Not everyone has the entrepreneurial skills to lift themselves out of poverty with a small loan. Microfranchising provides an alternative by helping poor people profit from proven business models without repeating the mistakes of others.
 | Franchising has been at the basis of some of the world's most succesful companies like Starbucks or McDonalds. Now it is being used as a development tool (Photo: Reuters) |
Despite some nationalist rumblings and the country's centuries-old affinity for tea, Starbucks has found success in China. Hundreds of Chinese franchise entrepreneurs rely on the coffee company's image and products to win over a generation of white collar workers in China's booming cities. Around the globe, franchises have become a dominant part of the economy and urban landscape.
Given the success of franchising, it was just a matter of time until innovators in the development sector would start tinkering with the idea. While microcredit is catered to people who either have small businesses or some entrepreneurial skills, microfranchising offers successful and easily replicated business models for those without those skills or a business idea.
"When you say franchising, many people think of McDonald's or fast food chains," says Jason Fairbourne, director of the MicroFranchise Development Initiative at Brigham Young University's Center for Economic Self-Reliance. "But what we mean by franchising is business that's efficient and replicating that business model to provide people with opportunity."
A symbiotic relationship
Grameen Foundation's Village Phone project, for example, provides villagers with a microcredit loan to purchase a mobile phone, a booster antenna, cables and a recharging unit. The owner can then charge others in the community for use of the phone on a pay-per-call basis. The income pays off the loan and, in many cases, turns a profit.
Meanwhile Ghana's dairy supplier Fan Milk partners with hundreds of bicycle ice cream vendors. Vendors come up with an initial sum of money to purchase a bike, and must buy daily inventory - ice cream, milk, yogurt, and popsicles - from Fan. Average profits for vendors, however, are over five dollars a day, well above the average daily income in Ghana of 1.90 dollars.
 | B. Sujatha, an Indian entrepreneur of the Scojo Foundation, a successful microfranchising project that sells reading glasses in poor communities (Photo: Darby Films) |
In this case, the franchisor-franchisee relationship is symbiotic: vendors benefit from Fan Milk's reputation, marketing, and infrastructure, while Fan Milk benefits from having hundreds of motivated salespeople distributing their products.
Addressing the limits of microcredit
Such microfranchising projects might be an answer to critics like Thomas Friedman, who believe Africa needs "more capitalists," and that microcredit alone is not enough to spark an entrepreneurial revolution.
"People grow out of poverty when they create small businesses that employ their neighbors," wrote Friedman in the New York Times. "Microfinance has a role, but many people don't want the pressure of being an entrepreneur. They want the stability and prosperity of a job created by capitalist risk takers and innovators."
According to microfranchise expert Kirk Magleby, jobs are so rare in developing countries that "virtually everyone is a de facto small-time entrepreneur whether they like it or not." But most of these "hundreds of millions of tiny businesses," he says, never support more than a subsistence livelihood. Another advantage of microfranchising, Magleby argues, is that it empowers more than the few naturally gifted entrepreneurs.
Oversaturation of markets
Microfranchising also addresses another common problem in developing local economies - when one successful small entrepreneur soon finds him or herself competing with an ever-growing number of similar, if not identical businesses. On research trips to African towns and villages, Jason Fairbourne remembers seeing several small businesses lined up next to each other - all financed by microcredit loans, all selling the same thing. "Four or five tailor shops right next to each other, and the next thing you know the market is saturated with that one business," he recalls.
Proper business training is one way of avoiding such bad business practices. One example is Scojo Foundation, a non-profit sells affordable reading glasses in poor communities in nine countries. Instead of receiving broad business training, Scojo's entrepreneurs get the practical skills to succeed - in this case, how to conduct basic eye exams and sell reading glasses.
"Microcredit gives someone access to capital; it does not give them access to a proven business plan/system," says Graham Macmillan, director of the Scojo Foundation. "Microfranchising enables low-income people to follow a series of steps that are clearly laid out. If they follow these steps with passion and determination then they can achieve a great deal of financial and social success."
editor: Valdis Wish
publishing date: August 2, 2007
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