Explainer: What are inclusive businesses? Why they should be backed?

Across low- and middle-income countries, essential goods and services, such as clean water, energy, financial services, and agricultural inputs, remain out of reach for billions of people. An estimated 2.1 billion people still lack safely managed drinking water, 730 million live without electricity, and 1.3 billion adults remain outside the formal financial system. Public budgets cannot close these gaps alone, and conventional private investment rarely reaches the communities that need it most.

Uganda is one example. The national water utility primarily serves urban and peri-urban areas, leaving millions of rural households without reliable access to safe water. A different kind of business is beginning to change this.

In Uganda's Kasese District, small-holder farmer Alex Tabulenga and his family used to walk almost two kilometres every day to collect water. Today, they have water at home. His wife has time for other work. His children attend school regularly. And he earns an income selling water to his neighbours. "Water has changed our lives," he says.

Alex and over 410,000 others in the district are participants in a business model that integrates low-income communities into its value chain as active stakeholders—an inclusive business. This explainer unpacks what they are, why they matter, and why they are worth backing.

The G20 defines inclusive businesses as enterprises that provide goods, services, and livelihoods on a commercially viable basis, either at scale or scalable, to people living at the base of the economic pyramid, making them part of the value chain of companies' core business as suppliers, distributors, retailers, or customers.

In simpler terms, an inclusive business is a commercially viable enterprise that deliberately integrates low-income communities into its core operations. This is not corporate social responsibility. Inclusion is not an add-on. It is the business model. That distinction matters because it changes what drives performance. An inclusive business succeeds commercially precisely when it serves underserved communities.

Inclusive businesses deliver what is often called a "triple win": benefits for governments, for low-income communities, and for the businesses themselves.

For governments, inclusive businesses address priorities that sit high on every developing economy's agenda: job creation, income growth, food security, financial inclusion, and climate resilience. They do so through sustained commercial activity. This translates into private sector partners that advance the development agenda at no cost to the public budget. They generate tax revenue, reach communities where the state has limited presence, and build economic activity in regions that conventional investment has long overlooked.

For low-income communities, the benefits are direct and concrete. As suppliers, smallholder farmers gain access to stable markets, inputs, training, and often financing to improve their productivity. As distributors and retailers, local entrepreneurs build sustainable livelihoods by bringing goods and services to their communities. As customers, low-income households gain access to essential goods and services—clean water, energy, financial services, agricultural inputs—that meet their needs, support their wellbeing, and help grow their incomes.

For businesses, the base of the economic pyramid represents substantial economic opportunity. The 4 billion people living on less than $8 per day represent a $5 trillion market. Inclusive businesses tap into this market by overcoming barriers that have kept it underserved. They often discover new customer bases, build loyal relationships, and create competitive advantages through deep market knowledge. Financial returns come from improved productivity, stable supply chains, and the goods and services they provide.

An example in a different context is Wuchi Wami, a Zambian honey company that sources from smallholder beekeepers across the country's northern forests. It illustrates this triple win: the company promotes forest conservation and rural employment (government win), provides 2,500+ smallholder farmers with a reliable income from sustainable beekeeping (community win), and has secured international certifications and export markets in Norway, Botswana, Namibia, and Zimbabwe (business win).

The answer lies in their position in the capital market. Many inclusive businesses fall into what is known as the "missing middle": too large and complex for microfinance, but too small and risky for commercial banks and institutional investors.

This is where development finance plays a catalytic role. A relatively modest grant or concessional investment, combined with investment intermediation support, can help an inclusive business prove its model, build its track record, and de-risk its operations to the point where commercial lenders and investors are willing to engage.

The strongest argument for investing in inclusive businesses is not what they achieve today, but what they sustain tomorrow.

Once an inclusive business reaches scale, it keeps generating jobs, income, and access to services. The model is self-reinforcing: a stronger business means more suppliers with reliable income, more employees with transferable skills, more customers with access to essential goods, and more economic activity embedded in the local economy.

For those navigating a rapidly changing development landscape, this distinction matters. For donors, that means continuing to invest in catalytic instruments that reach the missing middle. For governments, it means creating the policy and partnership conditions in which inclusive businesses can grow. For investors, it means engaging earlier, and alongside catalytic capital, where the commercial case is strong.

Development finance works best when it catalyses economic activity that continues independently of the funding itself. Inclusive businesses are not a channel for delivering development outcomes. They are a mechanism for sustaining them.