Monday, August 30, 2010

Microfranchising: Depth and Breadth in Development, Pt. II of II

(this might make a bit more sense if you read the previous post first)

Getting on with it, one way I like to think of development is in terms of breadth – how many people it can reach; and depth – how much it can really impact the poor at the ground level. Grassroots or bottom-up approaches generally have impacts that are pretty profound on a limited number of people. One organization with which I worked – Ashraya Initiative for Children (AIC) – touches 12 children in its orphanage and another 200 in its educational and health outreach. They are doing amazing things in the lives of these 12 kids and doing much good for the others, but is this really changing the face of poverty in a country where 450 million live on less than $1.25 a day? You need a lot of AICs. A lot.

On the other hand you have top-down approaches, which tend to reach many more people but individually aren’t as impactful. A CLUSA management director explained the top-down push and resulting dilemma when we chatted last December: “A lot of donors are pushing us and myself included, and they said ‘Steve we need 50,000 farmers.’ ‘Well what can I do with 50,000 farmers? Yea I can make a little bit of an impact, but really, if Rob goes there, he can’t actually see it.’” This was contrasted to another NGO which I won’t name, who’d been there for 10 years and had gone pretty much nowhere with the traditional top-down approach – it was, in his words, “doing everything and nothing at the same time.” If you're trying to think in terms of government top-down, think of liberalizing trade between two countries, which may make prices slightly cheaper or products more available to all locals throughout the country, for example, but it’s not going to be hugely detectable per person.

This is one reason I like microfranchising. It has a wide-reach business approach that directly puts money in the pockets of the poor. In Ghana, FanMilk employs 7,000+ agents currently, and the company is also operating in Nigeria, Cote d’Ivore, Burkina Faso, Togo, and Benin. And this is just 7,000 at this given moment – the company has been operating over 40 years, with agent employment averaging eight years. This is all profit-driven: It has cost you, the Western taxpayer, nothing.

Microfranchising also works well for development for another main reason. The poor lack basic education and are, I’ve come to believe, generally uncreative. Expecting them to design and manage a profitable business is pretty unrealistic. For someone who is just trying to sustain oneself, I don’t think this should come as a surprise. I saw this with microfinance in Bangladesh – with the small-size loan groups, you see a lot of reselling. There wasn’t much value-added. Microfranchising takes the guesswork out of it.

So am I bashing microfinance? Only partly, because it’s a bit like comparing apples and oranges. Microfranchises and microfinance institutions (MFIs) are two different concepts. An MFI is more like the franchisor in the microfranchising approach – it’s the central business unit. The microfranchise is more like group lending in the microfinance approach in that it’s the distribution channel for the products – ice cream and loans in this post, respectively. In this way, I think they are both quite effective. Yet, coincidentally they both usually result in microbusinesses, and this is where I think microfranchising has the upper hand. With microcredit, rural villagers are, as I already noted, not adding much value and not able to take advantage of scale economies. They are producing a very inefficient product, and often diverting resources (credit) away from more appropriate SMEs. At the same time, a microfrachising approach is very scalable or easily replicated, though the MFI’s microbusinesses aren’t (though the lending is…so again I’m comparing apples to oranges).

There’s a lot more to microfranchising, and I’m hoping to look into it more here since there are a number microfrachise schemes operating, like CareShops, but I’ll spare you the details and only suggest that if you’re in NYC, try to get your hands on that FanYo.


  1. Rob, great reading once again. I definitely share many of the same sentiments you expressed about microfranchising. There are definitely some pronounced advantages, namely its ability to address the pervasive lack of creativity with respect to value added. Yunus in his book himself admitted that Bangladeshis all tend to sell the same thing. Mozambique was no exception, as everyone sold the exact same product instead of trying to differentiate themselves by selling fabrics for pillows or other uses. I do find it interesting in that when I'm in Mexico, I see much greater diversity in products, which may be a function of their inherent culture or of the American cultural influence. Still, this advantage of microfranchising among others has been quite intriguing about the HealthStore Foundation in Kenya and Rwanda. I also like how Aarong (BRAC's department/retail store) uses designers to help rural craftsman create new products that match consumers' evolving preferences. This need is something I've been particularly interested in addressing with my own popsicle business, helping my partner understand American consumer preferences, allowing for product differentiation and the ability to sell at a competitive premium. Your analysis seems to really center on a pervasive problem I've also experienced. Well done and thanks for the great distraction from stuffing my face with medicine textbooks.

  2. No matter how much I learn about the world, I still find it hard to divorce myself from Western notions of motivation and fulfillment. Still I have to ask, do you find that there might me more sense of purpose instilled with microfinance than with its cousin, microfranchising?

    I wonder if there's something to be said about the value in challenging someone to be responsible for their own business model versus handing that person a model and it never developing or changing? Do you think that matters at all, or is it mainly about putting food on the table? What has been your experience?

  3. Thomas, thanks for the thoughts. Yes, I definitely agree. Sometimes there is a reason to aggregate - there is the "car dealership effect" in which people know where to go to find a certain product or service, such as fabrics or shoe repair. Still, this only accounts for some products, and this only makes sense if the business is stationary. Often in Moz I'd see three people walking around together selling the same thing. Sorry, you're silly for trying to sell together - I can only buy from one of you.

    Jes, I have thought about this, but I have to come down on the side of "let's just provide the best income opportunities and let them decide their values". While I don't doubt that every rational individual is looking for fulfillment in his or her life, I've come to believe that when you're that poor, you just want to eat and put food on the table for your family. You don't care what it takes.

    I was recently talking with a Ghanaian TechnoServe employee, with whom I grab drinks after work and hang out occasionally. He is a low-level administration guy, kind of like an errands runner. But he's super smart, reads psychology textbooks in his spare time for kicks, and is able to see both sides of the coin. At age 40 he plans to go to university to become a teacher.

    I asked him if given the chance, would he go to the US and work for a foreigner as a cook or servant. Unhesitatingly he said he would go. I had to prod him with qualifiers like, "Well certainly you'd want to bring your family?" "Wouldn't you want to go back to visit? At least once a year?" He loves his family, but he explained that the income opportunities he could gain to provide for his family, even starting out as a servant, were so much greater in the US.

    I agree those things you talk about are important, but I think they become more important as you have more options, as you are wealthier. I say we take things one step at a time.