MicroFranchise: The Real Deal in MicroEnterprise Development Stephen W. Gibson Tony San Gabriel Scott Hillstrom

Small Really ISN’T Beautiful Stephen W. Gibson

What is good for our clients? What is good for the NGO? What if these objectives conflict?

The Academy for Creating Enterprise We seek complete self-reliance of our graduates.

Zion ideal community difficult to attain state of economic equality and self- sufficiency “no poor among us” utopia commitment to care for the poor

An Academy Objective: To help establish Zion through building self-reliant LDS families in the Philippines. For us, the ideal is self-sufficiency among our graduates with a dependence on the Lord.

Literature Review “Give us Credit” by Alex Counts “Give us Credit” by Alex Counts “The Price of a Dream” by David Bornstein “The Price of a Dream” by David Bornstein “Pathways out of Poverty” Chapter Two by Chris Dunford “Pathways out of Poverty” Chapter Two by Chris Dunford “The Miracles of Barefoot Capitalism” by Jim Klobuchar “The Miracles of Barefoot Capitalism” by Jim Klobuchar “Working Toward Zion” by Warner Woodworth “Working Toward Zion” by Warner Woodworth

What MicroCredit does for the borrower: 1.Teaches them to write things down. 2.Gives them money. 3.Increases family income, health, and stability. 4.Teaches the consequences of keeping promises. 5.Teaches them the power of a routine. 6.Provides leadership roles for many. 7.Teaches them personal discipline. 8.Allows borrowers to do business. 9.Enables women to have roles of dignity. 10.Empowers women to be good citizens by voting, etc.

MicroCredit Methods: Lower interest rates than most other available loans. Lower interest rates than most other available loans. Peer lending and peer guarantees. Peer lending and peer guarantees. Weekly meetings. Weekly meetings. Passbook lending. Passbook lending. Values training (16 decisions). Values training (16 decisions). Implementing the 15-minute rule. Implementing the 15-minute rule.

What Makes Strong MicroCredit NGOs: Uniformity of practices. Enforce policies. Book of rules. System of checks and balances. Employees undergo specific training in the lending business. Strong business systems in place. What Clients Get From MicroCredit NGOs: Generally no uniformity of training on how to run a MicroEnterprise. Only policies that are taught are about loan repayment. Few (if any) business principles taught. No checks or balances suggested for implementation in their MicroEnterprise. Generally the poor run their business however they think is right. No training in business systems.

It is no wonder it takes eight years for 46% of borrowers to get out of poverty.

NGO Borrower

Teaching simple business principles can benefit the NGO Increased success among their borrowers Increased success among their borrowers Development of income-generating activities by the NGO (e.g., Grameen phone ladies) Development of income-generating activities by the NGO (e.g., Grameen phone ladies)

“If we imagine a world where every human being is a potential entrepreneur, we’ll build a system to give everybody a chance to materialize his or her potential.” --Muhammed Yunus

How much greater to build a system that teaches the customer to build systems within her own MicroEnterprise.

What is the real magic of the Grameen Bank? And how does that answer apply to our discussion today?

Importance of Building a System “The genius of Muhammad Yunus' work is not that he figured out how to empower poor people with loans but that he was able to develop a model that he could replicate more than a thousand times while maintaining control over the quality of the enterprise.” -Alex Counts

Franchises’ Extended Reach “The difference is critical to understanding the implications of what he has accomplished. One branch can serve 2,000 people, whereas a thousand branches can serve 2 million. It takes an entirely different set of skills to start a pilot project than it does to successfully franchise it. Pilot projects reach hundreds of poor people; franchises touch millions.” -Alex Counts

Village banking works because it is run like a franchise.

Franchise “People know the quality of our service. Our job is to make sure it doesn’t deteriorate in any corner of the country.” -Muhammed Yunus The franchise model allows NGOs to replicate their product or service all over the world while maintaining the quality and consistency of their system.

Success of Franchising 80 percent of all start-up businesses in the U.S. fail before 5 years. 80 percent of all franchises are still alive and doing well after 5 years.

Why the difference? A well-designed MicroFranchise eliminates uncertainty. The owners know what to do in almost every business situation. The MicroFranchisee just follows the system—for months or years—until they can develop a better way.

The Academy is working on developing five MicroFranchise models.

Academy Franchise Models

Concluding Suggestions: More NGOs need to teach business skills. More NGOs need to teach business skills. More NGOs need to establish franchise systems. More NGOs need to establish franchise systems. NGOs must not only establish systems, but also aid peak performers in starting and building their own MicroFranchises. NGOs must not only establish systems, but also aid peak performers in starting and building their own MicroFranchises.