Andy Wales is Head of Sustainable Development for SABMiller plc.
You are here
How can business drive meaningful poverty alleviation?
Continuing our financing progress blog series, Andy Wales of SABMiller - one of the world's largest brewing companies - looks at the role business can play in achieving meaningful alleviation of poverty. He describes a programme put in place to help small business develop and how it can help the owners overcome the barriers they face in escaping poverty.
The role of business value chains in driving meaningful poverty alleviation must not be underestimated – and indeed at Davos this year there was a clear consensus that business has a critical role to play in wider poverty alleviation. Business can and should do more, and governments should work to create environments which enable and encourage private sector interventions.
The company I work for – SABMiller – has a significant emerging market footprint meaning that we are able to understand the multiple benefits of supporting micro and small businesses development. I’ve seen them first hand and we are making more and more concerted efforts to design value chain programmes to achieve this. A thoughtful approach to engaging with small businesses in your value chain is not only critical to success for big businesses but also the key to unlocking significant economic value and growth in some of the poorest communities around the world.
Abhijit Banerjee and Esther Duflo argued in their recent book Poor Economics that “we are kidding ourselves if we think that [small] businesses can pave the way for a mass exit from poverty”. However, World Bank research suggests that the role of waged employment in driving job creation across Africa, for example, is likely to be limited in the short term. Therefore, household and farming enterprises and other forms of self-employed microenterprises are considered to be the main sectors in which employment expansion (and thereby poverty alleviation) will be concentrated over the next decade.
I’m not suggesting that empowering micro- and small businesses is a panacea to world poverty, but we shouldn’t dismiss the opportunities on our doorstep. For example in Latin America, there are hundreds of thousands of very small, family stores – often just a room at the front of someone’s home - and our evidence suggests that supporting and empowering the ‘tenderos’ who run them, can help families to escape poverty within just one generation.
The ‘Tenderos’ Programme, launched in 2013 in six Latin American countries aims to helping 40,000 poor retailers, or tenderos, build their business, improve their incomes, and become leaders within their communities. Many of these retailers are close to the poverty line and we are targeting the programme where it can make the greatest difference. Key to helping growth and development is a deep understanding of the barriers that the tenderos face.
One of the main obstacles we’ve seen first-hand through our long relationship with tenderos in Colombia, was that many small businesses owners were mistrusting of large banks and do not see how formal financing could help them. Part of this mistrust is associated with having to pay fees and taxes, such as the government’s financial transaction tax. Tenderos prefer instead to use informal financial services to avoid these – often with punitive interest rates. On the other side, banks did not see the value of incorporating small businesses in rural communities into their business models.
So how could we help tenderos access formal financing mechanisms, without incurring a significant and ultimately, unsustainable, financial burden and risk to our own business? Part of the solution lies with taking an ‘ecosystem’ approach, as explored in a recent report by the Harvard Kennedy School Corporate Social Responsibility initiative.
Many private sector companies – particularly the Fast-Moving Consumer Goods (FMCGs) comapnies – enjoy close and productive relationships at both ends of the spectrum: with large financial institutions as well as the micro-retailers who sell their goods. This puts them in a position to act as facilitators of new relationships, building trust and goodwill between parties.
In the case of Colombia, we have built relationships between suitable tenderos and three Colombian banks. The banks provide access to credit as well as bank accounts and micro-insurance for loan repayments. Alongside this, we also provide business and retailer training to help them to scale up their business, optimize their product offerings and increase their incomes.
In South Africa, Coca-Cola is providing access to microcredit for women retailers, with initial results indicating women who receive these benefits are earning an income three to nine times the minimum wage. And in partnering with MFIs around the world, Standard Chartered improves the Institutions’ technical capability, as well as their lending capacity, enabling more of the ‘un-banked’ to participate in formal finance. There is a wide range of financing models employed by the private sector to drive economic growth and inclusion through its value chains – some of which are riskier than others. We firmly believe that taking an ecosystem approach, and leveraging our own position within that ecosystem is the most effective and sustainable way to enable improved livelihoods.
As Banerjee and Duflo argue ”tiny businesses will remain, perhaps for the foreseeable future, the only way many of the poor can manage to survive”, but we believe that there is a powerful role for the private sector in moving them beyond survival, and into growth and success.