1. 6 September 2013
Financing Inclusive Business
Background paper for the 2nd
Inclusive Business Forum for the Philippines
By: Lydia Domingo and Armin Bauer1
1 WHAT IS INCLUSIVE BUSINESS ?
1. The Philippines needs the private sector to make growth more inclusive. There
have been recent marked improvements in the country’s macroeconomic indicators, and the
government’s efforts to strengthen governance and competitiveness are paying off in terms of a
more positive image for the country as an investment opportunity. However, these
improvements have yet to translate to better life options for those at the bottom of the income
pyramid – or concretely, in the immediate, to jobs and access to affordable basic services. The
promise for an “inclusive growth” is yet to come true, and Inclusive Business offers an
opportunity to unleash the private sector’s huge potential to contribute towards this end.
2. Inclusive Business (IB) is generally defined as:
 commercially viable and profit making private companies in the growth stage,
 whose core business is designed to address – in scale – pressing social needs of the
poor and vulnerable people below the $3 international poverty line, i.e. around 60% of
the Philippines population, also referred to as the Base of the Pyramid (BoP),
 by engaging them through the provision of affordable and relevant goods and services
and through income and decent work opportunities, in a manner that results in
measurable improvements of their living situation and as a
 systemic contribution to poverty reduction and inclusiveness for the country/region.
3. IB differs from corporate social responsibility (CSR), social enterprise, microfinance,
and contract farming through its business scale, growth potential, and focus on systemic
changes for poor people. IB is also distinguished from impact investments in that it places the
impact on poor and vulnerable people at the center, and de-emphasizes impact on the
1
Lydia Domingo is Associate Social Development Officer in ADB’s Poverty, Gender and Social Development
Division. Armin Bauer is Principal Economist in the Asian Development Bank (ADB), and heading the bank’s
inclusive business initiative.

2. 2
environment or good governance. The concept of inclusive business is relatively new, having
emerged from India in 2004, then spreading to investments in Latin America, and later in Africa
and Asia.2
4. The market at the base of the economic pyramid is huge and increasing: Many
companies are interested to expand to the huge and largely unexplored BoP market. These
enterprises, however, feel the need to gain more specific expertise – in logistics, sector
knowledge, low cost methodologies and skills to deal with the BoP successfully. The table
below shows how viable the BoP market is.
Table 1. The Global BoP Market
Source: IFC/WRI (2007): The Next 4 Billion
2 IB IN THE PHILIPPINES
5. IB is a new concept in the Philippines. A recent ADB-commissioned Inclusive
Business Study on the Philippines found that there is little awareness about IB, even within the
business sector; financial institutions have little interest to invest in IBs; and the government
does not have the structures to support the sector.3
6. IBs in the Philippines are concentrated in a few sectors. The study identified 70
companies in 11 industries that manifest the characteristics of an inclusive business, but the
largest share of IBs are in the agriculture sector (24%), followed by the financial sector (14%)
and manufacturing sector (10%). There are fewer IB companies in the other sectors such as IT,
energy, education, health, transport and logistics but they show profitable and impactful models.
One outstanding example of IB is Manila Water when an investment of USD$75 million from
International Finance Corporation (IFC) between 2003-2005 substantially increased household
connections to water and made water available to more poor people.
2
For more information, see ADB’s inclusive business website http://www.adb.org/themes/poverty/inclusive-
business-base-pyramid
3
The study is available at http://www.adb.org/sites/default/files/2nd-ibf-phi-business-study.pdf, and the summary
paper can be downloaded from the 2
nd
Philippines IB Forum website (http://www.adb.org/news/events/2nd-
inclusive-business-forum-philippines?ref=themes/poverty/events).

3. 3
7. There is a good potential for IB in the country. The number of BoP consumers in the
country is estimated at US$34 billion, and the number of BoP customers is around 63% of the
92 million population.4
The BoP spend about 48% of total family expenditures in the country.
More than 50% of the BoP’s spending goes for food, and 28% on housing, 9% on fuel and
transport, about 8% on education, health and personal care. IBs can create employment for the
poor (mainly as suppliers in agriculture and distributors) or can provide services (like affordable
housing, relevant health and education, or energy, transport, and communication services).
8. But for IBs to grow, those companies need a better business environment and
support structure. Poor regulatory environment (including issues of corruption), lack of
government incentives or supportive regulations, internal governance issues of the firms, and
limited access to capital are some of the major barriers to the IB sector’s growth. Mobilizing
access to capital, clearer regulations, government target setting for achieving results, and
technical assistance would help unleash the potential of the sector to contribute more to
inclusive growth.
3 IMPACT INVESTMENTS
9. Impact investments are funds made available for companies (or investment funds) that
promote both financial returns, and environmental and social benefits. Impact investments differ
from “social responsible investing” by targeting investments to those that do social good rather
than just staying away from those that do harm (e.g., tobacco, alcohol). Inclusive business is a
subset of impact investments focusing on creating social impact for the poor. Since the early
1920s some impact investments came up in Europe (particularly UK, Germany, Switzerland,
France), USA5
, Canada, and Australia, but it emerged as a major cluster of the economy since
the 2000s. Impact investment is also promoted by developing countries. The Indian Government,
for example, announced in November 2011 a $1 billion India Inclusive Innovation Fund which
would raise more than 80 percent of its capital from the private sector. Typical IB deals in the
developed world are between $20 and $70 million, and in developing countries between $1-20
million. This compares to investments in social enterprises in the range of $0.1 million to $1
million.
10. Impact investments is a new asset class: In 2010 the JP Morgan Bank and the
Rockefeller Foundation in partnership with the Global Impact Investment Network (GIIN) did the
first global impact investment assessment. The study interviewed more than 1,000 impact
investment companies and funds, large-scale financial institutions, pension funds, family offices,
private wealth managers, foundations, individuals, commercial banks, and development finance
institutions. The authors identify a potential market of $183 billion and $667 billion and a
potential investment opportunity between $400 billion and $1 trillion in the next decade. The
4
This is based on based ADB’s definition of BoP as those with per capita expenditures of less than US$3 a day on
international purchasing power parity of 2012 (about PhP 20,000 a month for a family of 5).
5
In 2011, the Overseas Private Investment Corporation (OPIC) — the US Government’s development finance
institution — attracted more than 80 applicants when they issued a call for impact investment proposals. OPIC
committed $285 million to the first six equity funds, with the aim of mobilizing up to $875 million for investment.

4. 4
analysis showed that investors can realize through impact investment financial returns which
are at least concessionary, and in many cases even beating the markets.
11. Increasing market: While the global impact investing industry is still small, it comprises
a global stock estimated at $36 billion with about 2,200 investments made in 2012 worth $8
billion. This compares to about $90 trillion in financial investments in 2012 (ca 1% of global
financial investments). The impact investment industry is rapidly growing, and in 2020 it is
estimated to constitute 5-10% of the financial portfolio world-wide.6
In developing countries
impact investments has strong support in Latin America, India and increasingly in Africa. On the
other side East and Southeast Asia has a stronger culture where enterprises share their profits
through social corporate responsibility activities rather promoting poverty reduction through core
business in impact investment. However the number of companies engaged in impact
investments in Southeast and East Asia is increasing, and in all countries there are problems
with financing for the bankable IB companies.
12. The financial sector is discovering impact investments. In the past, impact
investments were mainly done through grants and quasi loans by private foundations, high
network individuals, and so called “angel investors.” Such investors typically engaged in startup
companies (social enterprises) with support between US$ 0.05 and US$ 1 million per deal. On
the other side, banks and other financial institutions tended to neglect the sector and invested in
larger (mostly infrastructure or SME promotion related) projects with transactions of minimum
$20 million. However inclusive businesses are companies in the growth phases, and need
investments between $1 and $20 million – a market segment that is underserved, and
increasingly being discovered by finance institutions. In recent years, especially since 2008,
some funds and banks have set up financial instruments for this market segment. Given the
reduced return expectations since 2008, and the increasing criticism on bank managers’ lack of
social orientation, commercial banks such as Credit Suisse, Deutsche Bank, JP Morgan,
Citibank are increasingly interested in placing funds of their investors in inclusive business.
Governments and pension funds are also becoming more interested in financing inclusive
business.
13. Over time, impact investments will replace development assistance: In 2012, the
Official Development Assistance (ODA) was $125 billion. Including the loans of development
banks like ADB or World Bank, and including the global funds, total development partnership
financing is estimated at $300 billion annually. With the continuing global economic crisis and
less interest of the emerging countries to provide ODA, this amount is projected to decrease.
The size of the development assistance of foundations and NGOs is already much higher than
the ODA. While the impact investment industry is still nascent, it is rapidly growing and is
expected to expand even more with the increased emphasis on private sector contribution to
development.
14. Impact investments of development banks: Inclusive business already comprises 12-
15% of the total investments in the Inter-American Development Bank and the IFC of the World
6
JP Morgan (2011), Martin (2013), Credit Suisse (2012).

5. 5
Bank group. Impact investments is also provided by bilateral development banks and
development partners such as AusAID (Australia), AFD/Proparco (France), CIDA (Canada),
KfW/DEG (Germany), SwedFund/SIDA (Sweden), CDC/DFID (UK), USAID (USA). Foundations
like Rockefeller, Ford, Omidyar, Shell, Schwab – to name a few, are also strong promoters of
the impact investment industry. A recent portfolio analysis of ADB’s private sector investments
showed that projects that would qualify as inclusive business investments comprise about 7% of
ADB’s approved private sector projects since 2000, and the share is further increasing.
15. Impact investments are even more profitable than traditional financing: A 2011
study by JP Morgan found that the expected returns of many inclusive business in emerging
markets are largely in the range of 8-12% (in USD terms) for debt investments and 20-25% for
equity investments. This compares to common developed market return expectations of 5-8%
for debt and 15-20% for equity respectively. This interesting result is also confirmed by
evaluations of the Inter-American Development Bank’s Opportunities for the Majority program
and the IFC’s inclusive business investments, as well as recent evaluation of the ADB’s private
sector portfolio.
4 INVESTMENT OPTIONS
16. Impact investments are done in various forms. Each of these financing options has
its pros and cons. Inclusive business typically require a combination of debt and equity
investments with technical assistance support. They are less interested in grant financing which
is more suited for social enterprises and start up IBs.
 Grants are typically made by angel investors in startup companies. The size is small
($0.02 to $1 million) and they often have limited time horizon of 3-5 years. They are
project specific and in most cases do not generate follow up investments. Grants are
often used not only for capacity building but also for core investments of a firm.
 Debt capital is an important source of external finance of for-profit social enterprises
and inclusive business. The effective cost of debt is measured by adding the interest
paid on the debt to other fees and/or front end charges. Debt capital is typically needed
for companies in the growth stage. The available loans in the Philippines market have
typically maturities of 5-10 years, while IB often need more long term debt capital of 7-12
years For inclusive business debt is sometimes mixed with more “patient” equity capital.
 Equity investments provide IBs with more patient risk capital than loans. However
these are often less preferred by inclusive businesses in Asia, because such companies
often get their patient capital from family members and “friends.” Also many Asian
business leaders of smaller companies do not want to lose control on their companies.
The effective cost of “venture or private equity” funding, is measured by the expected
return on investment. In the case of private equity the Return on Investment for the
investor would come by way of capital appreciation of common stock, and/or dividends
paid on common shares held. While equity funding enhances bankability, and hence,
borrowing capacity, the overall cost consideration will probably have to be addressed by
recognizing the necessity of debt funding to bring down the average cost of capital. The

6. 6
Philippines study showed that the ratio of debt to equity investment needs for IBs is 3 to
2 or even 4 to 1.
 Mezzanine capital or convertible debt is a combination of debt and equity capital. It is
a preferred option for many inclusive business companies that need both some “patient
capital” equity for developing a business model or providing capacity development, and
some growth money for expanding the business. Given its higher risk, mezzanine capital
is typically a more expensive financing option than pure debt financing. It is however
perhaps the most appropriate financing tools for IBs in the beginning growth phase.
 Guarantees: In the case of the Philippines, the ADB study identified guarantees are a
potentially very effective instrument to unleash financing through banks. The study
proposes to establish a guarantee facility sourced by money from corporate foundations
(to cover first loss risk), development banks, and commercial banks. The guarantee
facility could also be support by the Department of Finance.
17. Innovative impact financing: Most impact investments today take the form of private
equity or debt investments by large private clients, family offices, and foundations with
innovative financing tools, such as seed-stage investing, peer to peer funding platforms and
project-focused platforms like Kiva7
, or crowd-funding platforms. For example, MicroPlace is an
only online broker-dealer specializing in microfinance securities for retail investors, and Hoop
Fund is a crowd-funding platform that allows people to invest in fair trade, sustainable farmers
and artisan production. Another innovative tool for impact investments are tax exempted green
and climate bonds and climate change bonds or vaccine bongs, the, or social impact bonds.8
18. The social stock exchange is a new platform to generate financing for inclusive
business and social enterprise ventures. Social stock exchanges were launched in the last year
in London (supported by the London Stock Exchange Group), Brazil, South Africa, and
Singapore. They allow retail and institutional investors to trade stocks exclusively in companies
with a clear social and environmental mission, with the idea being to attract long-term, patient
capital. They use the same principles as conventional stock exchanges with listed companies,
and are also regulated by the financial services authority. The big difference is that companies
applying for listing will be subject to an independent social audit. The promoters of the Social
Stock Exchanges hope that they could redirect at least 1% of the annual $80 trillion globally
traded debt and equity securities to impact investors. In 2013 Impact Investment Exchange Asia (IIX) in
partnership with the Stock Exchange of Mauritius set up the first stock exchange for social
enterprises in Asia. Based in Singapore. IIX is a platform for social enterprises and inclusive
business to raise seed funding and link up to mentorship. IIX is an internet platform that pre-
screens social enterprises based on their social impact and financial capacity and links them to
impact investors. It also provides a trading platform to raise investment capital for social
7
Kiva is an internet platform where individuals can make loans or grants to social or environmental enterprises
with amounts starting from $25. See http://www.kiva.org/start.
8
The first social impact bond was established in 2010 in UK, financing private sector innovations to reduce crime
in London. Under this program companies guiding ex-convicts receive a “bonus” if the ex-convicts do not fall
back into criminal activities. The investor bears the upside and downside risk of the effectiveness of the program,
while the government saves money on policing, processing, and jailing offenders.

7. 7
enterprises and to offer impact investors the opportunity to invest in and trade securities issued
by social enterprises.9
19. Capacity building for IBs: Many inclusive businesses need funding for capacity
building to do pre- and post-investment due diligence work, and impact assessment. Such
support can either come in kind or in cash, and inclusive business are typically open to cost-
share the capacity building activities from their assets.
20. Other support for IBs: Support for IBs can also come in the form of tax relief,
preferential public procurement, end user subsidies (e.g. vouchers), and end user insurance
schemes, among others.
5 FINANCING IB IN THE PHILIPPINES
21. Profitable financial market sidelines IB: The Philippines’ stock markets are currently
trading at relatively reasonable private equity ratios compared to its ASEAN counterparts.
However, in terms of absolute values, the Philippines publicly traded capital market, estimated
at $202.3 billion as of year-end 2010, is much smaller than some of its neighbors (China with
$4,028 billion, Japan with $4,100 billion, Hong Kong with $2,711 billion, South Korea with
$1,093 billion, Malaysia with $410 billion, and Thailand with $276 billion). The market is also
more susceptible to high speculative swings, further aggravated by a generally believed over-
valued currency market due to remittances inflows and other reasons. However, recently the
national currency (Peso) is appreciating against the US Dollar, which is of some concern to the
Central Bank. As a result, due to the presence of high levels of speculative capital, and inward
remittances from overseas workers, the financial markets in the Philippines are highly liquid.
While a few number of prime borrowers can easily source long term money at comparatively low
rates. There are however, only a limited number of “prime” borrowers, inclusive business –
which is not a “prime borrower” is basically excluded.
22. IB financing in the Philippines is nearly inexistent: The market scoping study only
identified 70 companies with inclusive business models in the country, which compare badly
with around 20,000 potential social enterprises and 300,000 NGOs active in the country. The
ADB study found that similar to the nascent character of the IB industry, impact investment in
the sector is also nearly inexistent. Apart from the $75 million invested by IFC in Manila Water in
2003-2005, there were only 2 dedicated impact investments amounting to USD 3 million
undertaken in the country in the last three years. On average, Philippine inclusive businesses
are looking for debt financing in the range of $0.5 million to $10 million at interest rates between
4% and 8%. Selected equity deals of the same size are also sought with IRR expectations of
10% to 20%.
23. Banks in the Philippines are reluctant to invest in IB. Most investments in IB came
from firms that generated their own funding through families and friends. Banks are rather
reluctant to invest. This is mainly due to the incentive structure and less so due to return
expectations or risk perceptions. While there is a lot of liquidity in the country’s financial market,
9
For more information on IIX see http://www.asiaiix.com/product-offerings-and-operations/.

8. 8
this is mainly used for large-scale investments in existing companies with good ties to the
banking officers. One reason for the low IB investments is the bank’s strong emphasis on
collaterals, which many new IBs find it difficult to expose. Another reason is that bank managers
often show a strong reluctance to explore new investments. Furthermore, lack of understanding
of the IB sector and prejudices on higher risks and lower returns from the market of the poor are
a major reasons for traditional bank managers not to engage in IB. Hence, awareness raising
and training seminars for bankers, combined with risk sharing arrangements such as
guarantees, would be an effective way to eventually mobilize more IB funding.
24. Debt financing is the most familiar financing modality for IB in the Philippines. The
study showed that about 1/3 of the IB companies raised the lack of capital as a major barrier to
the growth of the industry. there is unwillingness to share ownership and control to outsiders,
thus there is less buy in for equity financing. In the past about 41% of the IB companies used
mezzanine financing, 29% equity and 14% debt as main source of financing. Credit guarantees
are a quite unknown instrument for IB financing so far, and 7% of the firms were able to source
grant funding. Asked about future capital needs, most IB companies look for debt financing in
the range of $.5 to $10 million10
at interest rates between 4% and 8% per year in USD terms.
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 (1-5 years), mid (6-10 years) and long term
(more than 10 years) funding. The targeted IRR for equity investments indicates that whereas
there is a substantial number of companies targeting above 11% returns, the majority is looking
at the bracket of 5% to 10% and even below, therefore limiting the use of private equity
financing to a few companies. The targeted IRR for equity investments indicates that whereas
there is a substantial number of companies targeting above 11% returns, the majority is looking
at the bracket of 5% to 10% and even below. This analysis limits the use of private equity
investment as targeted IRRs for this type of investment have to be in excess of 10%. Technical
assistance was requested by 2/3 of the companies.
Financing requirements of IB Business in the Philippines Preferred Financing for IB Business
10
Selected companies require larger funding of $20-50 million.
18%
41%
10%
6%
4%
20%
100%
0% 20% 40% 60% 80% 100% 120%
– 1million
2 – 10 million
11 – 25 million
26 – 50 million
+ 51 million
Do not need financing
Total
9%
11%
15%
64%
Equity
Equity and debt
Grant
Debt

9. 9
25. International fund managers discover the market: In the absence of an impact
investment community in the Philippines, the funding came from local and international
commercial banks. Of the specialized impact finance organizations, only LGT Venture
Philanthropy has an office in the Philippines. LGT VP has so far one investment in a social
enterprise undertaken within the last three years. In 2012, the equity investment into Encash by
responsAbility Social Investment AG and Incofin Investment Management, arranged by Unitus
Capital, was the second impact investment in the country. However both investments amount to
a total of only $3 million (in 2012).
26. Establishing a guarantee facility can help attract more investors. A certain
percentage of funds that are allocated for CSR activities could be channeled to IBs through a
guarantee facility. The Philippine Business for Social Progress (PBSP), as the largest
association of business establishments in the country, is well-placed to steer the creation of this
facility.
6 ADB’S INVESTMENT TERMS
27. In line with ADB’s Finance++ approach11
, the share of private sector operations in
ADB has been increasing. From an allocation of $1,730 million for 14 projects in 2011, the
Board approved an increased allocation of $1,957 million for 20 projects for 2012 – 56% in
loans, 17% in guarantees, 10% in supply chain finance, another 10% in B loans (or loans
funded by commercial banks and other financial institutions with ADB serving as “lender of
record”); and 7% in equity investments.
28. ADB’s private sector operations department (PSOD) provides loans, equity and
guarantees to private sector companies. As of December 2012, its portfolio is valued at
USD$ 6,607 million composed of loans and quasi equity investments (60%), guarantees (22%)
and equity (18%). In terms of sector focus, its current portfolio consists of 72% for infrastructure
development, 30% supports the environment, 30% for financial sector development, and 24%
for regional cooperation. By subsector, this means around 34% going for energy-related
projects, 20% for industry, 18% for urban development, 16% for finance-related projects, and
3% for rural development.
29. ADB’s investment instruments for non-sovereign operations include:
 Local currency loans are priced based on relevant local funding benchmarks or ADB’s
funding costs and a market-based spread.
 Guarantees are typically designed to facilitate co-financing by mitigating the risk
exposure of commercial lenders and capital market investors. ADB provides guarantees
as credit enhancements for eligible projects to cover risks that the project and its
commercial co-financing partners cannot easily absorb or manage on their own. ADB
also provides political risk guarantees to cover specifically defined political risks.
Reducing these risks can make a significant difference in mobilizing debt funding for
11
Finance++ acknowledges the importance of leveraging resources and knowledge, in addition to direct finance to
achieve the Bank’s poverty reduction agenda.

10. 10
projects. ADB has used its guarantee instruments successfully for infrastructure projects,
financial institutions, capital markets, and trade finance. These instruments generally are
not recognized in the balance sheet and have off-balance sheet risks. For guarantees
issued and modified after 31 December 2002, ADB recognized at the inception of a
guarantee, the non-contingent aspect of its obligations. In 2012, ADB approved two new
guarantees totaling $403 million (2011: 4 guarantees totaling $416.6 million); out of this,
3 were for private sector operations.
 Syndications enable ADB to mobilize cofinancing by transferring some or all of the risks
associated with its loans and guarantees to other financing partners. Thus, syndications
decrease and diversify the risk profile of ADB’s financing portfolio. Syndications may be
on a funded or unfunded basis, and they may be arranged on an individual, portfolio, or
any other basis consistent with industry practices. In 2012, $200.0 million of B-loans was
provided for two private sector projects , compared to 2 projects in 2011 with $200
million investment.
 Equity Investments: The ADB Charter allows the use of OCR for equity investments in
private enterprises up to 10% of its unimpaired paid-in capital actually paid up together
with reserves and surplus, excluding special reserves. At the end of 2012, the total
equity investment portfolio for OCR for both outstanding and undisbursed approved
facilities totaled $1,348.1 million, or about 84% of the ceiling defined by the Charter. In
2012, ADB approved three equity investments.
30. Pricing and Risk Management: As ADB is exposed to various risks such as (i) credit
risk, (ii) market risk, (iii) liquidity risk, and (iv) operational risk in carrying out its mission, the
Bank has a comprehensive risk management framework. The risk of a project is assessed by
ADB’s independent Office for Risk Management. This office monitors the credit profile of
existing transactions in the non-sovereign (private sector) portfolio, conducts risk assessments
of new non-sovereign transactions, and assumes responsibility for resolving distressed
transactions when necessary. ADB assigns a risk rating to each loan, guarantee, and treasury
counterparty on an internal scale from 1 to 14, similar to the rating by international credit rating
agencies from D to AAA. ADB is exposed to credit risk in its sovereign, non-sovereign, and
treasury operations. The non-sovereign portfolio includes loans and guarantees, publicly traded
equity, and private equity. Overall, aggregate credit risk for ADB as a whole improved from 4.1
(BBB-) in 2011 to 3.9 (BBB+) in 2012.
31. Loan charges on non-sovereign loans. For non-sovereign loans, ADB applies market-
based pricing to determine the lending spread, front-end fees, and commitment charges for
each loan. The lending spread is intended to cover ADB’s risk exposure to specific borrowers
and projects and the front-end fee to cover the administrative costs incurred in loan origination.
Front-end fees typically range from 1% to 1.5% depending on the transaction. ADB applies a
commitment fee typically in the range of 0.50% to 0.75% per year on the undisbursed
commitment. Loans are based on London Interbank Offered Rates (LIBOR) plus the risk
premium plus the commitment charge. Being a development bank, ADB does not aim at
charging a major profit margin in its private sector operations; however the risk exposure is a

11. 11
major determinant of the pricing. Overall, for the ADB as a whole, the return on equity was 2.7%
(mainly determined by private sector operations), and the return on public and private sector
loans was 1.5% in 2012.
32. Procedures: For the non-sovereign portfolio, the Investment Committee and the Risk
Committee oversee the risks assessments and pricing of the proposed transactions. This is
done at concept clearance stage and before final approval, and it is further reviewed at least
annually during project implementation. ADB uses limits for countries, industry sectors,
corporate groups, obligors, and individual transactions to manage concentration risk in the
private sector portfolio. During 2012, ADB’s weighted average risk rating stayed constant at 6.3
(BB+), with 12% of the private sector loan and guarantee exposure classified as high risk, 39%
as low risk and the rest as medium risk. Of the 1.9 billion approved private sector projects in
2012, the Philippines has the 4th largest non-sovereign country exposure with $259 million after
the People’s Republic of China, India, and Pakistan, and before Indonesia and Thailand. 12
33. ADB’s private sector operations department (PSOD) increases its investments in
IBs. A recent evaluation of its portfolio reveals that 7% of its investments since 2000 worth
$736 million can be classified as IB. These were investments mainly in mobile
telecommunications services, and finance, and some investments in urban water, agribusiness,
and solar lanterns for the poor. Since 2012, PSOD is increasing its investments in the IB area,
with new deals (approved and in the pipeline) for slum rehabilitation and housing provision,
agribusiness, and social sectors.
34. In the Philippines, ADB’s recent private sector investments include a $25 million
commitment to the $625 million Philippines Investment Alliance for Infrastructure (PINAI), the
first and largest equity fund in the country. Not only is ADB an anchor investor in PINAI, it also
helped conceptualize the fund, select the fund manager and mobilize investors. In 2004, ADB
approved an equity investment of $2 million to facilitate the expansion of the capital base of the
LGU Guarantee Corporation, the first private guarantee institution in the country to provide
credit enhancement to sub-sovereign debt markets to local government units (LGU). So far,
ADB has not done any IB investment in the country. However there are some discussions on
deals in the education, agro-business, and health sectors. In addition, if pursued, the Philippines
would be part of the planned Southeast Asia Inclusive Business Fund.
7 CONCLUSIONS
35. Impact investments are on its rise and there is a good potential for inclusive
business in the Philippines. Improving the regulatory environment, mobilizing the local banks,
creating a guarantee facility, and providing technical assistance to companies can spur the
growth of the industry.
12
All data are taken from the ADB Financial Report 2012: http://www.adb.org/sites/default/files/adb-financial-report-
2012.pdf.

12. 12
8 REFERENCES AND FURTHER LITERATURE
ADB. June 2013. Development Effectiveness Report 2012 for Private Sector Operations.
Manila.
ADB. April 2013. Inclusive Business Study: Philippines. (Unpublished report, prepared by ASEI).
http://www.adb.org/sites/default/files/2nd-ibf-phi-business-study.pdf.
ADB. February 2013. Due Diligence Report on Indonesia and Philippines for the ADB Inclusive
Business Fund Initiative: Key Findings. (Unpublished report, prepared by Noah Beckwith).
ADB. 2013. Financial Report 2012. http://www.adb.org/sites/default/files/adb-financial-report-
2012.pdf.
ADB. 2011. Impact Investors in Asia: Characteristics and Preferences for Investing in Social
Enterprises in Asia and the Pacific. Manila.
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