliers not having to worry about marketing and the non-binding promise:
“if you roduce it, we will uy it”, mango roduction has astly increased.
This move from traditional subsistence crops such as rice to cash crops enables the poor to put money in
their pockets as well as food on the table -- a first step up in the rise out of poverty.
Case study: Lal Teer (Multimode Group)
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 92
Background: Identifying a gap in the market, in 1995 Multimode and Simon Groot of the Netherlands set up Lal Teer to develop and sell customized hybrid seeds to local farmers. Despite economic and technological constraints, extensive research and collaboration with local communities from 64 districts has turned the venture into the largest biotechnology and seed production company in Bangladesh. Key products developed by Lal Teer include the development of seeds resistant or tolerant to pests and diseases and adverse climatic conditions, as well as higher yielding livestock in the production of milk and meat. The company estimates that over 35 percent of Multimode’s re enue is now deri ed from this sector.
Serving the BOP: The end benefit of the Lal Teer products to the BOP includes greater food security and increased income through higher-yielding and more resilient crops and livestock, and improved health resulting from the increased nutritional value provided in its products and by- roducts. Lal Teer’s roducts, ricing and distri ution strategies, and its management provisions are specifically designed to access and benefit the BOP segment of the population. The company considers its agricultural business as entirely geared towards the BOP, primarily as consumers (75 percent BOP), and then as suppliers (50 percent BOP), employees (50 percent BOP), and distributors (45 percent BOP). The company estimates that it directly employs approximately 500 people from the low-income segment, and over 250,000 people indirectly from the low-income segment. Lal Teer has hired and trained between 10,000 to 12,000 farmers in how to improve production. These farmers also have the option to sell surplus seeds obtained from crops grown back to Lal Teer; this way, the BOP comprises the consumer base, as well as the supplier and distribution chains. The company is highly engaged in CSR activities (from education and training through to fair employment and working conditions and environmental sustainability).
Growth potential: Lal Teer has ositi e growth ex ectations o er the next twenty years. The com any’s rand of around 50 hybrid vegetable, jute, and cereal seeds, are currently marketed to rural farmers through approximately 5,000 stores and mobile vendors, with the company estimating it has approximately 80 percent of the market share, and 100 percent of the export market share to countries in the region plus a handful of European countries. n account of Lal Teer’s quality seeds, the com any ex ects further growth. With the highest ercentage of the Bangladeshi population involved in agriculture and also predominantly representing the BOP group, the company considers its farmer consumer base of its vegetable and cereal seeds as the largest emerging consumer market in Bangladesh. Lal Teer is also the only brand that exports hybrid vegetable and cereal seeds from Bangladesh, giving it 100 percent market share of the export hybrid seed market. The company is confident it now has the potential to significantly cut into the Chinese hybrid seed market.
Financial needs: Lal Teer (Multimode Group) is interested in further investment in the BOP to increase company growth and profitability as well as gain a first-mover advantage in the market segment. In particular, Multimode is interested in setting up an investment fund to finance research and development (especially in livestock), grants, or long-term equity-based financing. Financial assistance is also needed to build additional infrastructure including the purchase of land, office buildings, labs, and cow sheds. The company requires approximately US$ 3 million for seed projects, expansion and working capital, and a further US$ 10 million for livestock development. The company prefers soft long-term financing in the form of equity and debt at an IRR of about 20 percent over 10 years.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 93
Employee model
Employing people from the BOP is the most common model of engagement, with more than one third
of all the Inclusive Businesses surveyed identifying this as one of their key BOP engagement strategies.
or exam le, AAR NG, Bangladesh’s largest retail outlet for fashion and lifestyle products, provides
direct employment to 1,500 low-income earners as staff, of which 1,100 become retail associates.
Textiles manufacturer, Viyellatex Limited, estimates that approximately 90 percent of its labour force
are from the BOP. A signatory to the United Nations Global Compact, Viyellatex takes great pride in
paying its workers more than what is required by the Bangladeshi government. There are a broad range
of other benefits to staff including health care, meals and training that goes beyond the immediate
needs of the company. The continued employment of the BOP is a key strategy for the company to
reach its export volume targets over the next 5 years.
However, with the Bangladeshi BOP incorporating a sizable segment of the total population for a
company to truly demonstrate Inclusive Business, it must include BOP engagement as a core business
strategy and undertake specific activities that help lift the BOP out of impoverishment.
In order to help retain BOP employees and ensure productivity, many Inclusive Businesses will also
provide additional services that specifically fulfill the needs of the BOP such as free healthcare and
daycare facilities for parents. Well Group (Sanji Textile), an industrial sewing thread business that grew
from a family business into one of the largest sewing companies in the country within three decades,
directly employs some 1,800 people from the low-income group, and expects to employ many more as
it continues to grow. For the BOP, in addition to gaining employment and income, free education,
training and health services are also received. Providing such additional services not only keeps staff
healthy, but helps to secure productivity.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 94
Case study: Aarong
Background: Aarong is Bangladesh’s largest retail chain of fashion and lifestyle products such as clothing, household items and jewellery. Originally a project of the Ayesha Abed Foundation (established 1978), Aarong is the result of the oundation’s efforts to ro ide a enues for em loyment and income generation for underprivileged rural women. Today, Aarong has a reputation for selling good quality products to both local Bangladeshis as well as non-residents, a result of comprehensive quality assurance measures. Approximately 70 percent of Aarong-retailed products are apparels, and 30 percent are home accessories.
Serving the BOP: Aarong has also institutionalized large-scale female participation in its supplier-base as producers of indigenous handicraft goods in Bangladesh. Initially established to create job opportunities for rural women in just one rural community, today the company estimates that it provides direct employment to some 1,500 low-income earners as staff – of which more than 1,000 are retail associates – in their 11 stores located across the country. It is estimated that a BOP population of some 35,000 mostly women artisans are directly engaged by the company (and a further 30,000 indirectly) through its 13 production centres specifically located in urban and rural areas accessible to the BOP. When multiplier effects are considered, the company estimates that it benefits some 320,000 people across the country, of which the majority fall into the low-income segment of the population. The company also provides a range of additional services for employees and suppliers including vocational training, the supply of raw materials for producers, credit facilities, day care services, free medical check-ups, and financial assistance for the treatment of illnesses.
Growth potential: Aarong has significant grounds to grow eyond its existing 11 stores. With Bangladesh’s 150 million people shifting towards working age there is significant and realistic expectations for growth resulting from an bourgeoning middle-class and increases in discretionary spending on consumer products. With the development of a strong extension plan the company believes it would be able to engage many more women as artisan suppliers in other parts of the country. Moreover, the company has yet to tap into additional sales opportunities afforded by global boom in internet shopping and e-commerce which may open up new domestic and export markets.
Financial needs: The company has shown interest to receive a fund of US$ 10 to US$ 12 million at an interest rate of between 8 percent and 10 percent for working capital. In the past equity Investment was their main source of funding (49 percent). The company has been borrowing from BRAC at a 12 percent interest rate.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 95
Appendix 6: Fund managers
Brummer & Partners
This globally-oriented Scandinavian hedge fund manager with total assets under management of US$ 15
billion globally, was the first firm to start a private equity business in Bangladesh in 2008. Target asset
classes include hedge funds, private equity and listed equities. In Bangladesh, Brummer & Partners is
operating the Frontier Fund (Bermuda) Limited, a fund focused on the privately-held companies of
Bangladesh with assets under management of the fund worth US$ 100 million (invested by
organisations such as the International Finance Corporation, CDC, and FMO). The Frontier Fund has
already made investments in Rahim Afrooz Superstores Limited, the first retail chain in Bangladesh, and
RahimAfroozGlobatt Limited, which produces low maintenance batteries. Both these companies have
significant engagements with the BOP through Inclusive Business oriented strategies. For Brummer &
Partners a typical deal size is about US$ 5 million to US$ 20 million, with a target return of about 18 to
25 percent with no specific sector focus.
Small Enterprise Assistance Fund
The second Private equity fund manager to start business in Bangladesh, the Small Enterprise Assistance
Fund (SEAF) provides growth capital and business assistance to small and medium enterprises (SMEs) in
emerging and transition markets underserved by traditional sources of capital. SEAF has a presence in
22 countries across Asia, Europe and Latin America where 338 investments have already been made. In
Bangladesh, SEAF operates through its finance company SEAF Bangladesh Ventures (SEAF BV) which
focuses on key growth sectors that lack access to traditional sources of finance. Thus far, SEAF has
made two investments in Solaric, a renewable energy technology company, and SSD TECH, an
information technology company. A more in-depth profile of SEAF BV can be found in the following
section.
BD Venture Limited
Bangladesh’s first enture ca ital com any was launched with a mandate to in est in and incu ate new
and existing business ideas in emerging and high-growth sectors to assist in the development of the
country. A art from financial returns, BD Venture’s mission is to encourage inno ation and ins ire the
entrepreneurial spirit in the country. Besides financing, BD Venture helps manage investee companies
by shaping their business strategy, as well as providing assistance to companies to create new product
categories. Some of the leading banks, non-bank financial institutions, insurance companies and
renowned business leaders of Bangladesh are involved in BD Venture.
Whilst BD Venture is yet to make any investments it feels that equity, an equity-debt blend, and debt
are the financial instruments preferred by investees. The company sees Education, Hospitality & Leisure
/ Tourism, Food & Beverage Products, Manufacturing, Agriculture, Information Technology, and Energy
as the most attractive sectors within which to invest. The most viable sectors for including low income
groups are considered to be Education, Hospitality & Leisure / Tourism, Food & Beverage Products,
Manufacturing, Agriculture, Information Technology, Energy, Water & Sanitation.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 96
Figure 46. Estimated deal sizes according to the different types of financial institutions in Bangladesh
Type Examples Estimated starting deal size
Private equity / Venture capital SEAF, Brummer & Partners, BD Venture US$ 50,000+
SME banking BRAC Bank, Eastern Bank Limited, Prime Bank US$ 1,000+
Non-private equity Grameen Fund, VIPB, Midas Financing, IDCOL US$ 650+
Micro-financiers ASA, BRAC, Grameen Bank US$ 125+
Source: Estimation of Authors
The Government of Bangladesh
The Go ernment of Bangladesh’s (GoB) Equity and Entre reneurshi und (EE ) was esta lished in the
fiscal year 2000-2001 with a fund size of BDT 1 billion (USD12.8 million) and later increased. The
objective of the EEF is to increase investments in the software industry and food processing and agro-
based industries, and to encourage entrepreneurs to launch projects within these sectors to create
employment opportunities for the young educated and skilled people of the country. Though
Bangladesh Bank managed this fund since inception, the Investment Corporation of Bangladesh has
been authorized to run the fund from 2009. The fund mostly focuses on agro-based industries and the
IT sector, with typical deal sizes of less than US$ 1 million.
SEAF Bangladesh Ventures
SEAF BV provides long-term growth capital and the necessary support to medium-sized businesses in
Bangladesh that are underserved by traditional sources of finance. Currently, half of the portfolio of this
private equity fund manager is invested in the Information Technology sector with the rest going into
the Energy sector. SEAF BV has invested in companies that serve the low income segment. SEAF BV
believes that targeting businesses with low-income segment employees can generate the best mix of
social and financial return (creating employment and leveraging low labour cost). Sectors such as
Education and Energy where the low income segments are consumers are also considered of interest as
they can generate high social and financial returns. SEAF BV believes investee companies mostly like
blended financing of both equity and debt. For Bangladesh, an average deal size per investment of US$
500,000 could expect to generate an average return in the range of between 18 to 24 percent. Since its
inception SEAF BV has invested US$ 1 million out of its US$ 40 million committed capital. As the fund is
new, many more investments are planned in the coming years.
Profile of SEAF BV investee preferences:
Finance instrument Ranking Average deal size IRR
Equity-debt mix 1 US$ 500,000 18-24 percent
Credit guarantee 2 US$ 500,000 18 percent
SEAF BV sees Oil, Gas and Natural Resources, Information Technology, Energy, Water & Sanitation, and
Life Insurance as the most attractive sectors for investment. Education, Food and Beverage Products,
Manufacturing, Agriculture, Energy, Textiles & Garments, and Water & Sanitation are considered the
most viable for including low income groups.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 97
ASA
The Inclusive Business finance model of ASA, one of the most reputed micro-finance institutions of
Bangladesh, is involved in establishing and investing in high-performing micro-finance institutions
throughout Asia and Africa. With this aim, ASA has created the CMI fund, a private equity fund of US$
125 million. Investors of the CMI fund include the Dutch pension fund, ABP, the US Investor Financial
Services Organization, TIAA-CREF, the Bangladesh GoF, and CDC Group. The company has also
established micro-finance funds including Gray Ghost Microfinance. The CMI fund has invested in
micro-finance institutions in Pakistan, the Philippines, Nigeria, Ghana and Cambodia. Through the
provision of small loans, the low income people can then get involved in a range of small businesses and
agricultural activities (amongst others). Whilst micro-finance is not necessarily by nature an Inclusive
Business, ASA’s acti ities are strongly connected to the etterment of the low income eo le of the Asia
and Africa region, whilst at the same time meeting its business objectives.
Whilst ASA was not able to disclose the specific nature of its investments, an equity-debt blend and
credit-guarantee are identified as the most attractive financial instruments used by its investees. The
company believes an IRR of between 8-10 percent can be expected with a investment fund for the low
income segment. ASA sees Banking & Financial Services, Pharmaceuticals & Biotechnology, Retail, and
Transportation & Logistics as the most attractive sectors within which to invest. The most viable sectors
for including low income groups are considered to be Banking & Financial Services, Pharmaceuticals &
Biotechnology, and Life Insurance.
Ventures Investment Partners Bangladesh Limited
The target group of VIPB is SMEs who lack sufficient collateral to get conventional financing from banks
and leasing companies. Whilst VIPB acknowledges the inherent level of risk in financing these types of
companies, unique advantages are seen to make it more worthwhile such as high growth potential (due
to their size), and the expertise and self-in ol ement of the entre reneur in the com any’s growth.
VIPB expects these factors to generate meaningful return to both investors and entrepreneurs --
typically a risk-weighted return of 15-25%. For investing in these ventures, VIPB uses two investment
instruments – equity and quasi-equity (a mixture between debt and equity). VIPB financing starts from
as low as US$ 3,750 to various SME ventures throughout the country. Apart from financing, VIPB also
has an advisory wing that offers technical and business assistance to help the companies they have
invested in. Currently VIPB invests in Manufacturing, Agriculture, Information Technology and Textiles &
Garments.
Profile of VIPB investee preferences:
Finance instrument Ranking Average deal size IRR
Equity-debt mix 1 US$ 10,000 20 percent
Debt 3 US$ 8,000 20 percent
Equity 2 US$ 20,000 10 percent
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 98
VIPB sees Education, Pharmaceuticals & Biotechnology, Retail, Food & Beverage Products, Agriculture,
and Energy as the most attractive sectors within which to invest. The most viable sectors for including
low income groups are considered to be Pharmaceuticals & Biotechnology, Retail, Food & Beverage
Products, Transportation & Logistics, Manufacturing, Agriculture, Forestry & Forest Products, Textiles &
Garments, and Water & Sanitation.
Midas Financing Limited
Specifically focused in the Micro and SME sector, Midas Financing Limited invests its funds into the
economy’s roductive sectors that are directly engaged in employment creation including Agro-based
sectors and Renewable Energy, as their backward and forward linkages are considered to have the most
promise for changing the life of low income people. In addition they have financed some NGOs who are
engaged in development work at the grass-roots level including the landless, poor people of the villages,
in semi-urban and urban slums.
Whilst Midas was not able to disclose the specific nature of its investments, debt and credit-guarantee
are identified as the most attractive financial instruments used by its investees. Midas sees Banking &
Financial Services, Retail, Hospitality & Leisure/Tourism, Manufacturing, Agriculture, Information
Technology, and Energy as the most attractive sectors within which to invest. The most viable sectors
for including low income groups are considered to be Food & Beverage Products, Manufacturing,
Agriculture, Energy, and Textiles and Garments.
Infrastructure Development Company Limited (IDCOL)
IDCOL is funds private sector infrastructure and power. Projects in rural areas have a direct or indirect
positive impact on the BOP. The primary objective of IDCOL is to promote significant participation of the
private sector in investment and operation, ownership and maintenance of new infrastructure facilities.
IDCOL has access to resources provided by the World Bank, Asian Development Bank, GIZ, Kfw, Islami
Development Bank and the GOB to place in projects across a range of infrastructure sectors and has
been mandated to provide long-term senior and subordinated debt financing to viable infrastructure
projects in the private sector for power generation, gas and gas related infrastructure, toll roads and
bridges, water supply, urban environmental services, ports, telecommunications, renewable energy and
other similar projects for the development of infrastructure of the country. IDCOL also channels grants
and provides soft loans for the development of rural infrastructure, i.e. renewable energy.
At the end of 2012, IDCOL had a total of 18.18 billion taka (USD 233 million) extended in loans and
purchased bonds, an increase of 49% over the previous year.
IDCOL currently invests in Energy and Information Technology amongst some other lesser sectors.
IDCOL sees the Energy sector as a standout for both its general investment attractiveness as well as its
viability for including low income groups.
Other companies
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 99
Non-private equity fund managers include Grameen Fund, Venture Investment Partners Bangladesh
Limited (VIPB), Midas Financing Limited, and Infrastructure Development Company Limited (IDCOL).
These companies invest from their own funds or from borrowed funds. Well-known BRAC Enterprises
not only invests in ventures but also manages them, whilst ASA, one of the largest NGOs in the country
and manager of the Catalyst Microfinance Investors (CMI) fund, only invests in NGOs.
Banking institutions
Recently banks are heavily investing in the agro-based and SME sector due to incentives given by the
Bank of Bangladesh. Banks will typically provide debt financing and sometimes seed money for an
infrastructure mutual fund. BRAC Bank Limited, the country’s largest SME financier, has hel ed to
create many jobs. Prime Bank Limited and National Bank Limited on the other hand, focus on
infrastructure mutual funds.
Appendix 7: Co-investors
Industrial and Infrastructure Development Finance Company Limited – The Industrial and
Infrastructure Development Finance Company (IIDFC) Limited is a development finance
institution sponsored by ten commercial banks, three insurance companies and the Investment
Corporation of Bangladesh. This non-bank financial institution offers various types of financial
services including term financing, lease financing, syndicated financing, SME financing, and
acquisition of public sector enterprises amongst others. The company has also started capital
market services through its two subsidiary companies – IIDFC Securities Limited, a stock broking
company, and IIDFC Capital Limited, a full-fledged merchant bank.
Though IIDFC is interested to invest in this fund, they are now facing a severe liquidity crisis with
the com any’s in estment in its two su sidiaries, IID C Securities Limited and IID C Ca ital
Limited. Their investment of BDT 2 billion (USD25.6 million) is not providing any return to the
parent though IIDFC has to expend interest expense to the depositors. For this reason, IIDFC is
not in a position to invest in equity although they may consider investing in this fund if the
situation changes for the better.
Investment of IIDFC in this fund may be in the range of US$5 to 6 million. For providing this
fund, the investor would expect at least a 1 percent spread over their cost of funds. Although
IIDFC normally earns an interest spread of 3 to 3.5 percent in their loans, it would agree to less
due to their interest in making a social contribution. This would put their hurdle rate of return
at around 12-15%.
Though the fund manager may invest in any viable sector, IIDFC believe investment in the
Health Care and Education sectors are the best placed to create significant social returns to
society as a whole.
Prime Prudential Fund Limited – Prime Prudential Fund (PPF) is a public limited company whose
main objective is to manage funds of the company and its investors and provide other financial
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 100
services such as corporate advisory, merger & acquisition, equity investment, joint venture
sourcing and socio economic consultancy. Prime Finance & Investment Limited, one of the
country’s largest non-bank financial institutions, owns 40 percent of the shares in the company.
PPF is not interested in being a co-investor in the ADB fund at a 10-15 percent fund return. PPF
considers this to be too low -- they can earn that interest rate almost risk-free in a bank account.
If the fund can provide IRR of 30 percent (local currency), the company may consider investing
around US$3 million. Among the other terms, the company would require a 15 percent hurdle
rate and high water mark provision in the fund structure. Furthermore, PPF would expect ADB
to select a fund manager with adequate experience in managing private equity funds.
Whilst PPF is sector-agnostic, they would expect the fund to invest in companies which may be
brought to IPO within 3 to 5 years post-investment with the investment being floated in a bull
market – a challenge for early start-ups. While choosing companies, the company would like to
see the fund give importance to the integrity of the entrepreneur due to transparency and
corporate governance being a serious issue in Bangladesh. Prime Prudential would only be
interested in a full equity fund. Employment generation and goods and services creation for low
income segments are considered as social return objectives.
Caravel Management, LLC – Caravel Management, LLC, founded in 2004, is a New York-based
investment manager dedicated to investing in the beyond-BRICs Emerging and Frontier Markets.
Caravel Management seeks high returns through value investment around the world. They are
actively making investments in countries of Asia, Latin America and Africa.
Caravel Management, LLC is already operating its first hedge fund, Caravel Fund which is
providing 18 percent return on average since inception. Current assets under management of
this fund are US$ 200 million. This particular fund cannot invest directly in private equity,
However, Caravel Management is interested in Inclusive Business private equity funds and
would be interested in investing if they launch a second fund which allows investments in
private equity.
Though Caravel Management, LLC is interested in contributing to society, the company
considers that the target IRR of the investment should be at least 25 percent if it is a full equity
fund. Of all of the exit options, Caravel Management believes IPO would provide the best
financial return.
Professor Mahbub Ahmed – Prof. Mahbub Ahmed is a renowned academic, businessman and
social worker who currently teaches at the Department of Accounting, University of Dhaka.
Prof. Mahbub has business stakes in many financial institutions including banks and brokerage
houses, and has served for the last seven years as the Vice Chairman of Alhaj Abu JorGhifari
Donor Trust, a social welfare organization with an asset size of BDT 500 million (USD6.4 million).
Though Professor Mahbub does not currently have an interest in investing in this fund, he would
consider investing US$2-3 million in the future based upon a number of specific terms and
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 101
conditions, including social impact and the inclusion of religious students as beneficiaries of the
fund.
Whilst social return is a key criterion, an IRR of 15 to 20 percent would be required to meet
normal commercial expectations -- normal bank deposit rates in local currency. With regard to
measuring social return, Prof. Mahbub would like 10,000 low income people set as a target as
beneficiaries of the Investment in the Education and Agriculture sectors are considered the
most viable for this fund in order to create both financial and social returns. The low level of
education of Bangladeshi eo le and the ossi ility of a large num er of eo le’s engagement
in agriculture are reasons given for the sector selection. IPO is considered the most viable exit
option for a private equity investment.
Appendix 8: Overview of relevant donor partners
An overview of the current programmes and initiatives of donors including both bilateral aid agencies
and Development Finance Institutions that are relevant to the development of Inclusive Business in
Bangladesh follows. These donors may be involved in:
Funding activities – Such as grants, loans, and guarantees
Advice & brokerage – Providing guidance on Inclusive Business models, value chain
development, linking / networks
Implementation support – Leveraging local offices, skilled local staff, technical experts and
networks
Policy dialogue & development of business friendly environments – Help with advocacy to
develop or revise legislation to attract investment and support PSD and Inclusive Business)
Figure 47. Current activities of key bilateral aid agencies and DFIs in private sector development
Funding
Advice & brokerage
Implement-ation support
Policy dialogue, development of business friendly environments
Inclusive Business relevance
Grants, loans, guarantees Investment
Bilateral aid agencies
DANIDA Medium
DFID * High
EC Low
JICA Low
Netherlands Embassy % Medium
SIDA Medium
DFI funded investors Frontier PE Fund
1 High
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 102
ICD-IDB2 Q Medium
Katalyst3 B High
SEDF (IFC)4 Medium
World Bank5 Medium
Other providers of support for IB BGCCI Low
Solidaridad Low
1 CDC, IFC, FMO, Norfund; 2 51 IDB member countries & 5 public financial institutions; 3CIDA, Gov UK, Netherlands Embassy, GiZ, SDC; 4 IFC, DFID, NORAD; 5 IDA, DFID; *See SEDF; % See Frontier F; Q = Quasi; B = Broker
Bilateral aid agencies
As part of their Overseas Development Assistance (ODA) programs, a number of countries provide
funding and or support for Inclusive Business initiatives or run Inclusive Business related programmes
themselves.
DANIDA - The Business Partnerships Bangladesh programme supports sustainable development
and contributes to the economic and social development of Bangladesh by attracting Danish
technology and investment to the country's private sector. The programme establishes
profitable, long-term and mutually binding business-to-business co-operations between
Bangladeshi and Danish companies.
Department for Internal Development (DFID) - Four key programmes have relevance to the
potential ADB Inclusive Business Fund:
i) The Economic Empowerment of the Extreme Poor Programme aids the government of
Bangladesh to achieve Millennium Development Goal Target 1 and Target 2 on income,
poverty and hunger by improving the livelihoods of the extreme poor to scale, testing
innovative approaches to improve the livelihoods of the extreme poor, and through local
and national policy advocacy.
ii) The Urban Partnerships for Poverty Reduction Programme reduce urban poverty in
Bangladesh through empowering and supporting the urban poor to acquire the resources,
knowledge and skills they need to increase their income and assets.
iii) The Business Innovation Facility (BIF) helps the development and uptake of Inclusive
Business models by companies in developing countries by supporting companies that are
developing Inclusive Business projects (e.g. by brokering partnerships, signposting to other
sources of support, and / or sharing the cost of consultancy support). The BIF also provides
a gateway to the latest information, insights from peers, good practice, useful resources,
and lessons learnt about developing and implementing Inclusive Business.
iv) An Inclusive Business in Bangladesh Programme is currently in the feasibility design stage
that will scope, assess and design programming options for strengthening or facilitating the
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 103
establishment of Inclusive Business models that address the needs of the poor as
consumers, producers, suppliers and distributors in Bangladesh.
European Commission (EC) Delegation to Bangladesh – The EC’s SME Competitiveness Grant
Scheme reduces poverty in Bangladesh by supporting the development of SMEs in cluster and
value chain development projects that clearly seek the increase in SME competitiveness in
priority sectors, as well as skills development and capacity building of business intermediary
organizations.
JICA – The Private Sector Development Project empowers developing countries to build
industrial bases, advance industry, increase job opportunities and create a society that can reap
the rewards of economic de elo ment through their own efforts. JICA’s strategy for achie ing
this is by promoting trade and investment, SMEs, and local industry and economies.
The Netherlands Embassy – The Private Sector Development Programme works to improve the
enabling environment for doing business in Bangladesh to reduce poverty via sustainable and
pro-poor economic growth through enhancing its business enabling environment in areas such
as policy development. A second programme, Private Sector Investment (PSI), stimulates
financial growth, creates employment opportunities and generates income in developing
countries by providing Dutch companies with an opportunity to make an innovative investment
together with a Bangladeshi partner.
SIDA – The Innovations Against Poverty Programme supports sustainable business ventures to
impact on poverty reduction by providing a risk sharing mechanism for sustainable business
ventures.
Investors funded by Development Finance Institutions (FDI funded investors)
The following investors differ from commercial investors in that their funds come from bilateral and
multilateral agencies. Due to multi-lateral agencies often not permitted to invest directly in businesses
in host countries, equity investments are made through Development Finance Institutions (FDI) such as
the IFC, CDC (funded by DFID), FMO (funded by the Government of the Netherlands), and Norfund
(funded by NORAD). In most cases, these entities invest in private equity funds with a footprint in the
country in question (i.e. through a fund of funds approach). Others may also make equity investments
directly in businesses.
CDC, IFC, FMO, Norfund – Invests in the development of capital markets and institution
building, infrastructure, general manufacturing and services, and innovative projects in health
and education. Investment may be in listed securities as well as the securities of privately-held
companies in Bangladesh.
ICD-IDB – The Global Line of Finance Programme aims to provide lines of financing to qualified
local financial institutions to support SMEs in Bangladesh by extending lines of financing to
commercial banks and national DFI.
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 104
IFC, DFID, Norad – The South Asia Enterprise Development Facility assists sustained growth and
development of SMEs in order to reduce poverty in South Asia. Key strategies include the
provision of access to finance, increasing the competitiveness of SMEs in selected sectors by
addressing the overriding market failures within the value chain, and facilitating the easing of
constraints to business operation, formation and expansion.
SDC, CIDA, Gov UK, Netherlands Embassy7 – The Katalyst Programme (Phase 2) benefits the
poor as producers, entrepreneurs, employees or consumers through market development on an
economic sector-wide basis, targeting growth opportunities and removing constraints.
World Bank – The Private Sector Development Project8 aims to increase transformative
investments and enhance the business environment by supporting Economic Zones (Private
Sector Development), providing long-term finance (including housing and capital market), and
by strengthening the micro-finance sector.
Appendix 9. Private sector mapping survey
About the company
1. From the list below, please select the industry sector that best describes the core business of your company. Please also note the estimated % market share your company has within the industry sector selected.
Sector % Market Share
Education
Banking and Financial Services (including microfinance)
Real Estate/Property/Construction (including low cost housing)
Pharmaceuticals and Biotechnology
Retail
Hospitality and Leisure/Tourism
Food and Beverage Products
Transportation and Logistics
Oil, Gas and Natural Resources
Manufacturing
Agriculture
Forestry and Forest Products
Information Technology
7 Phase 1 was funded by DFID, SDC, SIDA and implemented by Swisscontact, GiZ (GTZ at the time) and the Ministry
of Commerce of Bangladesh 8 Funded by IDA and DFID
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 105
Energy (including renewables)
Textiles and Garments
Water and Sanitation
Health Insurance (including micro-insurance)
2. What is the legal status of your company? Select one of the two types in each pair below.
SOE Private Proprietorship Partnership Listed Company Unlisted Company
3. Please provide a brief overview of your main product/service lines and their relative contribution to your company´s annual turnover.
Product and/or Service Annual Sales % Contribution
1.
2.
3.
4.
5.
4a. Which of these products/services are the most profitable? Why?
4. Please provide a brief overview of the relative market share of each of these products/services vis-
à-vis your competitors nationally and where relevant internationally over the past 5 years.
Product and/or Service Domestic Market Share International Market Share
´07 ´08 ´09 ´10 ´11 ´07 ´08 ´09 ´10 ´11
1. % % % % % % % % % %
2. % % % % % % % % % %
3. % % % % % % % % % %
4. % % % % % % % % % %
5. % % % % % % % % % %
5. Please describe any significant changes in strategy, customer base, supplier base, distribution channels or other changes that contributed to the improvements in your market position (if any)
6. Please describe what percentage of your business is domestic and what percentage is for exports? How has that changed over the past 5 years? What has driven these changes?
7. Do you think your company´s prospects for growth are good? What new business opportunities do you see? What do you expect your rate of growth will be over the coming 3 years? What will drive your company´s growth?
8. What do you see as the 3 main barriers to the growth of your company? Please rank the top 3 with 1 being the most significant barrier.
Opportunity Select 3 Opps ONLY Rank (1-3) 1= Highest
Favourable business climate
Growing consumer confidence
Increasing export opportunities
Rise in domestic consumption
Company Innovation
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 106
9. What do you see as the 3 main opportunities to accelerate the growth of your company? Please rank the top 3 from highest to lowest.
Obstacle Select 3 Obstacles ONLY
Rank (1-3) 1= Highest
Poor business climate and regulatory environment
Lack of Access to Capital
Poor Infrastructure
High cost of inputs
High labour costs
Saturated customer base
Competition from international companies
Competition from domestic companies
Lack of government incentives
Lack of access to competitive technology
Poor corporate governance
10. What are the most significant risks facing your company in the following areas? Please provide examples where relevant in 3 of the most significant risks:
a) Regulatory? b) Financial? c) Supply Chain? d) Labour? e) Competitive? f) Environmental? g) Social? h) Political?
About working with the low-income segment
11. What is your definition of the low-income segment? Someone who earns:
$1/day
$2/day
$3/day
$4/day
$10/day
New customer segments in the BoP
Government incentives/reduced taxes
M&A Opportunities for company to expand
Increased access to capital
Increased access to technology
Lower input costs
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 107
12. Has or does your company work with the Low-Income Segment? If so, please characterize the manner through which your company actively engaged this segment of the population (as consumers, suppliers, distributors, employees?)
13. Does your company have a specific business strategy and/or goal to engage the low-income segment? If so, please describe the strategy and/or the goal.
14. Is the low-income segment important to your company´s current business model? Do you have plans to consider making it a priority over the next 5 years? If so, why? If not, why not?
15. What would be the main reason for you to more actively incorporate the low-income segment within your company´s business strategy? Please select and rank the top 3.
16. Does your company currently have a commitment to corporate social responsibility (CSR)? If so, please describe it in more detail. How do you report on your CSR performance? What percentage of your overall budget in percentage terms would you say your company invests in CSR each year?
17. What has been your company´s commitment to environmental sustainability? Please describe it in more detail
18. Does your company have a Corporate Foundation through which you finance charitable initiatives? If so, please describe it in more detail.
POTENTIAL, CURRENT OR NO ENGAGEMENT WITH THE LOW INCOME SEGMENT
Please complete questions 20 – 29 if your company is currently engaged with the BoP.
Please complete questions 30– 36 if your company has plans to engage with the BoP in the near future (next 18 months)
Please complete question 37 – 39 if your company has no plans to engage with the BoP.
Reason Select 3 Reasons ONLY
Rank (1-3) 1= Highest
Increase company growth and profitability
Strengthen company reputation/brand
Comply with Corporate Social Responsibility Strategy/internal requirements
Comply with government regulations
To gain first mover advantage in this market segment
To localize my company´s supply chain and reduce associated costs
To secure a long-term license to operate
To appeal to company shareholders
To mitigate local stakeholder risks
To attract additional capital to the company
Improve product quality
Contribute to a charitable cause
Comply with management directive
Innovation/Research and Development
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 108
Current engagement with the low income segment only
19. Does your company currently engage with the low-income segment in the following ways? Please check all that apply.
20. If your company is engaging with the BOP in the aforementioned business models, how many people are currently being impacted by your company using this approach? Please estimate impact numbers per applicable business model.
21. In your company´s engagement with the BOP, what have been the benefits to the BOP? Please rank the top 3 benefits.
22. In your company´s is engagement with the BOP, what have been the benefits to the Company? Please rank the top 3 benefits.
Inclusive Business Model Currently Engage
BoP as employees BoP as suppliers of raw materials BoP as distributors of goods and/or services BoP as consumers of your company´s products and/or services
Inclusive Business Model Currently Engage Number of Beneficiaries
BoP as employees
BoP as suppliers of raw materials
BoP as distributors of goods and/or services
BoP as consumers of your company´s products and/or services
Reason Select 3 Reasons ONLY
Rank (1-3) 1=greatest benefit
Increased income for suppliers or distributors
Access to new products and services tailor made to their needs that contribute to their livelihoods
Access to credit
Access to technical assistance, know-how, vocational training
Access to basic services like water, sanitation, health and education
Access to new markets
Secure and long-term buyer of goods and services
Access to technology
Employment opportunities
Improved nutrition
Access to financial services
Access to housing
Other: Please specify:
Reason Select 3 Benefits ONLY
Rank (1-3) 1= greatest benefit
Cheap labour supply
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 109
23. What Percentage of your overall business is related to the BOP?
24. Please provide the percentages through which you involve the BOP in any of the following ways:
As suppliers As Consumers As Employees As distributors
%%
%
%
%
25. Considering the importance of job creation to long term growth, how many people does your company employ directly? How many would you say are employed indirectly (indirectly refers to people who are not on your company´s payroll but still compensated by your company)? What percentage of direct and indirect employees are from the low-income segment?
26. Please describe two initiatives (the most successful or with the best potential) through which you are actively engaging in a BOP-focused business venture/project? How did you identify and develop the opportunity? What was the business need you identified? Why did you engage the BOP? What has been the impact to your company and to the low-income participants involved? What have been the lessons learned? Did you partner with any organizations to achieve your objectives? Did you require additional capital to develop the initiative?
27. What obstacles have you encountered when developing an inclusive business iniative with the BOP?
New, highly profitable (high volume, low margin) consumer market
Stable supply of critical inputs in supply chain
Lower transaction costs in supply and/or distribution
Improved reputation/brand equity in local and international market
To create shared value
To contribute to sustainable development
Improved results for CSR Report
Favourable engagement with national government
Improved sales
Improved profits
Innovation
Other: Please specify:
Obstacle Select all that Apply
Rank them (1= greatest obstacle)
Lack of information about the BoP (i.e. consumer behaviour, needs, productive capacity, etc)
Lack of access to relevant technology critical to the inclusive business initiative
Lack of appropriate distribution channels
Lack of skilled and qualified participants from the BoP to make project a success
Start-up costs for the inclusive business initiative were too high
Lack of management buy-in and company support
Lack of organizational capacity and organization among supplier (if applicable)
Insufficient volume with sufficient margins to make business viable
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 110
28. Considering the risks involved, would there be a need for a technical assistance facility that could provide patient capital (grants) to mitigate pre-investment and/or post-investment risks of working with the BOP? If so, how would you see it helping your inclusive business initiative succeed?
Potential engagement with the low income segment
29. Does your company plan to engage with the low-income segment in the following ways? Please check all that apply.
30. If your company WERE planning to engage with the BOP in the near future through the aforementioned business models, how many people would you say might be impacted by your company using this approach? Please estimate impact numbers per applicable business model.
31. If your company is plans to engage with the BOP, what benefits to the BOP do you aim to achieve? Please rank the top 3 benefits.
Lack of finance to kick-start the project
Lack of trust between the company and the BoP
Lack of company capacity to effectively develop the inclusive business project
Negative perceptions about the value of the opportunity with the BoP
Inclusive Business Model Plan to Engage
BoP as employees BoP as suppliers of raw materials BoP as distributors of goods and/or services BoP as consumers of your company´s products and/or services
Inclusive Business Model Potentially Engage Number of Beneficiaries
BoP as employees
BoP as suppliers of raw materials
BoP as distributors of goods and/or services
BoP as consumers of your company´s products and/or services
Reason Select 3 Reasons ONLY
Rank (1-3) 1=greatest benefit
Increased income for suppliers or distributors
Access to new products and services tailor made to their needs that contribute to their livelihoods
Access to credit
Access to technical assistance, know-how, vocational training
Access to basic services like water, sanitation, health and education
Access to new markets
Secure and long-term buyer of goods and services
Access to technology
Employment opportunities
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 111
32. If your company is planning to engage with the BOP, what are the benefits to the company? Please rank the top 3 benefits.
33. What Percentage of your overall business would you expect to be related to the BOP? Specifically, what percentage of your sales would you expect to be generated as a result of goods and services provided to the low income segment? What percentage of your company´s suppliers would you estimate comes from the BOP? What percentage of your labour force (both direct and indirect) comes from the BOP?
34. Please describe two initiatives (the most successful or with the best potential)you are contemplating through which you plan to actively engage in a BOP-focused business venture/project? How would you identify and develop the opportunity? What would you consider to be the business need to be identified? Why would you engage the BOP? What could be the impact to your company and to the low-income participants involved? Would you partner with other organizations to achieve your objectives? Would you require additional capital to develop the initiative?
35. Considering the risks involved, would there be a need for a technical assistance facility that could provide patient capital (grants) to mitigate pre-investment and/or post-investment risks of working with the BOP? If so, how would you see it helping your potential inclusive business initiative succeed?
No engagement with the low income segment
36. What are the main reasons for which your company is not interested in engaging in business models that could integrate the BOP within your company´s value chain? What evidence or argumentation would make you reconsider?
37. Are there any market OPPORTUNITIES THAT could yield additional benefits to your company?
Improved nutrition
Access to financial services
Access to housing
Reason Select 3 Benefits ONLY
Rank (1-3) 1= greatest benefit
Cheap labour supply
New, highly profitable (high volume, low margin) consumer market
Stable supply of critical inputs in supply chain
Lower transaction costs in supply and/or distribution
Improved reputation/brand equity in local and international market
To create shared value
To contribute to sustainable development
Improved results for CSR Report
Favourable engagement with national government
Improved sales
Improved profits
Innovation
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 112
38. If you were provided with patient capital provided through a technical assistance facility to develop an inclusive business pilot to demonstrate proof of concept, would you reconsider?
About financing and financing Inclusive Business
39. What sources of financing have you used in the past? What amounts and under what conditions? Please check all that apply.
40. Have the investor(s) made the anticipated return? If not, why not?
41. What are the current Financing (both debt and equity) options in Bangladesh? Explain under what terms each of these options operate (i.e. In terms of interest rates, collateral or guarantee requirements, etc)
42. What role did the investors take in the management of the company (i.e. General Partner, Limited Partner, etc)
43. Is your company interested in receiving financing designed to support the development of inclusive business initiatives within your company?
44. If so how much financing would your company require (in USD) for this initiative? What would the funds be used for primarily (i.e. Working capital, marketing, capital investments, etc)
45. What type of financing would you consider? Debt? Equity? Guarantees?
46. Under what terms would you consider financing? Within what time frame?
47. What would you consider to be the IRR for the investment made and over what period? What would you anticipate would be the potential benefits to the BOP (number of people impacted by increased income, employment opportunities, standard of living, etc)?
48. Does your company currently have a source of financing that supports your BOP activities? If so, please describe the type of financing, terms, amounts and returns provided where possible.
Follow-up
49. Would you like to receive further information about financing opportunities from the ADB and/or SNV to support inclusive business development in your company?
50. Would you like to receive additional information about inclusive business and be added to our newsletter through which you can receive regular updates as to inclusive business activities worldwide?
Financing in use or used Terms(Rate/currency/period) Amount
Equity Investment
Debt
Guarantee
Grant
Other:
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 113
Appendix 10. Fund manager & co-investor survey
General information for the fund and interviewee
1. Fund Information
a. Name of Fund Management Company:
b. Geographic Focus:
c. Website:
2. Fund Manager (Company)
a. Name of Fund:
b. Address:
c. Province:
d. District:
e. Specific Fund website (if any):
3. Interviewee Contact Information
a. Name:
b. Position:
c. Telephone:
d. Email:
1. Please describe your fund´s investment strategy. What are the kinds of investments you are looking for? What has gone well so Far? What challenges have you faced so far? Can you give one of your success stories so far?
2. Have you considered investing in companies who might have focus on or might want to engage with the low income segment for business reasons? would you consider this as important criteria now or in the future and why?
Investment climate and economic outlook
3. What is your general outlook for the economy of Bangladesh over the next 12 months? Why?
Positive Neutral Negative
4. What is your general outlook for the economy of Bangladesh over the next 5 Years? Why?
Positive Neutral Negative
5. Of the following issues, please rate the degree to which the following are Obstacles to investment in Bangladesh. Please rate them as A) Major Obstacle; B) Obstacle; or C) Not an Obstacle:
Issue Major Obstacle Obstacle Not an Obstacle
Government Bureaucracy Rule of Law Regulatory Environment Corruption Currency Controls Lack of Access to Finance (debt and/or equity) including
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 114
commercial lending
Government Subsidies Political Instability Social Conflict/Instability Competition with State-owned Enterprises Real Estate Ownership Laws Private Equity Regulation or Lack Thereof Physical Infrastructure Other (please specify):
6. What are the Main reasons for Investors to Invest in Bangladesh? Please rate the Degree to which the Reasons are Important.
Issue Very Important Important Not Important
Positive Investment Climate Diverse and Attractive Investment Opportunities Medium Term Real GDP Growth Potential for High Returns Tax Incentives and Administrative Burdens Effective Corporate Governance Attractive Regulatory Environment Quality of Legal Enforcement Political Stability Security of Property Rights Entrepreneurial Culture and Innovation Labor Market Rigidities Low Unemployment Rate Potential local market Other (please specify):
7. How attractive do you think Bangladesh would be for Private Equity Investments vis-à-vis other countries in South Asia? Why?
Extremely Attractive Very Attractive Neutral Less Attractive Not Attractive
8. How attractive do you think Bangladesh would be for Social Investments vis-à-vis other countries in South Asia? Why?
Extremely Attractive Very Attractive Neutral Less Attractive Not Attractive
Industry/ sector investment /company attractiveness
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 115
9. Please provide your Investment attractiveness rating for the following Industry Sectors in Bangladesh. Please rate them as a) Very Attractive; B) Attractive; C) Neutral; or D) Negative.
Sector Very Attractive Attractive Neutral Negative
Education Banking and Financial Services (including microfinance)
Real Estate/Property/Construction Pharmaceuticals and Biotechnology Retail Hospitality and Leisure/Tourism Food and Beverage Products Transportation and Logistics Oil, Gas and Natural Resources Manufacturing Agriculture Forestry and Forest Products Information Technology Energy (including renewables) Textiles and Garments Water and Sanitation Life Insurance (including micro-insurance)
9a. Why have you rated some of these industries as Very Attractive?
9b. Why have you rated others as Negative?
10. Of these sectors, which ones do you invest in actively and what is the distribution (in percentage of assets under management) within these sectors in your investment portfolio? Please mark the sector(s) and the estimated percentage (note: total percentage cannot exceed 100%)?
Sector In Portfolio Percentage
Education %
Banking and Financial Services (including microfinance) %
Real Estate/Property/Construction %
Pharmaceuticals and Biotechnology %
Retail %
Hospitality and Leisure/Tourism %
Food and Beverage Products %
Transportation and Logistics %
Oil, Gas and Natural Resources %
Manufacturing %
Agriculture %
Forestry and Forest Products %
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 116
Information Technology %
Energy (including renewables) %
Textiles and Garments %
Water and Sanitation %
Life Insurance (including micro-insurance) %
11. Of the following industries, please rate which ones may present the best and most viable opportunities for businesses to integrate the low income segment as consumers, suppliers, distributors and/or employees within their business model.
Sector Most Viable Viable Neutral Unviable
Education Banking and Financial Services (including microfinance)
Real Estate/Property/Construction Pharmaceuticals and Biotechnology Retail Hospitality and Leisure/Tourism Food and Beverage Products Transportation and Logistics Oil, Gas and Natural Resources Manufacturing Agriculture Forestry and Forest Products Information Technology Energy (including renewables) Textiles and Garments Water and Sanitation Life Insurance (including micro-insurance)
11a.Why are the industries you selected most viable for investment in business models with the low-income segment? Please explain.
11b.Considering these sectors, which of the following inclusive business approaches -- including the low-income segment as a) suppliers, b) distributors, c) consumers and/or d) employees-- would generate the best mix of social and financial returns? Why?
12. From your Investment experience, please select and rate (1-6 with 1 being Most Preferred) the financial instruments preferred by your investees, indicate what percentage of your investment portfolio is currently allocated per instrument and the average deal size and returns obtained?
Financial Instrument Check if part
of portfolio
Rank (1-6)
1 = most preferred
% of
Portfolio
Average
Deal Size
Average
Returns
Equity
% $ %
Debt
% $ %
Credit Guarantee
% $ %
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 117
Blended (Debt+Equity)
% $ %
Grant
% $ %
Other: Please specify:
% $ %
13. If you were to consider developing a social investment fund to finance business models that target the low-income segment, please indicate the financial instruments that are likely to be preferred by investees, their ranked preference, potential % of the funds portfolio, and the average deal size and returns you would expect per financial instrument.
Financial
Instrument in a
SOCIAL
INVESTMENT
FUND
Check if part
of portfolio
Rank (1-6)
1 = most
preferred
% of
Portfolio
Expected
Avg Deal
Size
Expected
Avg
Returns
Expected
Currency Term
In years
Equity
% $ %
Debt
% $ %
Credit Guarantee
% $ %
Blended (Debt+Equity)
% $ %
Grant
% $ %
Other: Please specify:
% $ %
13a.Please explain why you would expect the aforementioned portfolio structure and expected returns in a Social Investment Fund?
Key factors in investment strategy
14. When considering the following most important factors in making a private equity or related investment in Bangladesh, please select and rank the top three below (1 being the most important):
Factor Select 3 Factors ONLY Rank (1-3) 1= Highest
Transparency in Business Activities
Growth history and projections
Quality of the Management Team
Company Track Record/Performance
Cash flow
Speed at which value can be created
Operational/Cultural Fit with Fund´s Goals
Brands/Products
Strategic Fit with Fund´s Strategy
Corporate Responsibility/Ethical Reputation
Other Reputable Investors
Anticipated Return
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 118
15. Why are these the most important factors?
16. Conversely, what would make you not invest? and Why?
17. Conversely, what would be the most important concerns/risks when making investments in Bangladesh? Please select up to 3 of the following concerns/risks and rate them in terms of their degree of importance (1 being the most important) degree of importance:
Factor Select 3 Factors ONLY Rank (1-3) 1= most important
Lack of Transparency
Poor Corporate Governance
Lack of Skills/Experience in Current Management
Limited or No Company Track Record
Poor business strategy/business plan
Lack of other investors/finance streams
Significant reputational issues
No CSR/Stakeholder management strategy
Unclear/opaque financial reporting
Issues with current shareholders
Conflict of Interest
Difficulty to exit
17a. Why have you selected these three concerns as the most important?
18. What are the greatest challenges to starting a private equity fund in Bangladesh and why?
19. What are the current opportunities for private equity fund development in Bangladesh? Why are these opportunities most promising?
20. What are the best performing private equity funds in Bangladesh and why do you think these funds are the best performing?
Key factors when considering the low-income segment (please answer these questions even if you have
not made prior investments in business models serving the low income segment)
21. When considering (or if you were to consider) the most important factors in making a private equity investment in an Inclusive Business venture in Bangladesh, please select and rank the top 3 most important factors.
Factor Select 3 Factors ONLY Rank (1-3)
1= most important
Viability of Business Model
Company Track Record with the BoP
Potential for Social Returns (>5,000 people impacted)
Potential for Financial Returns (>15%)
Innovation Potential
Strategic Alignment with Investment Strategy
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 119
Prospects for Growth
% contribution of inclusive business to overall company growth/bottom line
Quality of product/service being proposed
Presence of other reputable investors
Overall company reputation/brand
Clear pathway to exit
21a.Please explain why these 3 factors are the most important.
22. Conversely, which of the following issues would you consider the top 3 greatest concerns when making inclusive business investments in Bangladesh?
Concern Select 3 ONLY Rank (1-3)
1= greatest concern
Lack of Skills/Experience in Current Management especially with the BoP
Lack of Grant Funds/Technical Assistance to mitigate BoP associated risks
Weak prospects for social returns/impacts on the BoP
Limited or No Company Track Record with the BoP
Poor business strategy/business plan to create value for the BoP
Lack of other investors/finance streams
Significant reputational issues
No CSR/Stakeholder management strategy
Unclear/opaque financial reporting
Weak prospects for significant financial returns
Risks associated with proposed BoP suppliers, distributors and/or employees
Difficulty to exit
22a. Please explain why you selected the aforementioned concerns?
Obstacles to starting an Inclusive Business private equity fund in Bangladesh
23. What would be the greatest challenges, obstacles or barriers to starting a private equity fund focused on inclusive business in Bangladesh and why? Do you think there is a real opportunity? Why or why not?
24. If you were to create an Inclusive Business-Focused Private Equity Fund in Bangladesh, what would be the greatest obstacles to effectively capitalizing and managing a successful fund (please select and rate the top 3 obstacles)?
Obstacle Select 3
Obstacles ONLY
Rank (1-3)
1= greatest obstacle
Lack of a viable pipeline of inclusive business opportunities
Lack of investor interest to capitalize an Inclusive Business Private
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 120
Equity Fund
Lack of Technical Assistance support to Mitigate Inclusive Business-related risks
Negative perception regarding possible returns of a private equity fund targeting the BoP
Lack of fund managers with required expertise and/or motivation to manage such a fund
Perceived Risks far outweigh returns
Lack of Government Incentives to support BoP-related investments
Lack of standard metrics by which to assess social/financial returns
Lack of bi-lateral/multi-lateral funder interest to complement fund managers
Ethical Reasons
24a.Please explain why you selected these top 3 obstacles?
25. Can all of these obstacles be overcome? If yes, how would you overcome these obstacles?
26. Considering the risks involved, would there be a need for a technical assistance facility that could provide patient capital (grants) to mitigate pre-investment and/or post-investment risks of working with the BoP? If so, how would you structure the ta facility?
27. If the ADB Investment is capped at US$10 - 20 million for this Fund in Bangladesh, do you think you would have difficulty raising the remaining US$80 - 90 million? Why or Why not? what challenges you think you could face when trying to raise the remaining US$80 – 90 million?
28. Would you be interested in managing such a fund? Why or why not?
29. Please describe the kind of investors you would target for this fund (i.e. other fund managers, donors, multilateral financial institutions, etc.) What is their risk profile and what kind of financial and/or returns do you think they might expect?
Factors to measure success in private equity investments
30. Other than the IRR, How would you define success for a private equity fund? What are the current metrics you use?
31. 30a. Are you aware of and/or do you use any established metrics systems to assess the financial and social impact of your fund like GIIRS?
32. If you are currently managing or were to manage a portfolio of private equity investments focused on creating value for the BoP, what would be the kinds of metrics you would use to measure the success of the fund?
33. What would you consider the most important factor when measuring the success of an Inclusive Business Private Equity fund in Bangladesh? Please provide an example of a quantifiable metric (i.e. 25% IRR, 10,000 served, etc.) that would qualify as success.
Factor Select 1 Factor ONLY Metric
Social Return
Financial Return
Developing the Business Case for Investing in Inclusive Business in Bangladesh: A Market Scoping Study 121
Greater Social Return than Financial Return
Greater Financial Return than Social Return
Equal Social and Financial Return (provided it can be measured)
34. What do you consider the most attractive exit strategy for your investments?
IPO Trade Sale Secondary Sale Refinancing
33a.Please explain why.
Social investment strategies and considerations
35. Do you currently make investments based on their potential for social impact? If so, what are the kinds of investments you have made of this type?
36. What would be the average deal size were you to manage a social investment fund? And what would be the returns you would want to have?
37. What is your preferred term for the investments you could make in the social investment marketplace?
38. If the investment were to be debt rather than equity, what would you consider to be competitive terms in the current market in Bangladesh?
39. If the investment were to be equity, what position would you normally take (Stake and Role)? Please provide an example.
40. What incentives would you integrate into the design of the Inclusive Business Private Equity Fund to attract investors/Fund Managers? What would be the critical success factors in your opinion?
41. What kind of real and/or perceived benefits, if any, does the anchor investment by the ADB in this type of fund provide?