> Posted by Kimberly Mitchell, Business Analyst, Credit Suisse

The Financial Inclusion 2020 project at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”

This is the first in a series of several posts from this year’s Credit Suisse Virtual Volunteers, where research and insights across a variety of financial inclusion areas will be shared. The post begins:

Over the past few years, microfinance initiatives have empowered micro-entrepreneurs the world over to create and enhance their own businesses. However, not everyone has the ready-skills and resources to create their own successful business from scratch. For some entrepreneurs, it makes more sense to invest in a proven business model. In poor villages, this can take the form of a microfranchise.

In the developed world, everyone is familiar with franchises. The same goes for a big portion of developing regions. Businesses like McDonalds, Planet Fitness, and Pearl Vision provide a predictable and consistent-quality experience for consumers, a proven business model, marketing strategy, and often consistent source of supply for franchisees, and a scalable and profitable source of sales for the franchisor company. Microfranchise initiatives apply the principles of franchising on a smaller scale, with the aim of engaging a previously untapped market to provide a reliable source of income for the franchisees and more accessible products for consumers. The principle differences are that the amounts required for the business investment are smaller, and that the products are designed for the lower-income communities that the franchisees live in.

What potential does microfranchising hold to advance financial inclusion?

Microfranchising has demonstrated the potential to be both scalable and sustainable. Its scalability has been driven by recruiting more entrepreneurs serving more previously underserved communities. In order to be sustainable, for both the franchisee and the franchisor, the product context must possess certain characteristics. There must be enough demand for the product in the targeted rural markets to justify the involvement of the franchisee, but not enough demand that the franchisor could benefit more from selling directly. Given the population sizes of these markets, the product must satisfy a recurring demand, so it is likely to be some sort of consumable. The franchisor must incur adequate benefits from accessing the target rural markets compared to other potential expansion markets. Because of the scarce monetary resources of the target consumers, microfranchising is not likely going to expand to the point of bringing whole communities out of poverty, but can play a role in providing a reliable income, as well as business skills, at relatively low risk for some community members.

Children with Grameen-Danone project yogurt

A well-known example of a product designed specifically for microfranchising is the extra-high-nutrition, extra-low-cost yogurt developed by Danone for their Grameen-Danone project, founded in 2005 in Bangladesh. Danone works with local farmers for the dairy supplies, and engages with a network of micro-entrepreneurs, “The Grameen Danone ladies,” for the distribution.

Other more recent examples include another Grameen initiative called Village Phone, and Fan Milk and Hindustan Unilever (HUL).

Grameen Foundation’s Village Phone model provides loans and a “business in a box” to poor entrepreneurs so they can provide affordable phone service to other members of their community. The initiative, which operates in cooperation with Qualcomm, started in Uganda and Bangladesh, and has since expanded to other countries and to offer other services like mobile airtime.

Fan Milk is a dairy product company in Ghana that distributes its products via microfranchise vendors on bicycles. The vendors purchase their cooler-equipped bicycles and their inventory of milk, popsicles, ice cream, and yogurt in advance, and are required to save a portion of their 17 percent profits daily. There are currently three regional offices, 11 depots, and 7,000 bicycle-mounted vendors in Ghana.

In 2001, Hindustan Unilever (HUL) extended its distribution network in rural India by recruiting local women to be micro-entrepreneurs in their own villages by distributing Unilever products. These new distributors, Shakti Ammas, bring a source of steady income to their families and access to these products to their communities. The program has been so successful that in 2010 Unilever expanded the program by recruiting some of the Ammas’ male family members as Shaktimaan’s, providing bicycles so they can serve up to five or six neighboring villages of less than 2,000 people each as the source of HUL products. Since 70 percent of India’s population resides in rural areas, these new distribution channels are important to the future of the company. This is an excellent example of how small-scale micro-franchise operations can benefit both the sponsoring company and the micro-entrepreneur.

For more information on Financial Inclusion 2020, sign up for project updates.

Kimberly Mitchell is a Business Analyst in the Information Technology division at Credit Suisse, where she has contributed to the Batch Management team since 2004. Prior to assuming her current role, Ms. Mitchell held a variety of positions in information technology, quality engineering, and statistics at companies such as Deutsche Financial Services, W.L. Gore and Associates, and AT&T. 

Image Credit: Grameen Danone

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Designing Microfinance for the Borrower’s Well-Being

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