Wednesday
August 18
2010

Josh Cleveland

The Future of Microfranchise: The State of the Field

Editor’s note: A few weeks back, Staff Writer Josh Cleveland discussed with us the opportunity to publish a special series focusing on the state of microfranchise and its role on the advance of social enterprise. Almost at the same time, we initiated a media partnership with iuMAP, whose introduction has consisted of a series of articles that focus mostly on the same topic, analyzing microfranchise and its potential to scale the impact of market-based approaches to poverty.

In a few weeks NextBillion will publish an e-book summarizing the series of microfranchising, including the articles of the iuMAP series and those authored by Staff Writer Josh Cleveland, including resources on the same topic available in other outlets and publications.

* * *

By Josh Cleveland

Does the emperor of microfranchise have any clothes? I certainly thought so. I was first drawn to the concept while working on a microfinance project in rural Bolivia. At PDAI, most of our prospective clients were not actually entrepreneurs. They were farmers in communities with fairly widespread social problems. They needed new jobs and they needed service provision. We were there to give loans and build financial capacity. But many times we couldn’t offer them what they really needed.

While in Cochabamba, a friend forwarded me an email from BYU on this thing called “microfranchise.” Understanding that there is still considerable debate over what microfranchise is, I employ the definition used by researcher Deborah Burand: “microfranchises employ many of the practices used in commercial franchising to create scalable business opportunities that are affordable enough to be owned and operated by people who live at the base of the economic pyramid.” (For more discussion of this, please refer to the Dalberg report: Franchising in Fronteir Markets.) Jobs, social good, economic development, scalability – it sounded like just what we needed so I sent an email to Jason Fairbourne, a microfranchise guru (and co-author of a great recent article on the topic in Stanford Social Innovation Review), asking for his thoughts on how other MFIs were approaching the concept. Jason sent me some helpful info on what he was up to and how we might tap into the idea but by the time I could think about implementation, we had gone another route. My stay in Bolivia soon came to an end and I was on a plane to my next job at Net Impact.

I am now back looking at this tool for social and economic development under a different lens. With my investigative NextBillion hat on, I’m here to ask whether progress is really being made in the microfranchise world and what can be done next to move the field forward.

Before we address what’s holding microfranchise back, lets check in briefly on where the sector stands by looking at some examples of active microfranchise networks.

VisionSpring. According to an Acumen Fund report, to date VisionSpring and partner organizations have sold over 100,000 pairs of reading glasses, trained over 1,000 Vision Entrepreneurs, and referred over 80,000 people for advanced eye care.

Drishtee. The organization’s +8,000 entrepreneurs reach more than 500,000 rural Indian residents with access to fast moving consumer goods.

HealthStore Foundation. This network has provided for approximately 2,000,000 patient visits from low-income customers in Kenya seeking health care since its inception in 2000.

SELCO Solar Lighting. This organization, which works with MFIs to train and finance entrepreneurs to sell small-scale solar power systems has distributed and serviced over 100,000 solar systems.

These are impressive accomplishments for the microfranchise model: 100,000 solar systems in use, improved eyesight for 180,000 BoP consumers, 500,000 reached with valuable, otherwise inaccessible consumer goods, and over 2,000,000 reached in Kenya alone with high-quality, low-cost healthcare. And that’s only the data from four leading organizations.

The innovative products and models don’t stop there.

The Grameen Foundation, no stranger to BoP business models, launched a Village Phone program that “works as an owner-operated GSM payphone whereby a borrower takes a $200 loan from Grameen Bank to subscribe to Grameenphone and is then trained on how to operate it and how to charge others to use it at a profit.” There are now well over 255,000 Village Phones in operation in 55,000 villages throughout Bangladesh. (Check out past NextBillion articles for more info on this project.)

Ecotact Limited, an investment of the Acumen Fund, generates revenue through its IkoToilet franchises by providing access to high-quality, environmentally responsible sanitation facilities. IkoToilet franchise owners attract customers by offering other services like shoe shines, refreshments, and newspaper sales and then impressively uses biogas generators to convert the waste into fertilizer. The franchise plans to expand to serve over 200,000 new customers and employ over 2000 workers in the coming five years. (Find more info in Benje Williams NextBillion post here.)

Just in those examples listed above, we’ve covered the fields of energy, healthcare, consumer goods, eyeglasses, sanitation, and communications. The organizations here reach major BoP markets in sub-Sahara Africa, Asia, and Latin America. More examples abound.

For deeper insight on the specific models that guide those organizations, check out the recent posts in the Ayllu series on conversion franchising, infrastructure-based franchising, and agent networks.

The innovations are there. So what’s lacking? Three words: financial sustainability and scale. These two issues are intimately linked, especially when you’re talking about BoP business. With thin margins you need scale to get revenues high enough to cover costs. Talk to any one of the organizations mentioned above (each with the exception of Drishtee is not yet financially self sufficient) and sustainability and capital rank high on their list of concerns. The shining light at the end of the tunnel – self-sufficiency – is still dim in most cases. Indeed, as reported in Emerging Markets, Emerging Models, a Monitor Group publication: “On the whole, although many social
franchisees are – or have the potential to be – financially sustainable, few have become
commercially viable.”

Here’s what this all points to: the ideas are there. Promising products, services, and models have been developed for microfranchising. But some large roadblocks are preventing this much-hyped development opportunity from stretching its wings. The following posts in this week-long series dive deeper into those challenges and suggest some pathways forward for the field.

As you read these and other posts on the topic, I’d encourage you to use the recent articles and reports listed below as references to find more information:

Categories
Entrepreneurship
Tags
Ashoka