Microfranchising Series

!"#$#%&#'()*

e-book brought to you by:

 eBook
This e-book is a compilation of blog This series provides an overview of
posts from the iuMAP series on different types of microfranchising,
microfranchising, published by NextBillion profiling social enterprises that use this
in the summer of 2010. iuMAP is a web- distribution strategy, and providing
based director y of BOP social insights and information for both
enterprises that was launched by Ayllu in investors and those looking for funding. It
July 2010, in media partnership with Next is part of a rich discussion about
Billion. microfranchising that has been going on
recently, which you can find out more
Ayllu collects, analyzes and shares key about in Ayllu’s resource library.
information and data about social
enterprises in BOP markets. Next Billion
is a blog that brings together the
community of business leaders, social
entrepreneurs, NGOs, policy makers, and
academics who want to explore the
connection between poverty alleviation
and enterprise.

2
 Contributors
Francisco is!NextBillion's Managing Editor, as well as the Founder and co-Editor of NextBillion
en Español, a website and blog aimed to advance the development through enterprise
community in Latin America. He is currently a graduate student at Columbia University's
Masters in Development Practice, in New York City.

Until August of 2010, Francisco worked as an Associate with the Markets and Enterprise
Program at the World Resources Institute, in Washington DC. At WRI he did research on the
Francisco Noguera role of small and medium-sized enterprise in sustainable development, leading the launch of
Managing Editor, the New Ventures initiative in Colombia in collaboration with Universidad de los Andes.
NextBillion Francisco also has experience in investment banking and management consulting, and is a co-
New York, NY founder at Prospéritas Microfinanzas, a microfinance organization that provides business
development and credit to microentrepreneurs in Colombia. Francisco holds a degree in
Industrial Engineering from Universidad de los Andes in Bogotá, Colombia.

Twitter @fjnoguera.

Nate is Ayllu’s COO and editor of the Next Billion series. Prior to Ayllu, he consulted with a
variety of social enterprises around the world, including VisionSpring and Pratham Books in
India, Conversion Sound in Nigeria, and Somos Más in Colombia. Nate spent the first 6 years
of his career primarily in West Africa, with the United Nations Food and Agriculture
Organization, the Institute for Transportation and Development Policy, and the US Peace
Corps. Nate is originally from Washington DC and holds an MBA from the Yale School of
Management, an MA in International Relations and Economics from Johns Hopkins University
Nate Heller (SAIS), and a BA in Philosophy from Connecticut College.
COO, Ayllu
Sao Paulo, Brazil

Shital is a Managing Editor for ThinkChange India, a blog tracking social innovation and social
entrepreneurship in India, and is an alumna of the Indicorps fellowship. She has previously
worked with the UN, Acumen Fund, Oxfam International, and the World Bank. Shital
completed her MPA in international development from NYU Wagner and is currently
working as a management consultant in Washington, DC.

Shital Shah
Blogger, iuMAP
Washington, DC

3
 Contributors
Tayo is a recent graduate of the Johnson Graduate School of Management at Cornell
University, where she concentrated in Sustainable Global Enterprise. Her professional
interests include BoP entrepreneurship, African telecom, boutique consulting, scenario
analysis, and social impact assessment.!

Tayo previously worked for Burke & Partners, a Chicago-based consulting firm, as well as
Catalyst, a New York-based research and advisory organization that helps businesses build
Tayo Akinyemi inclusive environments and expand opportunities for women.! After nearly four years with
Blogger, iuMAP Catalyst, Tayo accepted a Princeton in Africa Fellowship to do democracy and governance
Chicago, IL work with an international NGO in Abuja, Nigeria.! At the conclusion of her fellowship, she
joined the marketing department of an emerging telecommunications company in Nigeria,
Suburban Telecom.! Tayo holds a Bachelor's degree in Sociology from Princeton University.

Josh is a consultant who works with innovative ways of using markets to further social and
economic development in base of the pyramid markets. His current research includes social
intrapreneurship, microfranchise, and corporate engagement at the BoP.

Josh collaborates with Ayllu as a blogger and as a strategy consultant. His past work has
focused on enabling companies, individuals, and organizations to use the power of business to
create positive social and environmental change. He has worked for TransFair USA, Net
Impact, and PDAI (a microfinance provider in Cochabamba, Bolivia). Josh earned his BA in
Josh Cleveland
Political Science from the University of Michigan, where he helped establish Brewing Hope, a
Blogger,
Fair Trade coffee partnership. Josh can be reached via email at josh.j.cleveland@gmail.com
Next Billion
San Francisco, CA

Melissa is the Executive Director of!Ayllu, which provides critical support to social enterprises
in emerging markets to scale their impact. Recently, in media partnership with Next Billion,
Ayllu launched! iuMAP, the world's largest directory of BOP social enterprises. Melissa
previously worked for Ashoka: Innovators for the Public. She has worked on international
development projects in Africa, Europe, the Middle East, and Latin America that include
education, maternity care, conflict resolution, immigration, and minority rights. Melissa is
originally from Philadelphia, PA, is a graduate of Duke University, and lives in São Paulo, Brazil.
Melissa Richer Twitter!@melissaricher!
Founder, Ayllu
Sao Paulo, Brazil

4
 Index
Foreword by Introduction:
Acknowledgments
Francisco Noguera What’s Next for
& Resources
iuMAP
Page 6
Pages 37 & 38
Page 7

Spotlight on Microfranchising: A Closer Look at the

A look into the Future of “Business in a Bag” Model
Social Enterprise
Page 10
Page 8

“Machine Powered”
Entrepreneurs: Infrastructure- A Closer Look at
based Microfranchising “Conversion Franchising”

Page 12 Page 14

The State of the Field Human Networks for

Social Good
Page 17
Page 20

Investing in Microfranchising: An Interview with

What Should I Know? Deborah Burand

Page 22 Page 25

Support for Microfranchising: Is Microfranchising

Knowledge, Funding, and the Next ‘Big Thing’?
Missing Links
Page 33
Page 31

5
 Foreword
September 16, 2010
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Francisco J. Noguera
Managing Editor, NextBillion.net

6
 What’s Next for iuMAP
September 4, 2010
Greetings Readers!
In July 2010 Ayllu launched iuMAP, which
tracks and shares information on BOP
social enterprises in over 60 countries. As
we discussed in our first and second Next
Billion posts, we built iuMAP because there
is a need for centralized information that is
easy to access, and easy to digest. We did
this because we believe information is key
for social enterprises to reach millions
more people living in poverty. iuMAP will
help our sector learn from successes,
failures, and challenges so that decisions can
be made more easily, quickly, and cheaply.
iuMAP is currently a web-based directory
and a blog where we publish our Next
Billion posts. It lists more social enterprises
than any other available public resource. In
its first month iuMAP received visits from 78 countries and many funders and social enterprises
used it to find new opportunities. So far we’re off to a good start, but in the coming months
iuMAP will become an increasingly useful tool. We will make it more interactive, using it to share
up-to-date information that we’ve collected and analyzed through our global surveying. Look out
for a major upgrade in September, and for an increasing amount of data by the end of the year.
iuMAP is a place to learn about social enterprises, opportunities, best practices, benchmarks,
trends, markets, and connections. Our vision is a "complete puzzle" for social enterprise, and a
system that allows us to find missing pieces in an efficient fashion. Vetted and reliable information
will give us a better sector picture and allow us to establish the frameworks and transparency
necessary for our young market to become a mature industry.
You can help us enormously by submitting social enterprises that are unlisted and by giving
feedback. We’re so excited to put social enterprise on the map with you!

Melissa Richer,
Founder, Ayllu

7
Spotlight on Microfranchising: A Look Into the Future of Social Enterprise
By Shital Shah and Melissa Richer
Published on NextBillion July 6, 2010

Microfranchising is a way to distribute products

and services through a business the size of a
microenterprise. Microfranchises are demand
driven and tend to have local buy in because they
employ community members who sell these
products/services to other community members.!
The standardization built into microfranchise in
terms of business processes and branding among
others, is helpful for scaling purposes since it
makes models replicable and adaptable to new
locations.
However, growth and expansion is not
guaranteed - while a solution may work in one
location, expanding to other areas may test the
!"#$#%&#'()*
limits of standardization, as operating in many
locations can require a level of systematization
that is difficult to achieve. With micro- Actually, microfranchising can act as a link
franchising, local context is extremely important; between social enterprises and microfinance
there are many key ecosystem elements to the institutions; community members often need
success of a business model, so transporting a loans to buy stock of beneficial products /
model from one place to another requires not services, or to start a microfranchise. Milaap and
only standardization but also adaptation.! Frontier Markets are two startups working on
Microfranchising is frequently compared with making product loans happen.! Interestingly,
microfinance, but they actually fit in different microfranchising may actually help microfinance
baskets.! A microfinance institution is a stand- institutions overcome their own scaling
alone business whereas a microfranchise is part challenges, which you can read more about in a
of a larger business (the 'franchisor') and is used Beyond Profit article by Ayllu.
as a distribution channel.! In this way Today, the social enterprise sector is still
microfranchising is more like group lending, a experimenting, confirming, and growing.!
common tool used in microfinance.! Group Microfranchising is so new that a lot of questions
lending is a way to address the challenges of remain unanswered, which is allowing the
making loans to people with no collateral.! concept to generate healthy debate.! Deborah
Similarly, microfranchising is a way to solve the Burand of CGAP recently provided a good
challenges of distributing products at the Base of overview of the existing gaps, including lack of
the pyramid. knowledge sharing and issues with financing,

8
regulation, and technology (her team at the
William Davidson Institute also just completed
an Omidyar-funded study on the topic).! In
addition, it is not yet clear which kinds of social
enterprises best fit with microfranchising: which
products or services can easily and profitably be
distributed by community members?! In which
cases is another distribution strategy going to
create more wide and deep impact?
Definitions and points of contention aside, what
does microfranchising look like in action?! At
Ayllu we stay in touch with social enterprises
about how their business models are evolving.!
We try and understand what's working and how
it is structured, so we're digging deeper into the
many forms microfranchising can take. We start
below by briefly introducing the schemes we will
discuss in more detail in the coming weeks.
Business in a bag: In the same way the cosmetic
company Avon provides a full kit to equip any
interested woman to sell makeup products, social
enterprises can provide a standardized process
and training to allow ordinary members of
communities to act as direct sales micro-
entrepreneurs.! These entrepreneurs sell
products within their community mainly through
organizing sales events or going door to door.!
VisionSpring, the popular affordable reading
glasses provider, puts this in action through vision
entrepreneurs who conduct basic screenings and
sell glasses.! Living Goods involves community
members who sell affordable health products
door to door to low income households.! Armed
with the proper training and equipment,
community members are empowered to become
the owners of their own microbusinesses.
Conversion franchising: Conversion franchising
can be done in two ways: 1) absorbing existing
businesses into a franchise network (CareShops,
CDI! Lan), or 2) inserting a microfranchise
strategy into an existing business, as Nuru Lights
does by training shopkeepers to operate its
pedal-powered light charger.! Building and
managing a microfranchise network can be labor
intensive, but distribution may be easier because
it takes advantage of established micro-
enterprises with established customer bases. !
Infrastructure based:! Social enterprises can also
scale up by creating franchisees that use
machinery or other forms of capital.! One
example again is Nuru Lights, which sells solar
lights in East Africa and trains local shopkeepers/
microfranchisees to run rent-to-own pedal
powered machines to charge them. Sarvajal is
another example, selling purified water in India
through microfranchisees who run rent-to-own
purification machines.! By providing small
infrastructure installments, social enterprises can
provide services in all corners of a country.
Agent networks:! Using an agent network to
expand a business model is especially common
f o r s e c t o r s s u c h a s m o b i l e b a n k i n g .!
Organizations like Mobile Transactions, a mobile
based money transfer service, and Esoko, a
mobile service that provides current agriculture
market data via SMS, use agents as a key part of
their model.! In these models, the size of the
network is a key part of the businesses' value-
add (market data collected from more locations;
more potential locations to transfer money to).!
Agents are existing community members that
either sell products or provide information for a
business.! Since agents are usually already
involved in a business or industry, they are well
placed to link with a social enterprise and extend
their product offerings.
The next post in this series will go in depth
about businesses in a bag, so be sure to look out
for more insight on how that form of
microfranchise works.! To learn more, you can
find resources on microfranchising here.
9
A Closer Look at the “Business in a Bag” Model
By Tayo Akinyemi
Published on Next Billion July 29, 2010
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11
“Machine Powered” Entrepreneurs: Infrastructure-based Franchising
By Shital Shah
Published on Next Billion August 3, 2010

Continuing our exploration of microfranchising,

we'll move on from discussing the business-in-a-
bag model to one that requires a larger physical
presence for the franchise: infrastructure based
models.! ! As suggested by the title of this post,
some social enterprises offer services, such as
electricity or water, that require small scale
machinery to provide.! To franchise operations,
they need to equip each franchise with the
appropriate infrastructure to offer the service to
their customers.! Generally, those interested in
forming franchises buy a machine and then can
use it to earn continued revenue off customers One of Husk Power Systems mini plants
by becoming, for example, their source of water
or power.! Franchise owners continue to make
entrepreneurs who buy the infrastructure or
money well after the initial investment is paid
rent-to-own, creating a basic franchising
off, offering a sustainable livelihood option.!
framework.
Several existing models demonstrate the use and
There are also a number of other models that
success of the infrastructure approach.! Sarvajal,
offer these same types of services by placing
based in India, establishes water franchisees that
infrastructure in underserved communities, but
provide customers with clean water.! More on
d o n o t q u i t e fi t t h e f r a m e w o r k o f
Sarvajal's operations can be read here.! In order
microfranchising because they do not involve an
to provide the clean water, each "water
entrepreneur.! For example, Naandi Water uses a
entrepreneur" operates a water filtration unit
community owned and managed user fee based
and charges customers for the filtered water.!
model that expands access to safe drinking
Nuru Lights, profiled here, offers a low cost
water;! Husk Power Systems uses miniature
rechargeable LED light kit as an alternative to
power plants that use gasification technology
kerosene in East Africa and India.! Franchisees,
powered by rice husks;! IDEAAS leases solar
usually shopkeepers, are equipped with pedal-
technology to the poor in Brazil.! While we do
powered chargers and customers pay them to
not place these models under the infrastructure
have their lights recharged.! By creating "solar
microfranchise category, we would like to hear if
entrepreneurs" who sell power to community
others have a different take.
members using RFID cards, Solar Energy
Foundation similarly creates "solar entre- Infrastructure based microfranchising rests on
preneurs" who sell power to community several key factors.! At the center of this model
members using RFID cards.! All these businesses is, of course, the entrepreneur running the
include a machine or technology and local franchise. Creating a successful franchise requires

12
robust processes to identify, recruit, train, and challenges, the potential for scaling up will grow
retain the franchisee owners.! The social stronger.! However, not all social enterprises can
enterprise essentially has to trust the franchisee apply this model, and the next post in this series
to offer quality services using a prescribed will cover yet another option for micro-
process.! Training is especially important in this franchising: the conversion approach. !
approach since operating and caring for the
m a c h i n e s m ay re q u i re s o m e t e c h n i c a l
knowledge.! Moreover, trust becomes an issue as
the enterprise relies on the microentrepreneur
to manage cash and report statistics accurately;
as cheating to get a little extra money can pose a
risk to the enterprise's profitability and brand
name.! Another issue for the enterprise is that
this approach entails providing repairs,
troubleshooting, and general support for the
franchise, particularly since the business requires
the machinery to be operational to function.
Since this model does involve infrastructure,
there are also capital costs that go along with
the machines.! Financing the franchise poses a
challenge, and the social enterprise often has to
assist the franchises in obtaining a loan or finding
ways to cover their costs at the beginning.! In
turn, this issues impacts the profitability of the
social enterprise and how attractive it may look
to investors.! Operating leases could provide
relief to enterprises who take on franchisee
debt, but while such leases are common in the
private sector, they have not yet found their way
into the social enterprise world.!
For social enterprises that offer a service
centered around equipment or machines, the
infrastructure approach is an appropriate way to
scale up and continue to offer services locally,
strengthen branding, and encourage entre-
preneurship.! As more businesses test out this
idea and innovate on ways to address the

13
A Closer Look at “Conversion Franchising”
By Tayo Akinyemi
Published on Next Billion August 11, 2010

What is conversion franchising?

For social enterprises that have a business model
that provides an improved version of a product
already being provided to their target
customers, conversion franchising may be a
viable option.!
Conversion franchising transforms pre-existing,
independently-owned businesses into members
of a standardized network.! Scalability and
profitability may be enhanced because potential
“Convertible” SAAB 900
franchisees already have a physical location,
business experience, and regular customers.! The benefits of conversion franchising do not
Not surprisingly, several benefits accrue to a accrue automatically.! One of the major positives
potential franchisor including: of this model is that the franchisee is not starting
• Streamlined process as compared to from scratch but already has a business in the
franchise field.! However, this can also be one of
starting new business;
• Lower capital requirements because the biggest challenges, because the existing
practices of the franchisee do not always fit the
infrastructure is already built;
• Distribution of risk because shops serve needs of the franchisor.! If incentives are not
designed correctly, franchisees may pick and
different populations in different locations;
• Shop owners' local customer knowledge, choose which of the franchisor's rules to adopt,
or may try to use their previous connections to
e.g. common ailments and treatment
compete with the franchisor on supplies or
patterns
other inputs.!
The franchisee potentially benefits from an
The franchisor must strike a balance between
increase in income, access to business training, a
implementing standard practices and customizing
streamlined distribution network often including
parts of the business model to suit the local
volume discounts on products, and a strong
context. This can be difficult to accomplish when
franchisor brand.!
the individual and aggregate needs of conversion
Conversion franchising has been used to franchisees cannot be reliably anticipated. ! The
network pharmaceutical sellers in Ghana demise of CareShops Ghana demonstrates this
(Careshops Ghana), midwives in Peru (Redplan well.
Salud), internet cafes in Brazil (CDI LAN), and
CareShops Ghana: Confronting the
rural service kiosks in India (Drishtee), among
Pitfalls of Conversion Franchising
others.!!
CareShops Ghana was a conversion franchisor
What Does It Take to Succeed? founded to enhance "access to non-prescription

14
drugs with significant health impact such as
malaria and diarrhea medication ...by improving
the service quality and drug supply chains of
Ghana's chemical sellers."! CareShops was
launched by the Ghana Social Marketing
Foundation under the auspices of its for-profit
subsidiary, Ghana Social Marketing Foundation
Enterprises Limited (GSMFEL).! Many
Ghanaians, particularly in rural areas, have limited
access to healthcare facilities and experience
poor service and uncertain availability of
medication.! Consequently, those who cannot
see trained health professionals will seek the
council of licensed chemical sellers (LCS).
CareShops provided its franchisees with a
streamlined distribution network that included
on-site delivery, extensive business training, and a
strong branding scheme supported by the
renovation of franchisee stores.! In turn, the
financial success of Careshops' model was
contingent upon several factors, such as
• the collection of franchising fees;
• achieving a significant volume discount on
drug purchases from suppliers;
• margin earned on sales of medication to
franchisees (which assumed that GSMFEL
would be an exclusive supplier); and
• rationalization of SKUs.!
Unfortunately, all of these factors would present
challenges to CareShops' sustainability.
• First, GSMFEL could not enforce its sole
distributor status. Not only did it face
competition from suppliers who elected
to sell directly to CareShop franchisees,
but these suppliers were often better
equipped to respond to market demand
and undercut GSMFEL's prices. In fact,
CareShops only accounted for 15% of
franchisees' product purchases during its
best year, while supporting all of the costs
of being a full-fledged distributor.
• Secondly, CareShops was unable to
reduce the number of different products
it supplied to franchisees, driving up
inventory costs. Initially, it had planned to
limit its inventory, but it was forced to
expand in order to respond the needs of
its franchisees and their customers.
• CareShops was unable to secure the level
of volume discounting (20%) on which its
business model was based. In reality, the
discount was closer to 12%, significantly
below break-even.
• Additionally, GSMFEL had a difficult time
collecting payment for its deliveries. For
example, some shop owners would
arrange to be away at delivery time,
leaving behind assistants who were
reluctant to pay in the absence of their
supervisors.
• Finally, although LCS's are prohibited from
stocking prescription drugs, many did so
anyway. Because GSMFEL did not supply
these drugs to its franchisees, it missed
out on the revenue that the sales would
have garnered.
In the end, CareShops Ghana could not change
these practices and failed because the cost of
capital associated with sustaining a failing
business was too high.
Drishtee: A Model of Prog ress in
Conversion Franchising
Drishtee, a social enterprise based in India, uses
entrepreneur-managed kiosks to provide a wide
range of fee-based products and services ranging
from insurance and microcredit to seeds and
phone cards.! Each kiosk has a different suite of
offerings, chosen from Drishtee's thirty
templates.! These products are complemented
by local services and goods that Drishtee doesn't
supply, like printing and stationery.! Established as
15
a for-profit in 2000, Drishtee reached break-even
in 2005 and profitability in 2006, and has been
hovering around profitability since then.
Drishtee's foray into conversion franchising came
with the advent of rural retail points (RRPS) in
2008, which converted village shops selling fast
moving consumer goods (FMCGs), like packaged
food and hygiene products into Drishtee
franchises. As with other models, franchisees
benefited from the franchisor's distribution
system.
On the surface, it's tough to tease out the
differences between CareShops and Drishtee.!
What enabled one to survive while the other
struggled?! Although several factors contributed
to Drishtee's success, ! a few are particularly
relevant as points of comparison to CareShops.
• Effective supply chain management. Given
the variety of products that Drishtee
kiosks carry, it is difficult to achieve the
volume discounts that drive down
procurement costs. Consequently,
Drishtee has created a web-based
inventory management tool that enables
kiosk managers to order supplies online
and helps Drishtee better manage and
aggregate orders. Drishtee's focus on
FMCGs also helps it reduce costs as the
frequency of sales, and therefore the
monthly volume, is higher. Drishtee's
continued success will be partially
contingent upon supplier adoption of its
online tool.
• Incentive alignment as a substitute for
enforceable contracts. As we learned in
the CareShop case, contract enforcement
is difficult, if not impossible in many cases.
Drishtee has circumvented this challenge
by offering financial incentives to shape
behavior. For example, it will offer higher
commissions on certain goods to help
entrepreneurs overcome lack of fam-
iliarity with the products.
• Using revenue sharing as a financing
mechanism. Drishtee was able to reduce
upfront franchise fees, reducing risk for
entrepreneurs and eliminating fee
collection challenges by focusing on sales-
based revenue sharing.
Lessons Learned
Despite its troubles, CareShops established a
need and demand for business training among
franchisees.! Additionally, it demonstrated the
effectiveness of the microfranchise format as a
platform for providing "behavior changing"
education and support.! Drishtee's business
model exhibits some of the key principles
outlined by the Acumen Fund, including the
following:
• Efficient supply chains are needed, but
difficult to create.
• Contracts and legal considerations must
be situationally appropriate.
• Microfranchisees require financing.
See Acumen's working paper entitled "Micro-
franchising at the Base of the Pyramid" for
additional details. !
Although it is difficult to make a definitive
statement about the success of conversion
franchising as a way to create profitable, scalable
business models, the early successes of social
enterprises like Drishtee, Redplan Salud, and CDI
LAN are certainly encouraging.
16
The State of the Field
By Josh Cleveland
Published on Next Billion August 18, 2010

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 entre-
preneurs. 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 implementation, we had gone another route. My

email from BYU on this thing called "micro-
franchise." 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
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.

17
Drishtee. The organization's +8,000 entre- Ecotact Limited, an investment of the Acumen
preneurs reach more than 500,000 rural Indian Fund, generates revenue through its IkoToilet
residents with access to fast moving consumer franchises by providing access to high-quality,
goods. environmentally responsible sanitation facilities.
IkoToilet franchise owners attract customers by
HealthStore Foundation. This network has
offering other services like shoe shines,
provided for approximately 2,000,000 patient
refreshments, and newspaper sales and then
visits from low-income customers in Kenya
impressively uses biogas generators to convert
seeking health care since its inception in 2000.
the waste into fertilizer. The franchise plans to
SELCO Solar Lighting. This organization, which expand to serve over 200,000 new customers
works with MFIs to train and finance and employ over 2000 workers in the coming
entrepreneurs to sell small-scale solar power five years. (Find more info in Benje Williams
systems has distributed and serviced over NextBillion post here.)
100,000 solar systems.
Just in those examples listed above, we've
covered the fields of energy, healthcare,
These are impressive accomplishments for the
consumer goods, eyeglasses, sanitation, and
microfranchise model: 100,000 solar systems in
communications. ! The organizations here reach
use, improved eyesight for 180,000 BoP
major BoP markets in sub-Sahara Africa, Asia, and
consumers, 500,000 reached with valuable,
Latin America. More examples abound.
otherwise inaccessible consumer goods, and
over 2,000,000 reached in Kenya alone with
For deeper insight on the specific models that
high-quality, low-cost healthcare. And that's only
guide those organizations, check out the recent
the data from four leading organizations.
posts in the Ayllu series on conversion
franchising, infrastructure-based franchising, and
The innovative products and models don't stop
agent networks.
there...
The innovations are there. So what's lacking?
The Grameen Foundation, no stranger to BoP
Three words: financial sustainability and scale.
business models, launched a Village Phone
These two issues are intimately linked, especially
program that "works as an owner-operated GSM
when you're talking about BoP business. With
payphone whereby a borrower takes a $200 loan
thin margins you need scale to get revenues high
from Grameen Bank to subscribe to Grameen
enough to cover costs. Talk to any one of the
Phone and is then trained on how to operate it
organizations mentioned above (each with the
and how to charge others to use it at a profit."
exception of Drishtee is not yet financially self
There are now well over 255,000 Village Phones
sufficient) and sustainability and capital rank high
in operation in 55,000 villages throughout
on their list of concerns. The shining light at the
Bangladesh. (Check out past NextBillion articles
end of the tunnel - self-sufficiency - is still dim in
for more info on this project.)

18
most cases. Indeed, as reported in , a Emerging
Markets, Emerging Models 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:

• Franchising in Frontier Markets: What's

Working, What's Not, and Why by
Dalberg Global Development Advisors
• Microfranchising at the Base of the
Pyramid by the Acumen Fund
• The Promise of Microfranchise: Leap-
frogging a Decade by Deborah Burand
• A Good Business for Poor People by
Jason Fairbourne, David Lehr, and Lisa
Christiandsen Jones in the Stanford Social
Innovation Review.
• The Next Generation of Microfinance:
Microfranchising by Melissa Richer of
Ayllu in Beyond Profit Magazine.
• Emerging Markets, Emerging Models:
Market-Based Solutions to the Problems
of Global Poverty by the Monitor Group.

19
 Human Networks for Social Good
By Shital Shah
Published on Next Billion August 24, 2010
"Build on existing assets and make new
•
connections." Ayllu's research into micro-
franchising models has found this to be a
common theme. ! Just as with the business in a
bag, infrastructure, and conversion models, the
agent network model strengthens the assets of
local markets, but in this case by creating
franchises through a network of agents that are
already embedded in communities.!!
Why would a social enterprise want to use an
agent network? !With a network, the enterprise
can spread into every corner of a market
without actually setting up a shop. The reach of
the agent network is usually a key part of the
business model - for a mobile money company,
the more agents, the more access points from
which someone can transfer money. ! For other
companies, more agents may mean a larger
collection of information for a specific service.!
Additionally, since one of the hardest parts of
scaling up is moving into new markets, bringing
on agents allows the enterprise to create
extensions that already belong to and under-
stand the market.
And what's in it for the agents? !Most agents are
already entrepreneurs - they own a small
grocery shop, a pharmacy, or perhaps a travel
booking agency. !By "partnering" with the social
enterprise and selling a new product or service,
the agent can add on another income stream at
little or no expense to their business. !By selling
the new service, agents will also see increased
footfall in their shops and new customers that
are drawn to their business that may not have
otherwise come in.
U32-8%*B230-8%
2-D(/3$(')$'(*L%
@8*-$%-*$:#(53%
2-%K(/92=?%
,7/8*%h(*;2$L%
h^@!
Take the example of eSoko. ! Their online
software, which allows agricultural market price
information to be easily uploaded to mobile
phones or computers, helps individuals and
businesses in West Africa to make more
informed decisions about buying, selling, and
trading. ! Users of the software train agents in
market towns across the region to collect and
upload information, and pay them a commission
for their work. ! Without agents, accurate price
reporting from numerous parts of the region
would be difficult, if not impossible.!!
Agent networks are also common with mobile
money companies, such as Mobile Transactions,
which operates in Zambia. Since the lack of bank
branches and ATMs make financial inclusion
challenging, and since the infrastructure is
expensive to build, using the existing reach of
mobile networks to increase financial access is a
promising model. ! The more agents a company
like Mobile Transactions has, the more likely
customers are to have an agent near them for
activities like making payments or sending
20
money. ! Other similar models exist and are
emerging in all regions of the world, such as M-
PESA in Kenya and GCASH in the Philippines.!
Agents are attracted to mobile money
companies because by offering a quick and easy
service, they are able to add value to their own
businesses.
Three key components can drive this model:
• The agents - the agent is essentially the
microfranchise; they become a service
provider or information gatherer, in
addition to what other line of business
they may already engage in. The agent is
the human face of the service. !
• The network - getting the extent and
reach of the network right is what makes
this model work. The network is what
creates the limits of what the business is
able to do.
• The technology - mobile phones is a
common one, but there is definitely scope
for other pieces of technology to connect
the network: the Internet, a switchboard
or kiosk, or any type of communication
technology.
Given the ubiquity of small corner shops in both
urban areas and villages, there is a sense that
more agent network models will emerge with a
diverse range of services as social enterprises try
to improve their reach. ! What other kinds of
companies could optimize and build on these
networks? ! With a new mix of established
technology and existing communities, agent
networks may prove as a natural step to connect
the services of social enterprises with those who
need them most.

21
Investing in Microfranchising: What Should I Know?
By Tayo Akinyemi
Published on Next Billion August 25, 2010

To date, this series has focused on the mechanics

of microfranchising from the entrepreneurs' s
point of view.! (The term "entrepreneur"
represents both the franchisee and the
franchisor.)! But to succeed, i.e. become
profitable and scale, new businesses more often
than not require infusions of capital to fuel
growth. To that end, we at Ayllu would like to
take a look at microfranchising from an
investor's point of view.!
Probably the first thing to keep in mind, as we
have mentioned in previous posts, is not to look
at microfranchising as a business model in itself.!
There are a few organizations which specifically
focus on microfranchising, and plan to introduce
a number of businesses using this method (an
example is Microfranchise Solutions), and
others, like Community Enterprise Solutions, that
are focused on perfecting versions of
microfranchising like microconsignment.!
However, microfranchising is generally a
distribution method used by different types of
social enterprises as part of their business
models (training community members to provide
eye-screenings, providing clean water or
renewable energy via a machine). Therefore, the
first question to answer is why microfranchising
is being used by the investee and whether it is
the best method of distribution.!
There are several general positives from the
investor perspective to the use of micro-
franchising for distribution.! First, it can
potentially be less risky than individual business
ownership. Why?! In the franchisee's case, s/he is
implementing a tested business model, which
increases the likelihood of financial success.! For
the franchisor, the benefit often comes from
engaging experienced entrepreneurs. (Contrary
to popular belief, franchising doesn't always
produce first time business owners.) !!Second, by
using community members as salespeople,
microfranchising increases the likelihood that the
social enterprise will be able to understand their
customers well enough to meet their needs
(often a challenge for development projects).!
Third, for more socially oriented investors,
microfranchising creates the social benefit of
new jobs in the community, in addition to that of
the product or service provided.
However, the risk/return relationship for
microfranchises varies widely.! The major factors
include the franchisor organization's size, age,
and maturity, and the chosen industr y,
Profitability is particularly difficult to achieve for
franchises that deliver public goods like health
and education, as they frequently have to
compete against subsidized nonprofit or
government models, driving down prices and
margins.! In fact, research from the University of
California, San Francisco indicates that the only
ways for health franchises to both serve the

22
poor and be profitable are to offer niche
services or to serve higher income, high-density
urban populations.
Recommendations for Investing in
Microfranchised Social Enterprises
When a potential investee has adopted a
microfranchising model, how can an investor
know if it is likely to succeed?! What are the
risks? What are likely to be the crucial factors?!
One strong source of information is a December
2009 report by Dalberg Global Development
Advisors entitled: Franchising in Frontier
Markets: What's Working, What's Not, and Why.!
The report produces several insights about
microfranchising, all of which is useful to tease
out and discuss.
!" Traditional vs. Business Format Franchising.
One challenge many franchisors face
operating in BOP environments is the lack of
a strong legal and regulatory framework
enforcing contracts, intellectual property
rights, and resolving conflicts of interest.
Traditional microfranchises, i.e., variants on
the business in a bag model, are less
susceptible to these challenges than business
format franchises, in which the franchisee
licenses a business model, rather than
products or services. This is because the
relationship between the franchisee and the
franchisor is often easier to manage. For
example, there are less likely to be issues
with contract enforcement; there is often less
intellectual property to protect; and there are
fewer conflicts of interest. Additionally,
franchisees have less responsibility for
managing the franchise, e.g. less input into
things like marketing, and less power due to
the ease with which the franchisor can
dissolve the relationship.
#" Target Selection. A key focus in the due
diligence process should be the size and
density of the potential market for the
distributed product. Density can be a key
factor for franchise success, both because it
makes it easier for customers demanding the
product to reach the franchisee, and because
word of mouth spreads more quickly among
denser populations, making the product
easier to promote.
$" U n d e r s t a n d u n i t p r o fi t a b i l i t y. N o t
surprisingly, the margin generated by each
unit has a significant impact on franchise
profitability. Without unit profitability,
franchise failure is more likely. As a result, it
should be considered as the franchise's
purchase price and expected return are
calculated.
%" Focus on outlet growth. Once the business
model is set, adjusting unit profitability is
difficult, partially because franchisees are
reluctant to shift the product and price mix.
Consequently, outlet growth can be a strong
contributor to profitability.
&" Manage agency costs. Investors should
identify agency costs, e.g. the costs associated
with monitoring franchises, and reduce them.
More specifically, areas of potential conflict
between franchisees and franchisors should
be minimized because conflict increases risk,
which in turn impacts franchise value.
'" Focus on reducing barriers. Barriers such as
access to capital (both financial and human),
23
 and durability of contracts can constrain
outlet growth, and investors must understand
these and work to reduce them.
(" Grant-subsidized microfranchises can be
problematic. While they may be necessary,
especially in the start-up phase, grants and
subsidies can discourage entrepreneurs from
developing their business model toward
profitability. Additionally, if for-profit
franchises exist in the same market, the
existence of subsidized franchises can create
a negative competitive effect. Dalberg's study
finds that it has thus far been difficult for
most grant-subsidized franchises to suc-
cessfully transition to Focus on outlet
growth. Once the business model is set,
adjusting unit profitability is difficult, partially
because franchisees are reluctant to shift the
product and price mix. Consequently, outlet
growth can be a strong contributor to
profitability.
)" Third Party Payors. Some microfranchises
provide services which are needed but
seemingly impossible to make profitable at
prices the customer can afford (often in the
aforementioned health and education
sectors). One possible way to bridge the gap
between costs and customer ability to pay is
the use of third party payers (government
service providers, insurance companies). If a
franchise can provide a service more cheaply
and/or effectively than these third parties
were providing it before, voucher systems
can be developed where the third party pays
each time the service is delivered, retaining
incentives better than with grant support.

24
An Interview with Deborah Burand
By Josh Cleveland
Published on Next Billion August 25, 2010

This post! focuses on the recent insights from a

study conducted for the Omidyar Network by
Deborah Burand of the University of Michigan.

***

To get to the core challenges facing micro-

franchise today, I recently spoke with some of
the leading researchers in the field. For her latest
project funded by the Omidyar Network,
Deborah Burand brought over two decades of
experience in microfinance, law, and international
development to bear on the issues facing the
microfranchise field by surveying 37 micro-
franchise networks.

At the time of this interview Deborah Burand

was the Director of an International Transactions
Clinic at the University of Michigan Law School,
the first of its kind in the world. She since has
joined the executive leadership team at the
Overseas Private Investment Corporation
(OPIC) where she now is the General Counsel.
(The opinions expressed in this interview are Executive Vice President of Strategic Services. !
her own personal views and should not be She also has worked as a consultant for CGAP,
attributed to OPIC.) co-founded Women Advancing Microfinance
(WAM) International, chaired the Board of
Prior to her work at the University of Michigan,
Microfinance Opportunities, and served as a
Deborah spent nearly a decade working in the
member of the Investment Committee of the
m i c ro fi n a n c e s e c t o r - fi r s t a t F I N C A
Global Commercial Microfinance Consortium
International where she launched the Capital
and the Advisory Board of Microvest.
Markets Group of that microfinance network
and served on the boards of several of FINCA's In this interview Deborah helps us better
transforming microfinance institutions, then at understand what microfinance could teach
Grameen Foundation where she served as the microfranchise networks, why sustainable
microfranchise is so hard to find, and also

25
provides a vision of where microfranchise might
be a decade from now. If readers are interested,
you can check out this past post by Deborah and
also her bio info before reading on.
Without further ado, here's what Deborah had
to say about the future of microfranchise.
Josh Cleveland, Next Billion: Before we
dive into your knowledge of the microfranchise
sector, let's start off with a question about you,
Deborah. I've been putting together articles on
BoP Career Paths as well so I have to ask, why
did you get interested in learning about the
microfranchise? And why is it so important
today?
Deborah Burand: I have to admit that my
interest in the microfranchise sector has been a
long time coming... maybe too long.
Nearly ten years ago I was visiting with
microentrepreneurs in Tanzania that were
microfinance clients of a company where I then
worked. One Tanzanian female client approached
me to talk about the microcredits that she had
received. According to a translator, this woman
was thanking me for her "soft knees." At first I
thought I had not understood correctly. !Then I
learned that, thanks to these very small loans,
she had used the profits from her business to
pay for the school fees of her children so that
she no longer needed to kneel before her
husband to beg for money for their children's
education.
That was such a powerful story. that I left
Tanzania feeling like a newly ordained, albeit
secular, missionary for microfinance. But as I
reflected on this experience, I realized that there
was more to this Tanzanian woman's story. She
also was telling me, at least implicitly, about her
dreams for her children - and, importantly, about
the investment she was making in those dreams
by paying for her children's schooling.
Over the years I have wondered if that Tanzanian
woman's investment paid off as she hoped. I
worry that it did not. I worry that her
microenterprise is one of those many businesses
that have remained micro, never growing into a
small or medium-sized enterprise. And I worry
that her now teenage children are counted
among the approximately 85 million unemployed
youth (aged 15-24) in the world.
If a study conducted by FINCA International in
2004 is correct, I have good cause to worry. In
that study, FINCA surveyed 1500 microfinance
clients in Mexico, Guatemala, Honduras, El
Salvador and Haiti. Of the surveyed microfinance
clients' children that had completed all or part of
their secondary education, only one in six was
employed in the formal sector working for a
salary. The other working age children of FINCA
clients were unemployed or employed in the
informal sector where they were earning less
than US$3 a day.
Fast forward to 2007 ... I was attending a
conference in San Francisco, California where I
met Chuck Slaughter and heard of his plans for a
microfranchise network called Living Goods.
That was the beginning of my "eureka" moment.
Within a year I had left the microfinance sector
to begin researching the microfranchise sector
for it seemed to me that Chuck and the other
microfranchise pioneers that I since have come
26
to know hold an answer to the dreams of that
woman in Tanzania. These leaders in the
microfranchise sector are building businesses
that can scale at the base of the pyramid,
providing both employment and investment
opportunities for those now living in poverty.
Josh Cleveland, Next Billion: To get
everyone on the same page, what do you mean
when you say 'microfranchise'?
Deborah Burand: Good question as there
are many competing definitions of this term.!
When I say "microfranchise" I am talking about a
business models that employs 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. !Yet even here there is much room for
debate. ! What is, for example, "affordable
enough"? !That calculation is likely to vary from
country to country, just as the size of a
"microcredit" can vary significantly from country
to country.
Josh Cleveland, Next Billion: Now let's
dive into your work in the sector. Tell me about
your most recent research initiatives in
microfranchise.
Deborah Burand: This past spring, with
support from the Omidyar Network, I led a
team that surveyed 37 microfranchise networks
on their business models, challenges, and
opportunities. !We also surveyed many of these
networks' funders (13) and partners (14) to hear
their perspectives on the state of the
microfranchise sector. ! Alex Nosnik and Lea
Werbel very ably and insightfully conducted all
64 of these surveys.
Josh Cleveland, Next Billion: What were
some of the big "aha" moments of your recent
research that the Omidyar Network funded?
What are some of the main learnings that you
can share with NextBillion readers?
Deborah Burand: I personally had four big
"aha" moments. First, we saw a wide spectrum of
evolving business models and the absence of an
identifiable/self-identifying microfranchise sector.
Yet, at some stage, what became clear from our
research is that, no matter what you call these
networks, there is much that they can learn from
each other. All along the spectrum - from the
most franchise-like networks to the most
product/service distribution-oriented networks -
these networks face many common challenges as
they work to build inclusive business opp-
ortunities at the base of the economic pyramid.
The second, more personal, "aha" moment for
me was that I realized how much more complex
it is to build scalable and inclusive business
networks at the base of the economic pyramid
than it is to make loans to the poor. !Building a
viable microfinance provider is never easy;
building a viable microfranchise network is
harder still.
Third, I came to realize that the type of product
or service being sold will influence the need for
control over the point of sale (and delivery).!
Services and products that differentiate
themselves based on quality often demand
significant control over points of sale (and
delivery). ! Now this may not seem like a
27
particularly keen insight, but it helped me to
understand why some of the microfranchise
networks that we surveyed pay much more
attention to branding and microfranchisee
recruitment and training than do others. ! In
short, in most cases, I could map the need for
control (over brand and microfranchisee
behavior) to the need for quality. !
Finally, and related to all of the above, I saw how
important, indeed crucial, it is to embed a
microfranchisee-focus into the microfranchise
network. ! This focus is at least three-
dimensional. ! It is important from a financial
viability sense (the microfranchise has to
generate financial returns for the individual
microfranchisees as well as the microfranchise
network as a whole). ! It is important from a
more general business sense (information
gathered from and among microfranchisees
needs to be incorporated into a business
feedback loop so that the microfranchise
network as a whole is learning and adapting to
an often challenging and changing business
environment). ! And it is important from a
mission or development impact sense (the social
as well as financial returns of microfranchise
depend very much on how well microfranchisees
are treated).
Josh Cleveland, Next Billion: We've
talked about what microfranchise is and some of
the different models for microfranchise here on
NextBillion, especially in some recent posts by
the Ayllu team. Something that comes up in
every conversation is "sustainability" and the
apparent lack thereof in this sector. What makes
building a sustainable microfranchise so hard?
Deborah Burand:! There are at least two
levels to that question. ! One is understanding
what is needed at the microfranchise network
level. !Second is understanding what is needed at
the microfranchisee level. !
On the microfranchise "network" level there are
issues surrounding the development of robust
and efficient product/service distribution chains.
These issues will vary, of course, depending on
both the "what" and the "where" - eg, 1) the type
of product or service being distributed through
the microfranchise and 2) the places where
these products and services are !created and the
places where they are sold. !
Then there are issues that are likely to be
common to any microfranchise network. !These
are the "how" issues. They generally include
questions about how to find sustainable sources
of patient funding, how to tap into and learn
from the lessons of peers, and how to gain
franchise know-how. !
With respect to this latter point - that is
developing franchise know-how, others who are
more expert than I am in franchising tell me that
all organizations that begin franchising face a
steep learning curve. ! As they put it, franchising
organizations are engaging in a whole new
business because "the business of franchising is
so different from the business being franchised." !
So let's say you are really good at producing and
selling valuable "widgets" to customers at the
base of economic pyramid. ! Selling these same
widgets through a network of microfranchisees
requires another whole set of business skills.!
You must be able to market a microfranchise
28
opportunity, recruit microfranchisee candidates,
train successful microfranchisee candidates, and
complete all of the other steps necessary to help
these microfranchisees open for business. !Then,
once these microfranchisees are in business, you
need to be able to meet their changing and
growing needs (including, possibly, funding). That
is hard work in any business environment. !Then
add the challenges of working at the base of the
economic pyramid in emerging markets and this
work becomes even harder.
Josh Cleveland, Next Billion: To your
research in the microfranchise sector, you bring
nearly a decade working in microfinance. Tell us
what microfranchise can learn from micro-
finance.
Deborah Burand: One of the significant
accomplishments of the microfinance sector is
that it has demonstrated that scale can be
reached while serving people who live at the
base of the pyramid without sacrificing quality.!
That should be a goal for the microfranchise
sector too. !Here are six important lessons that I
think microfranchise can borrow from the
microfinance sector:
!" Start building an investment-ready micro-
franchise sector long before available donor
capital is exhausted. ! This means developing
microfranchise networks that are capable of
attracting and absorbing capital investments
from a variety of investors (profit seeking as
well as social/development impact seeking).
#" Advocate for friendly, enabling legal/reg-
ulatory regimes. ! As microfranchise reaches
critical scale, host governments need to see
the value of supporting (or at least not
interfering with) a vibrant and growing
microfranchise sector.
$" Measure the success of the microfranchise
sector holistically - combining financial and
social returns. !Anecdotes are not enough to
prove the development impact of
microfranchise networks.
%" Frontload microfranchisee protections into
the system. ! A focus on consumer
protections was too long in coming to the
microfinance sector. ! The microfranchise
sector should think long and hard about how
to ensure that transparency and integrity are
hardwired into every microfranchise network
before rogue actors or other troubling issues
surface.
&" Invest strategically in technology solutions
with a view to applying these solutions across
the microfranchise ecosystem. ! There is no
need to re-invent technology solutions,
microfranchise by microfranchise. !!
'" Prize and invest in the human capital of the
microfranchise sector. ! As microfranchise
reaches scale, human capital becomes even
more valuable than financial capital.
Josh Cleveland, Next Billion: If everything
goes right, where do you see microfranchise a
decade from now?
Deborah Burand: I can imagine a world
where, by 2020, the microfranchise sector will
have as large and impactful a global footprint in
the world as the microfinance sector enjoys
today. Business and employment opportunities in
29
the micro-franchise sector will have reached
over 100 million households, and investment
opportunities in the microfranchise sector will
have grown to over US$25 billion.

Harder to quantify, but just as exciting -- valued

and valuable products and services will be
reaching poor communities around the world at
unprecedented penetration rates, no matter how
physically isolated or remote these communities
are. ! New technology solutions will be linking
microfranchise networks and their micro-
franchisees so that information is flowing in real
time, thereby increasing both the efficiency and
cost-effectiveness of microfranchises. !

And, best of all, when women like that mother I

met in Tanzania invest in their children's
schooling, they will do so confident that their
children will be able to apply that education to
find gainful employment in their very own
backyard.

30
Support for Microfranchising: Knowledge, Funding, and Missing Links
By Shital Shah
Published on Next Billion August 26, 2010

For the last month or so, we've covered the

different types of microfranchises as they exist
today. The series has also included interviews
with researchers and practitioners.! In this final
post, we'll cover existing suppor t for
microfranchising.!
As more businesses see the value in micro-
franchising, and as others try to learn more
about the concept, building a support network
will require information sharing, appropriate
linkages, and fund efforts underway.! Often, there
is talk of building an "ecosystem" for social
enterprises to thrive; similarly, microfranchising
will also require building blocks to propel it
forward.
As practitioners and academics explore this
concept, valuable pieces of research have helped called!Micofranchising: How Social Entrepreneurs
identify trends and gaps, and upcoming are Building a New Road to Development! and
publications promise to provide even more will focus on how microfranchising can be used
context.! For readers that want to dig deeper as a tool for poverty reduction in Africa.! Kirk
into this idea, there are a number of useful Magleby's book,! Ending Global Poverty: The
resources.! Jason Fairbourne, out of Brigham Microfranchise Solution, also focuses on
Young University, is leading the! MicroFranchise microfranchising as the "most important business
Development Initiative, which aims to research model on earth."! Books and papers like these
and develop microfranchising as an economic not only serve to provide information and
development tool.! Dalberg's repor t analysis, but are an important way to raise
on! Franchising in Frontier Markets, covered by general awareness about microfranchise as a
NextBillion! here! and discussed yesterday in viable business option.
Tayo's post, provides a critical, global outlook and
raises per tinent questions for fur ther Others are filling in gaps on missing links in
research.! ! Acumen Fund! reflected on the building businesses.! ! Milaap, for example, is
experiences and lessons learned from their developing an online platform that offers loans
investees,! Drishtee! and! VisionSpring, through to help franchises with their start up costs - a
a!working paper. major hurdle for an infrastructure based model,
as we discussed! before.! The! Microfranchise
An upcoming book by Nick Sireau of!Solar Aid!is Development Corporation! also supports

31
different initiatives in this arena by helping to
build businesses using microfranchises.
Besides building knowledge and making links,
money is always needed to fund efforts.! Several
players have already started funding micro-
franchising projects.! The Clinton Global
Initiative has a! commitment! focusing on market
based solutions beyond microfinance, including
microfranchise.! The World Bank Development
Marketplace is another arena that has supported
microfranchise models with!IDE Cambodia.! Not
surprisingly, there are not many funders in this
space yet - whether this is due to the lack of
viability of most models, high risk, or low levels
of awareness amongst funders, without more
sources of funding, microfranchise will see
difficulty in moving forward.
The research is growing, but the case study
options are limited.! If funders encourage the
development of microfranchises, and org-
anizations like Milaap provide the necessary
linkages, we may see further implementation of
this concept.! Perhaps the tendency to speak in a
very general way about microfranchises or the
common use of for profit examples, such as
McDonald's, rather than successful hybrid
models, points to the need for further support
for microfranchising in the social enterprise
sector.! As various stakeholders - universities,
experts, umbrella organizations, corporations -
get involved, we'll see an expanding support
network for microfranchises, which will hopefully
also lead to stronger, more established and
replicable models.

32
Is Microfranchising the next ‘Big Thing’?
By Josh Cleveland
Published on Next Billion September 14, 2010

As of NextBillion’s series on the Future of

Microfranchising, I spoke with Robin Miller and
Wouter Deelder, the head authors of a recent
report by Dalberg Global Development
Advisors titled "Franchising in Frontier Markets:
What's Working, What's Not, and Why." In
addition to providing an insightful look into
franchising in general, the report takes an often-
critical perspective on franchising as it relates to
development. The hard questions asked in the
repor t form a great foundation for
understanding the challenges facing the
emerging micro and social franchising fields.
Make sure to take some time to look over the
!"#$#%&#'()*
report - especially the sections on "innovative
solutions" - before or after continuing with this franchising of public goods and services’ in lieu
post.! of social franchising. While microfranchising is
often assumed to be social in nature, perhaps
A Note on Definitions given its semantic similarity to microfinance,
Perhaps the most important distinction amongst microfranchising can take either franchise form
franchises is between business format (business format or traditional) and refers to
franchising and traditional franchising. Business the size of the franchise (generally one person),
format franchising focuses on the holistic not the social impact of the enterprise.
delivery of a business concept by licensing a
business model rather than a product or With all those distinctions, I think it’s also
service. Traditional franchising is closer to a important to distinguish real “franchise” from
supply chain distribution mechanism whereby a “replicable models or processes.” Often times in
company owns a particular product or service development circles we’re seeing anything that
and offers distribution rights to the franchisee. looks replicable and is disseminated in a
To add yet another level that distinguishes a systematic fashion amongst entrepreneurs
franchise further, on NextBillion.net our linked to a central organization is termed
discussions most often refer to social “microfranchise.” If there isn’t a contractual
franchising. This is tricky to pinpoint since the relationship there though, it’s not a genuine
“social” aspect can relate to the good being ‘franchise’ model.
franchised, the economics of the business model
(nonprofit in many cases), and/or the motivation The Dalberg report suggests that the hype
and objectives of the entrepreneur in question. surrounding “microfranchising” is coming
To avoid confusion, Robin and Wouter use ‘the dangerously close to eclipsing the focus on the
underlying economics of products and services

33
provided by organizations focused on market-
based BoP development. By being clear on the
definition of franchise as it relates to
development, we can help reduce the tendency
to group ideas and models into convenient and
fashionable buckets.
After that discussion of definitions, Robin,
Wouter, and I sat down to speak about what’s
next in regards to franchise models and
development:
Josh Cleveland, Next Billion: Let’s start
to address the title to this post. The conclusion
from the Dalberg research with regard to
franchising as a whole appears to be "no." Tell us
a bit more about why the international
development community might want to be
skeptical about the promise of the franchise
concept as it relates to social and economic
development.
Robin Miller, Dalberg: Our answer isn’t
“no”. We’re actually agnostic to the answer. But
we are interested in the underlying economics
of these organizations that are trying to serve
the poor at scale and using franchising as a
growth strategy.
Some of the organizations that we looked at
consider franchising as a way to achieve
sustainability rather than defining the core
economics first and then considering franchising
as a mechanism to grow. Franchising is just one
of a number of growth strategies to increase the
reach of already profitable models. As readers of
Next Billion will know, getting the business
economics right is quite difficult especially for
social enterprises serving base of the pyramid
populations. It’s important to ensure that the
unit economics and system-level economics
work first. Franchising is an option for growth,
not a business model in and of itself.
Josh Cleveland, Next Billion: The report
sounds a hopeful note in regards to traditional
microfranchising (as opposed to franchising in
general). Tell us a bit more about that.
Robin Miller, Dalberg: Several char-
acteristics of traditional microfranchises may
leave them better positioned for sustainability
and scale. However, these are early-stage,
preliminary thoughts, which require significant
additional research.
First, micro-franchisors may naturally tweak the
concepts to local circumstances and consumers
to a greater degree. One of the real challenges
uncovered in this study and others that we have
worked on, is that we know very little about the
preferences and needs of BoP consumers. And
market research is very limited. Traditional
microfranchising and microfranchisors may be
better placed to circumvent this hurdle.
Second, the franchisees may be better
positioned to navigate the local business and
regulatory environments.
In addition, and somewhat separate from the
traditional vs. business format discussion, our
study noted that a number of case-studies with
headquarters overseas incurred higher overhead
costs.
Josh Cleveland, Next Billion: Most
franchises - micro, social or otherwise -! in
"frontier markets" are missing two very big,
often interlinked components: profitability and
scale. The report covers the reasons for this in
significant detail in Chapter 3. In the coming
years can we hope to see successful cases of
franchise in the BoP that overcomes the key
challenges?
Wouter Deedler, Dalberg: We will
undoubtedly see some successful cases of
franchising. However, more interesting and
relevant will be the distribution of success
34
across all cases / models. Of course, at the
highest level it’s a game of probability. As more
organizations try franchising models, some are
likely to succeed. However, how many will not
succeed, and for which reasons?
The danger we want to emphasize lies in
focusing more on the model by which an
organization can grow than on the core business
model of the firm. Those that have a robust core
business model and employ franchise as a means
to grow should be successful. Those that focus
on franchise as their model with out building on
solid economic ground will certainly not.
Josh Cleveland, Next Billion: Many of the
issues facing franchises outlined in the report
are problems facing the SME sector as a whole.
Consequently, the report suggests focusing on
solutions for the whole sector, not just franchise
in general. Does this mean that policy makers
and investors should avoid a strong focus on
driving development in microfranchise at this
time?
Wouter Deelder, Dalberg: There are two
way to look at this: from the perspective of the
policy maker and the perspective of the
investor. Let’s begin with the perspective of the
policy maker. The policy maker wants to create a
suitable environment for small businesses to
grow. Some of those businesses are small
franchises. Yet the foundation that the policy
maker needs to build is for all small businesses.
This includes attributes such as access to
finance, property rights, ease of doing business,
ability to hire employees. The basic foundation
necessary is similar for all businesses and in
most countries; there remains an enormous
amount of work to be done to build this
environment.
Only when that environment is in place will
there be a situation where franchise businesses
could be handicapped because of franchise-
specific restrictions. At this stage, policy makers
should focus explicitly on policies that make the
legal and business environment more franchise-
friendly.
On the whole, it is still an open debate whether
franchises are better positioned to build skills,
increase learning, and create development
amongst franchisees than non-franchise chains.
As a policy maker, you probably should thus
foremost be concerned with increasing levels of
SME activity, and growth, replication and scale-
up in the economy, regardless of the number of
franchises it contains.
Robin Miller, Dalberg: It is interesting to
note that often the challenges that franchises
faced was less to do with the absence of
policies, but more with the lack of enforcement
Wouter Deelder, Dalberg: Second, from a
(social) investor’s perspective, there are two
considerations. On one hand investors are
interested in profits over time and on the other
hand, they are interested in social impact over
time. The social impact component encompasses
the impact on your beneficiaries and your
employees. There might be a (small) difference in
level of skill building and entrepreneurial energy
amongst franchisees than traditional company
owned structures. However, most important is
the direct correlation between impact and
scale: the larger chains will have more social
impact. This reinforces the case for sustainability
and profitability, so chains can scale-up and
reach impact in this manner.
Josh Cleveland, Next Billion: What
would you recommend for readers of
NextBillion who want to do more? If someone
is looking to get more involved in this space and
hoping to help the concept develop and become
more useful in market-based international
development effor ts, what would you
recommend?
35
Wouter Deelder, Dalberg: Ask the hard
questions. Whatever we are going to see in the
future, take a long hard look at the business
model. Challenge the assumptions about
profitability. Make sure that the models being
championed and that the stories that get
attention can stand up to scrutiny.

36
 Acknowledgements
The authors of the articles contained in this e-book are the products of countless
recommendations, insights, and best practices shared by practitioners and researchers in the
microfranchise field. While the list of contributors is too large to include in its entirety here,
we'd like to thank the following advisors, mentors, and friends for their contributions and
advice that was invaluable in the composition of this resource. Peter Eliassen of VisionSpring,
Jason Fairbourne of Fairbourne Consulting, Greg Van Kirk of CE Solutions, Harish Hande of
SELCO, Graham Macmillan of Citi Foundation, Bernardo Faria and Marcel Fukuyama of CDI
Lan, Sameer Hajee of Nuru Lights, Daniel Mensah of Healthkeepers, Satyan Mishra of Drishtee,
Ajaita Shah of Frontier Markets, Anand Shah of Sarvajal, Nick Sireau of SolarAid, Anoj
Viswanathan of Milaap, Dave Vosburg of Mobile Transactions, Robin Miller of Dalberg, Wouter
Deelder of Dalberg, Deborah Burand of OPIC, Daniel Aspilcueta of RedPlan Salud, Alex Banful
formerly of CareShops Ghana, Molly Christiansen of Living Goods, and Mark Davies of eSoko.
Additional thanks to Ayllu team members Daryl Poon, Evan Chen, Melanie Quall, Dexter
Zhuang, and Monica Logani, whose indispensable contribution made iuMAP possible.

37
 Resources
For those looking to dig deeper, we suggest reviewing the following publications and
organizations we referenced in our research for this e-book, as well as Ayllu’s resource
library. Of course, feel free to contact the authors for further discussion or post your
comments on NextBillion.

The Promise of Microfranchise: Leapfrogging a Decade

Deborah Burand, CGAP Blog

Emerging Markets, Emerging Models: Market-Based Solutions to the Problems

of Global Poverty
Monitor Inclusive Markets

Microfranchising: Creating Wealth at the Bottom of the Pyramid

Jason Fairbourne, Stephen Gibson, and W. Gibb Dyer

Microfranchising at the Base of the Pyramid

David Lehr

The Next Generation of Microfinance: Microfranchising

Melissa Richer, Beyond Profit Magazine

Microfinance and Microfranchising: A Feasibility Study

FINCA and George Washington University

Franchising in Frontier Markets: What's Working, What's Not and Why

Dalberg Global Development Advisors

A Good Business for Poor People

Jason Fairbourne, David Lehr, and Lisa Christiansen Jones, Stanford Social
Innovation Review

Ending Global Poverty: The Microfranchising Solution

Kirk Magleby

The Microconsignment Model: Bridging the “Last Mile” of Access to Products and Services for
the Rural Poor
Greg Van Kirk

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