Study: Draft Inclusive Business Market Scoping Study - Philippines

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Feb 05, 2013


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Study: Draft Inclusive Business Market Scoping Study - Philippines

Study: Draft Inclusive Business Market Scoping Study - Philippines. Prepared by Asian Social Enterprise Incubator, Inc. for the Asian Development Bank, Draft November 2012
The Macroeconomic Situation in the Philippines:
The macroeconomic development of the Philippines for the private sector is as positive as it has not been for a long time indicated by economic statistics, credit agencies’ ratings and confirmed by the results of this market scoping study. The economic growth, however, is not inclusive and has not yet led to a substantial reduction in poverty, inequality and unemployment which is markedly higher than in the neighbouring ASEAN countries. The government’s inclusive growth agenda does not embrace inclusive business as a driver for inclusive growth. ADB and the Joint Chambers recommend to focus on agribusiness, food manufacturing, design led manufacturing, BPO, tourism and mining sector to achieve inclusive growth. Four of those sectors also feature in this market scoping study for inclusive business thereby indicating a sectoral convergence of inclusive business and inclusive growth. The Base of the Pyramid (BoP) with an income per capita of less than USD 3 consume about 50% of the total expenditure of the country which represents a market of USD 34bn. This total amount is mostly spent for food (50%), housing (20%), fuel (9%) and transport/communication (6%).
Inclusive Business in the Philippines:
Inclusive business and impact investment is a very nascent concept in the Philippines defined by a low awareness among the business, finance and donor community and a lack of an enabling eco system. As a result, only 2 dedicated impact investments worth total of USD 3 million were undertaken in the Philippines in the last three years. In addition IFC invested USD 75 million in Manila Water from 2003 to 2005. The market scoping study identified 70 companies with inclusive business models in the Philippines in 11 industries engaging the BoP mainly as a consumer, supplier and distributor. This compares to a potential of 20,000 social enterprises as identified by the ADB and the over 300,000 NGOs active in the Philippines. On average, Philippine inclusive businesses are looking for debt financing in the range of USD 1 to 10Mio at interest rates between 4% and 8%. Selected equity deals of the same size are also sought with IRR expectations of 10% to 20%. The time frame is equally divided between short, mid and long term funding.
Recommendations to ADB:
It is recommended that the Philippines’ IB fund is integrated in a wider Southeast Asian IB fund as the current state of available equity deals and the infrastructure gap does not warrant a Philippine specific fund. It is also recommended that the debt financing need is satisfied with the integration of Philippine IB into a wider Southeast Asian IB fund or an existing ADB debt facility for the Philippines. Regarding co-investors, the study found a low level of awareness for impact investment among the donor community with the exception of GIZ and IFC. IFC has an extensive investment portfolio in the Philippines with an emphasis on banking and finance. IFC is the most likely investment partner for the IB fund and collaboration should be further explored. Discussions with fund managers and banks revealed that the expected deal size for equity investments would be between USD 0.5 and 2.5 million. The deals size for debt investment could be between USD 1 and 10 million. Fund managers and the company study suggest that in the next 3 to 5 years a total of 10 to 15 debt and equity deals with a total size of USD 20 to 30 million can be envisaged. In addition both companies and investors suggested to study further the possibility of establishing a credit guarantee facility of USD 10 to 20 million. Companies and fund managers suggested a minimum tenure of the fund of 5-7 years. Technical assistance is recommended not only to support the investees but also to contribute to the development of an enabling eco system for inclusive business in the Philippines
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