Final Report
MICROFINANCE AND MICROFRANCHISING:
A FEASIBILITY STUDY
CLIENT: FINCA INTERNATIONAL
Submitted to Inder Sud
Spring 2006
By Emily Bracken, Nicole Chao, Darin Phaovisaid, and Brian Slocum
MA Candidates, International Development Studies
Elliott School of International Affairs
The George Washington University
May 1, 2006
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Table of Contents
EXECUTIVE SUMMARY v
I. ORIGIN OF THE STUDY 1
II. CONCEPTUAL FRAMEWORK 1
Description of FINCA International and Village Banking Methodology 1
Limitations of Microfinance 2
Challenges Facing Small Businesses 2
III. MICROFRANCHISING 3
Definition of MicroFranchising 3
MicroFranchising Models 4
Challenges Faced by MicroFranchises 5
Integration of Microfinance and MicroFranchising 5
IV. RESEARCH DESIGN 5
Problem Statement 5
Research Questions 5
Methodology 6
V. MICROFRANCHISE PARTNERS 7
Selection of MicroFranchise Partners 7
Background Information on Stakeholders 8
MTN Grameen Village Phone (The Grameen Village Phone Program) 8
Honey Care Africa 9
KickStart 10
VI. STUDY AREA – UGANDA 11
Uganda - Background 12
Problem of Youth Employment in Uganda 12
FINCA Uganda 12
VII. EVALUATION OF INTERVIEW RESULTS 12
Grameen Village Phone Results (Staff and Operators) 12
Honey Care Results 16
KickStart Results 19
FINCA Staff Survey Results 22
FINCA Client Results 24
VIII. EVALUATION SCORECARD 28
Description 28
Scoring System 28
Tabulation of Scores 30
Results and Analysis 30
IX. RECOMMENDATIONS 32
General Recommendations 32
Recommendations for Future Partnership based on Grameen Village Phone Results 33
Honey Care Africa 35
Pilot Project Design 35
Training and Support 38
Loan Structure 38
Partnership Structure 39
Potential Income for Business Owners 42
Costs 43
Timeline for Implementation of Pilot Project with Honey Care 43
Necessary Next Steps 43
KickStart 44
Training and Support 44
Loan Structure 45
Potential Income for Business Owners 46
Partnership Structure 47
Cost 49
Timeline for Implementation of KickStart Test Pilot Project 49
Necessary Next Steps 49
X. CONCLUSION 50
BIBLIOGRAPHY 51
APPENDIX 1 – MICROFRANCHISE PARTNERS A-1
APPENDIX 1.1 – TABLE OF MICROFRANCHISE PARTNERS WORLDWIDE A-1
APPENDIX 1.2 – BACKGROUND INFORMATION ON MTN VILLAGE PHONE (THE GRAMEEN VILLAGE PHONE PROGRAM) A-2
APPENDIX 1.3 – BACKGROUND INFORMATION ON HONEY CARE AFRICA A-6
APPENDIX 1.4 – BACKGROUND INFORMATION ON KICKSTART A-11
APPENDIX 2 – BACKGROUND ON UGANDA A-15
APPENDIX 3 – EVALUATION SCORECARD A-19
APPENDIX 3.1 – EVALUATION SCORECARD A-19
APPENDIX 3.2 – ADJUSTING THE EVALUATION SCORECARD A-22
APPENDIX 3.4 – FINAL COMPOSITE SCORES FOR KICKSTART OILSEED PRESS A-35
APPENDIX 3.5 – FINAL COMPOSITE SCORES FOR KICKSTART BLOCKS PRESS A-43
Appendix 4 - Timeline for Implementation of Test Pilot Project AND Activity descriptions A-52
APPENDIX 4.1 – HONEY CARE TIMELINE AND ACTIVITY DESCRIPTION A-52
APPENDIX 4.2 – KICKSTART TIMELINE AND ACTIVITY DESCRIPTION A-55
APPENDIX 5 – SURVEY INSTRUMENTS A-58
APPENDIX 5.1 - FINCA SURVEY INSTRUMENTS A-58
APPENDIX 5.1.1 - FINCA Uganda Staff Questionnaire A-58
APPENDIX 5.1.2: FINCA CLIENT QUESTIONNAIRE (FOCUS GROUP)A66
APPENDIX 5.2 – HONEY CARE SURVEY INSTRUMENT A-68
APPENDIX 5.2.1: Honey Care Africa Management Survey A-68
APPENDIX 5.2.2: Honey Care Africa Project Officer Questionnaire A-70
APPENDIX 5.2.3: HONEY CARE AFRICA NGO SUPPORT SURVEY A-72
APPENDIX 5.3 – KICKSTART SURVEY INSTRUMENTS A-74
APPENDIX 5.3.1: KickStart Staff Questionnaire A-74
APPENDIX 5.3.2: KICKSTART BLOCK PRESS MANUFACTURER QUESTIONNAIRE A-76
APPENDIX 5.3.2: KICKSTART BLOCK PRESS MANUFACTURER QUESTIONNAIRE A-77
APPENDIX 5.3.3: KICKSTART OILSEED AND BLOCK PRESS RETAILERS QUESTIONNAIRE A-78
APPENDIX 5.4 – GRAMEEN PHONE SURVEY INSTRUMENTS A-80
APPENDIX 5.4.1: Grameen Village Phone Staff Questionnaire A-80
APPENDIX 5.5: MICROFRANCHISEE QUESTIONNAIRE A-86
List of Tables
Table 1: FINCA Uganda Loan Structure 23
Table 2: FINCA Client Interest in MicroFranchises 25
Table 3: Youth Interest in MicroFranchises 27
Table 4: Guaranteeing Loans for Young Adults 28
Table 5: Final Evaluation Scorecard 29-30
Table 6: Potential Revenue for Community Center 37
Table 7: Potential Income for Beekeepers 42
Table 8: Loan Amounts for KickStart MicroFranchise Opportunities 46
EXECUTIVE SUMMARY
Origin of the Study
Since 1984, FINCA International (Foundation for International Community Assistance) has provided village banking and other associated loan services to the poor in 24 countries on five continents. Although microfinance has helped to improve income and living standards for millions of families through self-employment, FINCA has found that a majority of its clients’ businesses plateau in terms of growth after taking loans. The business owner does not employ additional people beyond what she can manage on her own; therefore, no new jobs are created. Moreover, FINCA has become aware that although many clients are using income earned from their businesses to send the children to school, the children are not transferring the benefits of their additional education to better employment opportunities due to the prevalence of unemployment.
Recently, FINCA has become aware of a cutting-edge microenterprise strategy called MicroFranchising that could be used to target this group. For this reason, FINCA commissioned the Capstone Team of The George Washington University’s International Development Studies Program to examine this phenomenon more closely and to determine how FINCA can harness its potential to provide new business opportunities for unemployed or underemployed FINCA clients and their families. The team was tasked with conducting a feasibility study for the creation of a test pilot project wherein FINCA would partner with an organization that has already developed and implemented a successful MicroFranchising model to provide MicroFranchising opportunities to FINCA clients.
MicroFranchising
MicroFranchising provides easily replicable enterprise opportunities with proven operation concepts to help alleviate poverty, enhance individual economic self-reliance, and stimulate individual, community and country economic development. Although MicroFranchising borrows the general concept of traditional franchising, an important distinction is its incorporation of models that depart from traditional franchising where there is a franchisor (parent organization) and a franchisee (child) and the franchisor provides training, marketing and branding that leads to success. The franchise relationship tends to insulate the entrepreneur from many of the shocks of the open market by providing a degree of stability, security and predictability that would be rarely achievable on their own. The MicroFranchisee has accountability to the parent organization and in return, the parent organization provides the MicroFranchisee with ownership and training to enhance business operations.
Stakeholder Summary
After examining all known MicroFranchising opportunities worldwide, three organizations were selected for research. The first organization, Grameen Village Phone, was selected because it currently has a partnership with FINCA Uganda. The partnership was analyzed in order to provide enhanced recommendation for future partnerships. The other two organizations, Honey Care Africa and KickStart, were examined to determine the feasibility of creating a test pilot project in partnership with either organization.
· Grameen Village Phone is an initiative of the Grameen Foundation USA, a global non-profit organization that combines microfinance, new technologies, and innovation to empower the world's poorest people to escape poverty. The Grameen Village Phone program provides cellular phones via a sustainable financing mechanism to poor entrepreneurs who use the phones to operate a business in rural villages. The examination of the current partnership with FINCA Uganda was used to determine some of the best practices for future partnerships.
· Honey Care Africa is a Kenyan social enterprise that trains individuals in commercial beekeeping and then buys their honey at guaranteed, fair market prices. It purchases honey and then packages and sells the high quality African honey to local and international markets. Honey Care provides MicroFranchisees with equipment, training to operate a beekeeping business, ongoing extension support to enhance quality and production, and a guaranteed market.
· KickStart is an international non-governmental/non-profit organization that promotes sustainable economic growth and employment creation in Kenya and other countries by developing and promoting manually operated technologies that can be used by dynamic entrepreneurs to establish and run profitable small scale enterprises. KickStart markets and promotes technologies to be produced independently by manufacturers and sold through retail stores. Two KickStart MicroFranchise opportunities were examined in this project: oil production and block manufacturing.
Elements of the Test Pilot Project
A review of the MicroFranchise opportunities and an analysis of the field survey results suggested several key design elements for the test pilot project. These elements include program structure, loan structure, and partnership structure.
Program Structure
FINCA would provide loans to the client in order to invest in the MicroFranchise opportunity. Clients could either take the loan out individually or through a village bank. If the client takes the loan out individually, she will need to have a guarantor. If the client takes the loan through a village bank, the village bank itself will serve as a guarantor. The partner organization would provide equipment, training, and ongoing extension support depending on its capacity. Another third party, such as a donor, may enter the partnership to provide funding and other resources for implementation.
Loan Structure
Loans provided with the MicroFranchise opportunity would adopt many of the same characteristics as current FINCA loans. The loan interest rate would be 2.5-3% per month, and FINCA would charge a loan administration fee and require a savings deposit. Repayment period on the oilseed and block press will maintain the same FINCA repayment standard cycle, while repayment on the beekeeping business requires restructuring whereby the client pays monthly interest on the loan and then half of earnings from the honey produced in each harvest. Youths ages 18-24 are eligible to obtain a FINCA loan as long as they currently have existing businesses, while youths ages 15-17 will need adults to take out the loan on their behalf.
Partnership Structure
There will be a three-tiered partner participation structure in project management at the country, regional, and local level. This is to help facilitate communication and ensure the program’s success. Both FINCA and the partner organization will share responsibilities in initial research, marketing, materials, implementation, and management. They will also extend current monitoring and evaluations programs.
Feasibility
Several factors were used to assess the feasibility of combining MicroFranchising with existing microfinance programs, including: presence of demand for business opportunities in the test pilot site, cost of entry and risk to FINCA clients, the project’s poverty and human development impact on FINCA clients, the capacity of FINCA and a partner organization to take on the project, the project’s replicability within the partnership framework, impact on local youth unemployment, and the market demand for the product produced.
The widespread unemployment and underemployment among both adults and youths in Uganda, combined with interest from FINCA clients and staff, indicates that demand for a program integrating microfinance with MicroFranchising exists. All studied MicroFranchise opportunities had start-up cost of less than $600, which is a feasible loan size for FINCA to offer and small enough to ensure that the poorest clients have access to these opportunities. This reinforced that the integrated program is both feasible and supports FINCA’s poverty alleviation goals. The MicroFranchise opportunities also fulfill human development goals by providing training to enhance the skills of the business owner. Additionally, the studied partners have implemented successful MicroFranchising models in Kenya and are looking to expand into Uganda where FINCA has an extensive network. The model is set up so that youth can manage and operate the business if they qualify under FINCA’s loan requirements, as well as participate in a supporting role as an employee of the business. Finally, all the products are of high quality and fill market demand. These factors strengthen the feasibility of the integrated project and help to ensure that the impact will be sustainable.
Conclusion
Based on the foregoing discussion and analysis, the study’s primary conclusions are:
· Any one (or more) of the three technologies could provide a foundation for a test pilot project in new, highly replicable business opportunities to be offered to FINCA clients. No clear preference emerged beyond the urban preference for the Block Press or Oilseed Press and the rural preference for the beekeeping or the Oilseed Press among FINCA clients. Among staff, there is general support for the concept of introducing a new business opportunity to FINCA clients. However, overall, Honey Care Africa provides the best combination of assets to consider as a test pilot project partner.
· Before selecting a client and a technology for the test pilot project, FINCA Uganda must select a region for project implementation based upon local capacity, staff enthusiasm for participation, and perceived client enthusiasm for participation. It must also conduct preliminary market research to determine if there is strong local client demand for the technology, access to inputs, market demand at wholesale and retail level for final product output, and product supply chain and barriers to getting the product to market.
· FINCA should incorporate recommendations for partnership establishment and implementation presented by the Capstone Team depending upon the partner and technology selected for implementation. FINCA must also develop a partnership agreement that clearly delineates partner responsibilities, establishes terms for partner monitoring and evaluation, and enables each partner to take predetermined protective measures if partnership responsibilities are not being fulfilled.
· Monitoring and evaluation is a crucial component to measure the success of the test pilot project. Both FINCA and the potential partner organizations have established organization-specific monitoring and evaluation schemes that should be leveraged for the pilot project. In general however, FINCA and the partnership organization must set up a monitoring and evaluation system at both client and staff levels based upon responsibilities and indicators established in the partnership agreement.
· Additional funding must be made available, probably from either FINCA International or an outside donor unless the FINCA Uganda Board approves an additional outlay. Funding is necessary to support costs associated with market research, training and/or hiring additional staff, implementation of the test pilot project, trainings and support for clients and monitoring and evaluation.
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I. ORIGIN OF THE STUDY
Since its inception, FINCA International has provided village banking and other associated loan services to poor women in 24 countries on five continents. FINCA’s village banking model takes advantage of the social capital shared within communities to offer a participatory method of obtaining credit and building savings. It has targeted women because they are least able to access credit and because they provide the most direct access to health and education services for their children. FINCA has enabled hundreds of thousands of women to achieve financial self-sufficiency and to provide for their families.
Recently, FINCA has become aware of a new problem for clients that its products do not currently address. As their children come of age, they are finding it increasingly difficult to obtain employment of any kind, let alone work that takes advantage of the skills they have gained through additional years of education and observation or work alongside their enterprising parents. As a result, clients are struggling to pass the gains that microfinance services have enabled them to achieve onto their children. To reverse this trend, FINCA is seeking innovative approaches to reach this new generation that leverage its existing competitive advantages.