One of the more recent and
fresh strategies to engage poverty is to create jobs through
microfranchising. It is a bottom-up—bottom of the pyramid
initiative. Microfranchise provides a
business model to help entrepreneurs start businesses that hire employees. A microfranchise business might be a customer
of a microcredit business by seeking start-up capital. Kirk Magleby, in a 2005 working paper
“MicroFranchises as a Solution to Global Poverty,” wrote, “Millions of
successful, small, locally-owned businesses and social enterprises could
significantly reduce global poverty. The
franchise business model is uniquely adept at creating large numbers of
successful, small, locally-owned businesses and social enterprises” [Kirk Magleby,
“MicroFranchises as a Solution to Global Poverty.” November, 2005. www.Omidyar.net (accessed October 15, 2010 ). Magleby has expanded his discussion on
MicroFranchises in his book, Ending
Global Poverty: The MicroFranchise Solution (Provo, UT: Power Think
Publishing, 2007)].
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| Malawi Micro-business |
The microfranchise movement is
gaining supporters and participants. BiD Network, a small business development group, in 2006,
published, “Recap of Worldwide MicroFranchising Activities.” It listed a number of MicroFranchises that
had developed through normal market channels.
Institutions that have invested in MicroFranchising include: Acumen
Fund; Goldsmith Foundation, International Finance Corporation (IFC), World
Bank, Rockefeller Foundation, Exxon Mobil; and the Gates Foundation. [“Recap of Worldwide
MicroFranchising Activities, January 2006,” www.bidnetwork.org (accessed October 5, 2010 )].
Magleby has outlined a
relatively new microfranchise initiative.
He states, “A 3 Billion Dollar Solution to Global Poverty aims to
demonstrate, through a phased approach, that millions of successful, small,
locally-owned businesses and social enterprises can be created throughout the
developing world using the powerful MicroFranchise business model.” The three phased “solution” finds, funds, and
selects the best microfinance projects in each phase of the competition. By Phase III, the best and most profitable
business units are selected for grants and replication. Magleby outlines the Phase III objective,
“200 MFO [Micro Finance Opportunity] networks built out to 10,000 units with
90% unit profitability by 2017. Each
network must operate in at least 5 countries.
$10 million for each of 200 MFO networks throughout the developing
world, spread over 7 years.… Each MFO will have an MNC [Multi National
Corporation] owner/sponsor. The key
Franchisee start-up financing will be provided largely from local capital
linked through creative financial engineering into global capital markets.”
Not everyone agrees that
microfinance and microfranchise initiatives help the poor. The Cato Institute, a Washington-based think
tank, does not believe that, “…small loans will be a source of significant
economic or business growth because most people are not entrepreneurs and the
loans tend to be spent on consumption.”
Thomas Dichter, development industry authority and aid practitioner for
nearly 40 years, is also not so optimistic of microfinance. In a critique of Muhammad Yunus and Grameen
Bank, he said, “In Bangladesh, 30 years after Yunus’ invention, poverty
statistics are worse than they’ve ever been, so something else is the source of
the problem and microcredit is not helping.”
A Cato Institute paper states, “The average poor person in the past is
not an entrepreneur, and when he or she has access to credit it is largely for
consumption or cash flow smoothing…the best financial services for the poor or
low-income people are savings-based services, which in their pure form do not
need outside financial help, or for that matter the large microfinance industry
that has evolved.” [Lisa Kalajian, “Thomas
Dichter of the Washington DC-based Think Tank the Cato Institute Calls
Microfinance ‘Grossly Overestimated.’” MicroCapital.org. February, 26, 2007 . www.microcapital.org (accessed October 12, 2010 )].
There are no easy solutions
for poverty. Fifty years of intervention
and $2.3 trillion of foreign aid has not solved the poverty problem. Rich nations’ top-down, big-plan (ideas) and
big-push (money) have not ended extreme poverty. New approaches to solving this old and long
festering social problem are needed.
Development experts have suggested bottom-up strategies. Enterprises like microfinance and
microfranchise have shown initial promise; but these initiatives need time to
mature and prove sustainability and have also been criticized for not solving
poverty.
