Joseph W. Wade and Dr. Richard McClendon, Research Associate, Center for Economic Self-Reliance
The purpose of this research project is to fulfill a research need for the Microfranchise Initiative at BYU’s Center for Economic Self-Reliance.
Micro-Credit Institutions have enabled many of the world’s poor to take out small loans to start businesses. These businesses, because of their scale, are known as microenterprises. Unfortunately, many who receive loans lack the entrepreneurial drive and technical skills to make their microenterprises successful. To solve this problem, the Center for Economic Self-Reliance is developing the concept of microfranchising. The basic idea of microfranchising is to give poor borrowers a proven, replicable, and sustainable turnkey business. Operational concepts from successful franchise organizations are scaled-down to fit the needs of the microfranchisee. In this way, the poor person is able to generate income immediately; allowing her to pay-off her loan, accumulate savings, and provide for the ongoing health and educational needs of her children.
BYU’s Microfranchise Initiative was created to develop the concept of microfranchise as a tool for economic development and to “assist partner practitioners in the establishment and refinement of Microfranchises around the world.” Because the concept of microfranchise is relatively new, there is a great need for research in best-practices, sustainability, and scalability.
My involvement in the research was twofold. First, with the help of a team of Bangladeshi university students, I carried out quantitative research on the viability of microfranchising as a tool for economic development. We used a survey that had been prepared by a team of BYU students, under the direction of Dr. Richard McClendon. The survey was designed to measure various aspects of financial sustainability and allowed us to compile data on several determiners of business success. The survey was administered to 300 micro business owners and operators in Dhaka, Bangladesh. The breakdown of those surveyed is as follows:
100 Microenterprises assisted by micro-credit
100 Microenterprises not assisted by micro-credit (stand-alone)
The purpose of the research was to determine whether microfranchises are more successful than microenterprises or microenterprises assisted by micro-credit, and if so by how much, and at what rate. For such a comparison to be made, the research was designed to be longitudinal in nature. The survey will be re-administered to the same individuals this summer (2008).
Of the microfranchises surveyed, I divided the sample among the transportation, telecommunications, and food industries. The breakdown is as follows:
30 Rickshaw school taxis
30 Bangla Link phone kiosks
40 Igloo ice-cream vendors
= 100 microfranchises
The second part of my involvement in the research was in conducting qualitative research on best practices for microfranchising. To facilitate this research I was able to intern with the Grameen Bank. This internship gave me access to the vast network of microenterprise and microfranchise institutions operating within the Grameen Family. I interviewed managers and field personnel working with Grameen Phone, Grameen Danone, and Grameen Shakti (Solaar Power). I also interviewed the director of Research and Development at BRAC, an NGO recognized for successfully replicating viable micro businesses. There, I looked at BRAC poultry farms as well as BRAC’s Shastho Shebikas (health workers).
After meeting with both microfranchisors and microfranchisees, I identified best practices in the following areas:
1. Research and development
2. Identifying and training the microfranchisee
3. Financing start-up costs
5. Overcoming challenges associated with social businesses
For example, one of the best practices for developing a microfranchise is finding a good location. Of the microfranchises I examined, many ‘piggy-backed’ off larger, more established businesses and franchises by sharing space and resources. One of the reasons for such a collaborative relationship between microfranchises and larger businesses is that space is rare in urban environments and rent is high. To solve this problem, many microfranchises store their mobile kiosks inside a store with a good, permanent location. During the day the microfranchisee will operate in front of the store, renting electricity and other resources from the larger business. In this way both the microfranchise and the larger business benefit.
The concept of microfranchising is still in its infancy and many questions regarding its potential still remain. Dr. Richard McClendon, along with Jason Fairboune and others at the Center, continues to conduct research to test the strength of microfranchising in alleviating poverty for those working in the informal economy. The objective is to help families benefit from this innovative business model.
In short, microfranchise, coupled with microfinance and other development accelerators, will allow poor people to break the cycle of poverty and become more active participants in their economy, government, and civil society.