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Final Report



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

Table of Contents

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

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 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.


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.

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.

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.

Recently, FINCA has become aware of a cutting-edge microenterprise strategy called MicroFranchising that might be used to target this group. MicroFranchising provides the tools and the idea for enterprising individuals who wish to start their own businesses but are unsure where to begin. Ideally, MicroFranchises are easily replicable and offer products that fulfill a market demand, especially for the poor. Startup costs for many MicroFranchises are well under $1,000, making microcredit an ideal tool to help MicroFranchise entrepreneurs get their start. John Hatch, founder of FINCA International, has 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 opportunities for unemployed or underemployed FINCA clients and their families. To achieve this goal, the team is tasked with creating a strategy for a test pilot project in MicroFranchising opportunities with a partner organization that has already developed and implemented a successful MicroFranchising model. The Capstone Team also seeks to determine whether such a test project can or should include young adults to specifically address this underemployment problem.

Description of FINCA International and Village Banking Methodologyi

Founded in Bolivia in 1984, the Foundation for International Community Assistance (FINCA) is a non-profit microfinance institution (MFI) whose purpose is to provide financial services to the world’s poorest families so that they can create employment, raise incomes, and improve living standards. FINCA was incorporated in 1985 and began its first operations in El Salvador a year later. Since then, it has expanded throughout Latin America, Africa, Central Asia, Europe, and the Middle East. FINCA’s Africa programs began in 1992 with the creation of FINCA Uganda. By July 2004, FINCA was operating in 24 countries, serving more than 20,000 active village banking groups with over 300,000 active clients. In Africa, FINCA has 134,038 clients, which comprise 39% of the total client portfolio.

The key feature of FINCA’s operation is its village banking methodology. A village bank is an informal self-help support group comprise of 20 to 30 members, mostly female head of households. These village banks are democratic, self-governed, grassroots organizations which elect their own leaders, recruit members, create bylaws, disburse loans, manage bookkeeping operations, resolve loan delinquencies, and levy fines on members who fail to attend meetings. On average, the village bank is launched in 4 weeks, or after 4 weekly meetings in which members organize a committee, select village banking name, get training in simple accounting, and begin collection of member savings. From the time of the inauguration of the village bank, the members meet once a week in the homes of one of their members to provide working capital loans, put their savings in a safe place, and obtain skill training, mentoring, and motivation.
Fifty percent of all new members entering the FINCA microfinance program are classified as severely poor, represented by families with daily per-capita expenditure (DCPE) of less than US$1. The other fifty percent of clients are moderately poor with DPCE of US$1.2 or non-poor with DPCE of more than US$2. Eighty-three percent of all FINCA members are women. In Africa, 95 percent of all clients are women. FINCA targets women because they are usually the least able to obtain credit.
Loans usually start at $50-$100 and are linked to savings. Loans provided by FINCA International are disbursed through these village banks, and aimed to assist with income generation and the creation of savings. Clients are also required to put aside savings of about 20% of the loan amount through weekly savings deposits made at the same time as the loan repayment. The more the client saves, the more that she can borrow. Clients are charged market interest rates for the loans. These rates typically match the rate charged by local commercial banks but less than the usurious rates charged by local moneylenders. The average loan period is 4 months and the loan is repaid in 16 weekly installments. One of the unique features of the village banking methodology is its reliance on social capital. All the loans must be collectively guaranteed by members of the village banks—if one member fails to repay the loans, all members of the group are responsible for repayment. Weekly installments include repayment on principal loan amount, plus interest and savings.
Limitations of Microfinance

Although microfinance has helped many clients improve income and living standards through self-employment, FINCA has found a disconcerting trend in their clients’ businesses: self–employment businesses of nine out of every ten FINCA clients stop growing after 3-4 consecutive loans.ii The client’s business size tends to plateau when the owner reaches her maximum daily sales potential. This point is usually the total amount of sale she is able to make by herself in a work day without hiring an additional employee who might help her to further grow her business. Data on FINCA clients helps to explain this phenomenon. On average, FINCA clients are around 39-41 years old and have one or more children who have reached employment age of 15-24 years.iii Because the mother’s productive life has plateaud, and her usually better-educated children are old enough to support themselves, the client has no incentive to expand her business and assume additional responsibility to employ non-family workers.iv As a result, the size, growth, and reach of the business levels off. This results in arrested business and job growth.

Challenges Facing Small Businesses

In addition to problems with growth and expansion, the biggest challenge facing small businesses is survival, as the rate of failure among new small businesses is very high. According to Hollander’s 1967 study of businesses, two-thirds of all new small businesses failed within five years of operations. This number remains high today, with recent studies revealing that 37 percent of businesses with fewer than 20 employees survive after four years of operation and only 10 percent survive after 10 years.v

Businesses operating in the informal sector typically operate with a low-level organization on a small-scale, have low and uncertain wages, and no social welfare and security. Due to their small size and illegitimate status, these informal enterprises face a number of constraints. They are not registered and cannot benefit from many support programs initiated by the government, including financial assistance, training, tax incentives, These businesses are also restricted from setting up shops in certain areas of town and face fines for violation. In some cases, they face harassment and extortion from local officials. Businesses in the informal sector suffer from all of the obstacles faced by small and medium enterprises, as well as additional operating challenges which make them particularly vulnerable.
In addition, in many developing countries, many people have no choice but to engage in self-employment activities in order to survive. However, a large number of the poor simply lack the education and or training necessary to create and develop a successful business endeavor that will enable them to escape poverty. Many small businesses lack complete and accurate financial information. They may have limited market know-how and, in some cases, no business plans.vii These small businesses do not have the time or resources to develop new markets beyond the immediate location that they serve. They may not be aware of how to obtain information about other markets or how to market their product to customers within other markets. Many have virtually no internal bookkeeping system that can provide them with vital information for effective management. Because of their limited resources, they cannot hire accountants and other consultants who are trained to identify risk and take actions to mitigate them. Furthermore, many of these individuals do not necessarily have an entrepreneurial spirit and may actually be better suited as employees. As a result of this lack of entrepreneurial vision, many times people who do not know what kind of business to start, simply copy other businesses, often leading to a crowded marketplace.viii However, there is an emerging concept that could address some of the problems experienced by microenterprises. This concept is termed “MicroFranchising”.
Definition of MicroFranchising

MicroFranchising is a relatively new term currently used to describe microenterprise opportunities that can easily be replicated by following proven operational concepts. The importance for the distinction and use of the term stems from the specific necessity of providing solutions to known microenterprise development problems by creating wide-scale, replicable opportunities 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.ix

Although research in this area is still in its early stages1, the agreed-upon components of any MicroFranchise include: ownership; training; and accountability. In addition, some may also contain additional features such as a larger product-supply chain and uniformity in branding.x
MicroFranchising specifically provides a solution to known enterprise development problems by providing knowledge such as:

  • A business blueprint;

  • Written job descriptions;

  • Daily, weekly, monthly tasks lists;

  • A simple bookkeeping system; and

  • A list of suppliers.xi

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.xii Both in developing and industrialized countries, franchises tend to be less risky and more profitable than totally independent enterprises. In the developed world, many small enterprises are no longer in operation after five years; however, a significantly higher percentage of new franchise locations are still in business after five years.xiii

MicroFranchising Models

Although there are a multitude of different MicroFranchising models that can be established, three general types of relationships predominate. Within these there may be differences in the particulars of what is offered by an institution and what is expected of the microenterprise owner.

  • Traditional Franchising Model

A “Parent” organization provides franchise (child) opportunities. Variations include the following: a manual on how to start and run the franchises; start-up and ongoing training necessary to run the franchise; quality control and ongoing monitoring; and marketing and advertisement support.

  • Business-in-a-box

An organization creates a business plan for an easily replicable small enterprise and provides all of the information necessary to start the enterprise. This model may include initial start-up technical or business skill training; however, in general no assistance is provided beyond the initial stages.

  • Local Distributors

An individual buys finished products from an organization. The individual starts a small enterprise to sell the product in areas where it is not yet widely available. The MicroFranchisee may benefit from the organization’s marketing or brand recognition and in some cases initial training in the sale and use of the product.

Challenges Faced by MicroFranchises

In order to put a dent in global poverty, thousands of MicroFranchise business opportunities need to become available so that high-potential entrepreneurs have options to choose from based on their experience, interest, skill level, culture and geographic location.xiv Large numbers of MicroFranchises are capable of dramatically improving life for those living in poverty by creating jobs and providing access to goods and services tailored to their needs.xv Challenges to achieving scale in these MicroFranchising opportunities include: product distribution, pricing, quality control and adequate business training for MicroFranchisees.

Integration of Microfinance and MicroFranchising

Merging both microfinance and MicroFranchising into a single coordinated strategy is beneficial to help fill gaps in services to the poor. Only microfinance has the proven service outreach capacity to reach all of the world’s poorest households, but the micro-businesses it finances generally have modest growth potential and create few additional jobs. Microfinance provides its clients with working capital loans for self-employment, but usually does not offer the business skills training or technical assistance necessary for the owner to run a successful business. MicroFranchising fills this gap by offering proven business models, technical training, supervision, and quality control or marketing expertise. Nevertheless, MicroFranchises target only a small proportion of the world’s poorest households—the 1-in-10 or 1-in-20 most entrepreneurial. The existing network capacity of microfinance institutions is still the most powerful tool for reaching a large number of the world’s poorest. Integration of these two powerful concepts is beneficial because microfinance can provide the capital needed for self-employment while MicroFranchise opportunities provide the capacity to develop businesses strong enough to generate continuous growth in sales, jobs and profits. MicroFranchising helps to address the issue experienced by FINCA when clients stop expanding their businesses after a certain period of time. Nevertheless, adding microfinance products to the business models will require innovative methods to ensure that loans are repaid.

Problem Statement

This capstone project aims to answer three primary questions related to FINCA’s development of MicroFranchising opportunities for FINCA clients.

  • How could FINCA International best undertake a pilot project that integrates MicroFranchising with its core microcredit offerings in an effort to create jobs?

  • Could such a program be extended to underemployed youth in the communities FINCA serves?

  • Which, if any, existing MicroFranchise opportunities to be studied, offers the most compelling partnership opportunity?

Research Questions

The team’s research questions are aimed to address the questions laid out in the problem statement. Its research works to fully answer the four main research questions listed below:

  1. What is the ideal framework for FINCA International to combine its core competitive advantage as an MFI with MicroFranchising?

    1. What responsibilities for project implementation would FINCA assume, and what responsibilities does it expect a partner to assume?

    2. Is FINCA International’s current selection of loan products the most efficient way to provide credit for potential MicroFranchisees? If not, then what new products should it offer to reach this group?

    3. What is the timeframe for development and implementation?

    4. What additional resources would FINCA International need in order to establish the pilot project?

    5. Is FINCA Uganda a desirable location for project implementation? Does it possess adequate capacity and interest in the project? How do answers to the above questions apply to FINCA Uganda?

  1. How do MicroFranchise Organizations operate? What role could microfinance play in supporting the development and growth of MicroFranchising opportunities?

  1. What degree of success has each organization to be considered in the field research achieved in creating sustainable, income-generating enterprise opportunities for its customers?

  1. How compatible is each partner organization with FINCA Uganda in terms of capacity, operations and expectations for a partnership.


In order to address its research questions, the team divided its efforts into three phases of work. Phase one, Initial Research, was designed to give the team the fullest background in MicroFranchising opportunities and FINCA’s goals and processes in order to conduct effective research in the field and prepare a base plan for a proposed test pilot project. Phase two, Field Data Collection, involved personal research performed in Uganda and Kenya to gain constituent feedback on the feasibility of the planned project. Phase three, Information Analysis, brought together the work from the previous two phases and required interpretation of all information in order to prepare a recommendation on the feasibility of the plan.

Phase One – Initial Research

This phase included background research and the creation of a proposed plan for a test pilot project that was assessed in Phase two. The main points of the team’s research included the following:

  1. Research on current MicroFranchising efforts across the world to gain knowledge about the practices of industry leaders.

  2. Examination of MicroFranchising clients’ compatibility with FINCA country offices to identify potential partners to be analyzed in greater detail.

  3. Preliminary evaluation of country office interest.

  4. Design and preparation for field research.

Phase Two – Field Data Collection

This phase involved interviews and focus groups with a variety of stakeholders to give the team insights on the interest and demand for this project in the country and region selected for study, provide feedback on the feasibility of the proposed plan examined, and confirm or revise the results of the background research performed in Phase One. The team’s goals in this phase included:

  1. Meeting with clients and staff from select MicroFranchising operations to learn about their business processes and potential for expansion.

  2. Meeting with FINCA Uganda’s staff and loan recipients to assess their interest in the proposed introduction of MicroFranchising opportunities and to determine the ideal partner and method for implementation of a test pilot project.

Phase Three – Information Analysis

In this final phase, the team performed an analysis of the information that was gathered in phases one and two. This step required reconciliation of the data collected before entering the countries of study with the knowledge gained working with those who could be involved in the project. It included both a quantitative and qualitative examination of all of its research, details of which are described in Sections VII and VIII. From this analysis, the team devised its final recommendations to FINCA International, which are outlined in Section IX of this report.

Selection of MicroFranchise Partners

The Capstone Team examined the feasibility of partnering with several MicroFranchise Organizations (MFOs) (defined as organizations that provide some kind of MicroFranchising opportunity) in a country with a FINCA office presence. The Capstone Team made the following assumptions to decide on the best method for FINCA to provide business opportunities to its clients and youths:

  • It is preferable to partner with an established MFO to help build the test pilot project. This will provide the advantages of:

  • Existing knowledge of market supply and demand

  • Successfully established business model and training programs

  • Startup costs should be below $600. Any franchise opportunity with start-up costs above $600 would present an unfeasible loan size for most FINCA clients – especially youths without credit history.

  • This project could train them as entrepreneurs for future businesses with higher start-up costs.

  • These MicroFranchises need to generate immediate returns. A business with higher start-up costs may not begin to generate profits for a longer period of time.

  • It is essential to minimize risk for loans given to youth with minimal business experience.

  • It is preferable to provide a franchise model that is a stand-alone business rather than a network of product sales representatives.

  • There should be several viable MFO partners in a country or region with whom FINCA could establish additional future partnerships

  • There must be an established FINCA office in the region where the MFOs operate.

The team identified all known MFOs worldwide (see Appendix 1.1 for a list of the MFOs examined). It conducted a comparative review of MicroFranchising “hotspots” with clusters of FINCA offices. Four countries or regions have emerged as MicroFranchising hotspots: The Philippines, India, East Africa, and Mexico. Of those regions, only East Africa and Mexico feature an established presence of FINCA offices. While Mexico is an extremely fertile territory for the use of the MicroFranchising model as an economic development tool, most opportunities there required start-up investments of over $1,000. East Africa, however, boasts three highly respected organizations with established MicroFranchise models, all of which require start-up costs of $600 or less: Honey Care Africa, KickStart and Grameen Village Phone. After FINCA International confirmed that FINCA Uganda maintained a strong program, all agreed that East Africa would be the team’s region of focus.

Next, the team performed a detailed analysis of these three possible MFO partners based on their adherence to the assumptions above. Preliminary research uncovered an existing relationship between Grameen Village Phone (“GVP”) and FINCA to provide cellular phone service to customers in villages served by FINCA in Uganda. As a result, GVP was not considered as a potential test pilot partner in our feasibility study; rather, the partnership was considered for lessons that can be applied to the test pilot project. The following section contains a description of each of the MFOs.
Background Information on Stakeholders

This section provides background information of the stakeholders examine for the project. These stakeholders are Grameen Village Phone, Honey Care Africa, and KickStart.

MTN Grameen Village Phone (The Grameen Village Phone Program)

The Grameen Technology Center (“GTC”) is an initiative of the Grameen Foundation USA (GF USA), a global non-profit organization that combines microfinance, new technologies, and innovation to empower the world's poorest people to escape poverty. GTC works to eliminate poverty by leveraging the power of microcredit and technology. It focuses on technology that:

  • Makes the delivery of microfinance even more efficient;

  • Enhances income generating opportunities for the rural poor; and

  • Provides poor communities access to information for better health and educationxvi

GTC, in partnership with MTN Uganda, replicated the Grameen Village Phone (GVP) Program in Uganda and created MTN Village Phone. Four partners are required to deliver the service to rural villages: the telecommunication provider, microfinance institutions (MFIs), the Village Phone Company, and the village phone operator (VPO). Each partner must operate synergistically with one another in order to ensure systemic survival. By following a carefully designed business model, the VPO should break even on a start-up investment of US$240 after 26 weeks by selling just 17 minutes of airtime per day.

The GVP model is designed to circumvent constraints of providing telecommunications service via more traditional mechanisms that are commonly found in rural areas. The model significantly increases the affordability of making and receiving calls while providing incentives and revenue opportunities designed to entice each partner to participate. As a result, it not only provides an income opportunity to VPOs, but it also provides the entire community with access to information that can potentially create or enhance income opportunities; improve access to health care and education, increase political participation, and avoid or prepare for natural disasters.

While these findings leave GVP as a highly unlikely test pilot project partner, the team analyzed the GVP program for the following reasons:

  • The GVP partnership served as a baseline source for determining the attractiveness of a test pilot project with Honey Care.

  • The Capstone Team applied findings from the successes and failures achieved in the current partnership between the two organizations to improve the strength of its recommendations for a new project.

For more information about MTN Village Phone and the Grameen Village Phone program, see Appendix 1.2.
Honey Care Africa

Honey Care Africa (“Honey Care”) is a Kenyan social enterprise that was established to increase the income of rural farmers. Honey Care trains individuals in commercial beekeeping and buys their honey at guaranteed prices. It then packages and sells the honey to a distribution partner. The company’s overall objective is to produce and market high-quality honey that will successfully compete on the world market.xvii

Honey Care currently has offices in Kenya and Tanzania and is looking to expand to other countries in the region, including Uganda and Sudan. The majority of honey sales are in East Africa, but initial exportations of honey to Europe and the United States began in 2006. The company has over 50 employees who focus on extension support, Langstroth hive manufacturing, packaging and program management.
Honey Care has created a system of honey production that relies on low-income subsistence farmers to produce honey in order to provide them with a supplemental source of income. The company manufactures and sells a special-design, high-yield beehive, known as the Langstroth hive, and trains new beekeepers who purchase these hives to manage their own operations. Honey Care guarantees that it will purchase all the honey a beekeeper can produce, at a fair and fixed price, and that it will pay on the day of collection. Honey Care then processes and packs this honey into a variety of honey products and sells them for a profit. It also provides the necessary and requisite training for rural communities that undertake honey production. In addition, wherever economically viable, Honey Care also provides extension support for farmers, and where it is not viable, alternative structures and models are developed and established to ensure that farmers have the required technical advisory support that they need to take care of their hives and maximize honey production.
According to Honey Care, “bee keeping has proven to be an ideal enterprise for small-scale farmers in many parts of rural Kenya because it complements existing farming systems, it is simple and relatively cheap to start, and it requires a very low level of inputs (land, labor, capital, and knowledge).” xviii With only four bee hives and just 20 minutes of labor every day at a start-up cost of only US$65 per hive, a beekeeper can earn a reliable annual income of between US$150 and US$300, which is an amount that is often enough to make the difference between living above and below the poverty line in Kenya. xix
Over the last two and half years, nearly 2,200 small-scale farmers have become involved in honey production with Honey Care, each with an average of 4 hives. This amounts to an estimated projection of US$400,000 - $450,000 per year in income that Honey Care will be helping these rural communities earn when all the hives are in full production and the farmers' loans have been paid off. xx
Honey Care regularly works with development sector organizations that take on various roles working with and organizing the communities of producers. In some instances, the development sector organizations also act as microcredit providers to finance the purchase of beehives and beekeeping equipment. In this type of relationship, the loans are then recoverable at the time when the honey is ready for sale to Honey Care.
For more information about Honey Care Africa, see Appendix 1.3.

KickStart is an international non-governmental/non-profit organization founded in Kenya in 1991. The organization’s mission is to help millions of people out of poverty. It promotes sustainable economic growth and employment creation in Kenya and other countries by developing and promoting technologies that can be used by dynamic entrepreneurs to establish and run profitable small-scale enterprises.

KickStart currently has 200 employees and five offices in three countries.xxi The organization’s goal is to expand its program throughout East Africa and open new programs in Southern and Western Africa in order to help millions escape poverty. The organization plans to open an office in Uganda towards the end of 2006. Businesses in over 20 countries currently use KickStart technologies. Most of these countries are in Africa – Kenya, Tanzania, Mali, Uganda, Malawi, and South Africa – although they range from the Philippines to Haiti.xxii In order to raise funds for the expansion of its operations to other African countries, it opened a new development and collaboration office in San Francisco, where it is established as a 501 (c)(3) non-profit organization.
KickStart offers a number of technologies that are designed to be profitable to use, affordable to buy (under US$1,000), durable and easy to operate and maintain with minimal training for entrepreneurs in developing countries. Technologies developed to date include:

  • Cooking Oil technologies- “Mafuta Mali” Oilseed Press

  • Building Technologies- “Actionpac” The Action Pack Block Press

  • Micro-Irrigation Technologies- “MoneyMaker” Pumps

  • Sanitation Technologies- Domed Concrete Pit latrine Slabs

  • Hay Baling Technologies- High-Pressure hay baler

  • Transport Technologies- Split rim wheels for animal carts

KickStart’s East Africa offices are currently concentrating their efforts on marketing and selling the MoneyMaker Pumps (“Irrigation Pumps”) due to their great success and the support provided by donor organizations in promoting this particular technology. Because the Irrigation Pumps are simply tools designed to increase agricultural crop production and therefore do not necessarily result in the creation of a new business, the team eliminated it from consideration and chose to focus on the Mafuta Mali (meaning “oil wealth” in Kiswahili) Oilseed Press (“Oilseed Press”) and the Action Pack Block Press (“Block Press”). Both the Oilseed Press and the Block Press appear to have the highest potential for easy and large scale replicability and thus function as potential MicroFranchise opportunities for FINCA clients. Each of these technologies is designed to produce a high-demand product at a significantly lower cost to the poor in developing countries than was previously available. KickStart’s past support in the development and promotion of the Oilseed Press and the Block Press has enabled four private manufacturers in Kenya (two producing each) to profitably produce and market the technologies. In addition, KickStart products are available for purchase through over 180 retail stores around the country. KickStart remains in contact with each manufacturer. It has strong relations with the retail stores, and continues to promote these technologies through local shows and exhibitions. It also provides support and training on how to use and maintain them.

The Oilseed Press

The Oilseed Press was developed to address the need for affordable cooking oil in Kenya. In 1992 when the Kenyan government removed price controls on essential commodities and the price of cooking oil almost tripled, KickStart decided to develop a technology for the small-scale production and sale of cooking oil by small businesses.xxiii In addition, it designed a Gravity Bucket Filter to go with the press. The Oilseed Press extracts oil from sunflowers, sesame and other oil seeds and the filter produces clear, cold-pressed, nutritious oil ready for sale or consumption. In addition, the seedcake by-product is valued as a high-protein animal feed supplement.xxiv There are currently two private manufacturers producing the Oilseed Press in Kenya.

The Block Press

KickStart developed the Block Press in order to address the demand for affordable shelter. The Block Press is used to make strong building blocks from soil and cement. There are currently two private manufacturers producing and marketing the technologies in Kenya. Four workers using the manual Block Press can produce 350 rock hard building blocks a day by compacting a soil/cement mixture under high mechanical pressure. The technology can be used to start low cost construction businesses. In addition, the blocks can be sold profitably to build walls at half the cost of the concrete blocks or stone walls.xxv

For more information about KickStart’s strategy and organization structure, see Appendix 1.4.

The team considered the following criteria for selecting a FINCA country office with which to work:

  • Initial or presumed (based upon feedback from FINCA International staff) country office receptiveness to the project.

  • Country office capacity to host the team, facilitate interviews during the field research phase.

  • Country office capacity to launch a test pilot project based upon current operational challenges and FINCA International staff feedback.

  • Honey Care Africa and KickStart both expressed expansion interests.

FINCA Uganda expressed immediate receptiveness to our arrival and indicated that they would arrange interviews, provide translators and accompany the team during its field work. The health of its core operations also made it likely that FINCA Uganda would possess strong current and future capacity to launch a test pilot project if its appeal could be communicated to key decision makers.

Honey Care Africa was eager to launch a new program in Uganda because few trade, transportation or cultural obstacles existed to set up operations there. As a result, the team concluded that Uganda provided an attractive location to conduct its feasibility study.
Uganda - Background

Uganda is a diverse country with over 20 different African tribal groups making up most of its 27 million citizens. Bantu groups are nearly two-thirds of the population and live primarily in the south of the country. Nilotic groups populate the north and remain very ethnically divided from the Bantu. Only 16% of the population lives in urban areas.xxvi

Uganda has had a troubled path since independence and still faces great challenges to development, but also has many reasons to be optimistic for the future. Uganda has been considered by many in politics and development to be one of Africa’s success stories. The country has had an annual real GDP growth rate of 5.8% since 2000 and is expected to grow by over 6% in coming years. More importantly, the country’s quick acknowledgement of the HIV/AIDS problem and thorough prevention campaign, have dropped infection rates by more than half in the last ten years.xxvii
Problem of Youth Employment in Uganda

Youth unemployment is 7 percent in East Africa. Moreover, many youth are working in the informal economy and may not earn enough to live. Thus, underemployment is also a big problem. Underemployment is described as widespread because people are forced to earn a living in some way, but “would like to augment their current incomes with some extra wage-earning opportunities in their locality”.

Youth have the worst statistics in the country. The Ugandan Bureau of Statistics (UBOS) states that youth unemployment and underemployment are both higher than the national average. xxviii The German Government’s development agency, a major donor to Uganda, is placing a special emphasis on youth employment and has termed the problem “rampant”.xxix
FINCA Uganda

FINCA Uganda is a licensed, regulated financial institution with 2,053 village banking groups and over 42,000 clients. In October 2005, FINCA Uganda had an active loan portfolio of US$6.1 million, client savings of US$2.8 million, an average disbursed loan size of US$242 per client, and a starting loan amount averaging US$ Ninety-nine percent of FINCA’s clients in Uganda are women. FINCA currently reaches 35 out of the 56 districts in Uganda. Seventy-two percent of FINCA’s clients are located in rural areas with population of 10,000 people or less. Ninety percent of FINCA Uganda clients live on less than $1 per day.xxxi

The Capstone Team conducted field research in Uganda and Kenya to examine the current partnership between FINCA and GVP, the capacity and level of interest from Honey Care and KickStart and FINCA Uganda to implement the pilot project, and FINCA clients’ level of interest in the opportunity that would be offered in the partnership. The following section outlines the team’s findings.
Grameen Village Phone Results (Staff and Operators)

The Capstone Team’s approach to its examination of FINCA’s partnership with Grameen Village Phone was different than for its examination of the other two MicroFranchising organizations. Rather than seeking to address the problem statement and the research questions directly, the team’s goal was to interview GVP program participants to address questions as they relate to the other MicroFranchising opportunities.

As a result, the following considerations were paramount as we assessed the feedback we received from GVP participants:

  • How did FINCA integrate the GVP program with its core microcredit offerings, and to what extent is this model adaptable to a future test pilot project?

  • Which among the other MicroFranchise opportunities looks most promising in light of what the GVP partnership can tell us?

  • To what extent have youth participated in the GVP program, and what does their participation (or lack thereof) tell us about prospects for integrating youth into a future test pilot project?

  • How were responsibilities divided between partners, has this division of responsibilities been successful, and to what extent would it have to be adapted for a future project?

  • What challenges has the program experienced, how have the partners worked to overcome them, and how can these lessons be applied to a future project and partnership?

  • What does the program tell us about FINCA Uganda’s capacity to implement a new test pilot project using MicroFranchising?

The Capstone Team interviewed three different constituencies: FINCA staff responsible for implementing the GVP program, MTN Village Phone staff (the partner organization), and VPOs. Due to time and availability limitations, only two FINCA staff members, one MTN Village Phone employee, and two VPOs were interviewed. However, these included FINCA’s partnerships supervisor, an Account Relationship Officer who markets the GVP program to FINCA clients and supports VPOs in a district in Kampala, Uganda’s capital, and an MTN employee who manages the relationship with FINCA (and was a former FINCA employee). Because the team was able to meet with key players in the partnership, the primary limitation of its findings was its inability to interview any staff members or clients from rural areas who participated in the program. This is significant because our findings indicate that conditions vary between rural and urban areas. However, a few of the FINCA staff members the team spoke with in Eastern Uganda provided some feedback on the local office’s experiences with the program. Following is a summary of results derived from speaking with each group.

Summary Results from FINCA GVP Staff and MTN GVP Staff

Conditions for Success

Market conditions appear to be a more important determinant of success for operators than their particular skill set, which suggests that market conditions for a new product must be clearly understood before implementation begins.xxxii Nevertheless, basic business instincts and drive are essential determinants of the success of VPOs and will likely be similar for the other opportunities offered.xxxiii


All interviewed GVP constituents indicated that competition has changed the performance picture for both partners and clients. In the program’s early stages, competition was minimal, but landlines have been extended into peri-urban areas and competition from other cellular providers has intensified. MTN appears now to retain a competitive advantage only in rural areas where it enjoys incomparable network coverage. As a result, income per phone has dropped for most operators. While this competition is boosting community human development by improving access to information, VPOs are facing new constraints to improving their incomes. The potential level and effects of competition for the products of the MicroFranchising opportunities will need to be assessed in order to monitor their effect on the business owner’s incomes.

Preventing Market Saturation

Limiting the number of operators per area was unsuccessful for two reasons:

  1. It enabled a VPO to simply hold a monopoly, purchase additional phones in a given market where no outside competition existed, and price gouge customers. This concentrated the program benefits in one person’s hands rather than allowing the market to determine who benefits.

  2. It enabled competitors to enter the market and establish a stronger position.

Therefore, it is preferable to let the market determine supply and demand while simultaneously refining loan requirements to ensure that MicroFranchisees are adequately prepared for the prospect of additional competition and know from where their market will come.
Ongoing Support

MTN provides significant support to both FINCA staff and clients. They guarantee equipment supply and continually develop innovations to try to improve equipment quality and reduce cost, provide customer support and troubleshooting (a shared responsibility), and conduct product marketing and performance monitoring.xxxiv The partnership is a collaboration in which, for the most part, each partner is responsible for oversight of its core competency areas. The primary exception is that at the customer level, FINCA Account Relationship Officers are often asked to provide customer support when MTN’s hotline is not adequate. This relationship most closely mimics the type of relationship expected with Honey Care Africa, and one-to-one customer support appears to be the most problematic component in both cases.

Loan Repayment Issues

Although loan repayment performance suffered in the program’s first year, FINCA and MTN have taken several steps to reverse this trend. First, FINCA suspended loan dispersals for GVP equipment while it revamped the program.xxxv Then it restructured the terms of loans dispersed to VPOs to be consistent with the traditional village banking model, as opposed to offering separate loans with separate loan terms and repayment structures.xxxvi It required all borrowers to pay off preexisting loans before taking out new loans to purchase GVP equipment, and it forbade GVP loan recipients from carrying loans for other purposes simultaneously. Additionally, MTN has significantly reduced equipment costs and broken up equipment packages so all VPOs do not have to buy the full package if they do not need it.xxxvii The combination of changes has made loan repayments more manageable while enabling FINCA to more carefully monitor repayment. Repayment rates are now on par with FINCA averages. Two points are worth noting. First, both partners made adjustments to their operational models in order to solve problems. Second, product innovation reduced costs and was necessary for the program to remain competitive in the industry.

Staffing and Providing Incentives

Staff members at both a local and national level have been able to integrate their GVP responsibilities into their overall jobs and seem poised to take on new challenges. However, local staff members are not pleased with the suspension of the 2% commission earned by Account Relationship Officers on the sale of airtime. They argue that this helped ensure that staff felt invested in the program. MTN indicated that this was one component of an overall effort by both FINCA and MTN to combat the initial perception among staff that this program was designed to benefit MTN alone and that FINCA was primary working on MTN’s behalf to sell their products.xxxviii Although MTN agreed that the incentive should be reinstated, FINCA indicated that new taxes on cell phone sales required them to suspend the program for cost reasons.xxxix One important takeaway from this feedback is the power that a proper incentive program can bring to a new partnership given that it will add responsibilities to existing staff workloads. A second is that existing staff appear capable of taking on additional responsibilities to develop a new test pilot project.

Monitoring and Evaluation

MTN conducts regular monitoring of the number of phones distributed and minutes used per client. FINCA generates monthly qualitative and financial reports that share successes, challenges, areas to improve, and areas where MTN can help.xl This monitoring of both partner performance and client performance holds all parties accountable and enables each party to identify and address problems as they emerge. One staff member suggested that FINCA should conduct an in-depth assessment of competition to avoid market saturation.xli

MicroFranchising as a Supplemental Income Source to Reduce Poverty

Most VPOs own other businesses that are complementary to their phone businesses. This suggests that an effective way to reduce poverty is to integrate new income-generating activities into existing lifestyles, much like what honey production offers, which will be discussed later in this section.

Youth Participation

Youth are already participating as operators in the GVP program, although the team did not obtain feedback on their success rate as compared with older operators. The country-level supervisor indicated that they are not treated any differently from other clients.xlii However, youth 15-17 are not eligible to take out loans.

Summary Results from FINCA GVP Clients

MicroFranchising as a Supplemental Income Source to Reduce Poverty

Integrating their operator businesses with other sources of income was not only a way to enhance income and reduce vulnerability to changing market conditions, but it also helped to improve each business, especially for retail owners.xliii

Risks to Franchisees

There are external risks beyond FINCA’s control that must consider when implementing the test pilot project. For example, problems with competition and intermittent electricity availability have hampered sales of the village phones.xliv This is the same type of uncontrollable risk – input availability, weather problems, etc.—that the team observed with the other products.

Market Price Sensitivity

Customers are very price sensitive with their phone service.xlv It is important to learn about price elasticity of demand for any product considered for a test pilot project to determine the extent to which the market will support higher prices for better quality, especially in the case of the two presses.

Ongoing Training and Support

Both clients indicated a desire to obtain additional training. The importance of making ongoing support available so that business owners can continue to refine and improve their businesses cannot be underestimated.

Equipment Innovations

Clients indicated that prices change of equipment was confusing, but acknowledged that declining prices have helped with more recent purchases of phones. They are not confident that the new equipment is of higher quality and have encountered functioning problems. This should serve as a reminder that perhaps product quality should not be sacrificed even if it makes the product more affordable in the short run.

Honey Care Results

With proper guidance and dedication, beekeepers have strong chance of achieving successful results. Beekeepers who had disappointing outcomes generally did so because they did not get the help they needed to solve problems, became discouraged, or did not follow training instructions, such as harvesting at the wrong time. Although this increases the criticality of quality training and reliable support, prospective beekeepers and loan officers alike can be assured of a high chance of financial success with the proper level of commitment.

Honey Care and its partners have consistently found a high demand among rural farmers to start new beekeeping enterprises. Most beekeepers reported being motivated to begin because of the prospect of earning additional income with limited time commitment. Additionally, the low start-up costs for beekeeping made the opportunity attractive to farmers.
There are other hive producers in Kenya and likely Uganda, as well as existing knowledge of traditional beekeeping methods according to both Honey Care and FINCA staff. However, the FINCA clients we interviewed were not aware of existing beekeeping knowledge in their localities. Although traditional beekeeping exists in Uganda, the Langstroth hives used by Honey Care are of a superior quality and return more honey with each harvest than traditional hives. As a result, FINCA and Honey Care can exploit this product advantage to work with both existing and new beekeepers, enabling greater knowledge sharing between them.
Beekeeping Operations-Costs and Revenues

Each hive costs approximately US$65 and can be paid off within two to three years. Repayment time will depend on factors such as surrounding vegetation, bee colony quality, and weather conditions. A beekeeper can expect to harvest an average of 10 kilograms of honey per hive which, if sold to Honey Care, would bring revenue of approximately $14 per harvest. Current farmers have an average of 4 hives each and harvest between 2 – 6 times each year depending on the climate. This means that a farmer has the potential to earn a gross income of $112 - $336 each year. A beekeeper will not incur many outside costs beyond the original price of the beehive. Training and some necessary equipment are included, but beekeepers are still responsible for building their own apiaries and will need to use shared equipment for harvesting. Some beekeepers voiced a desire to purchase harvesting equipment with a group. This could potentially improve the care given to bee suits. It will also allow beekeepers to harvest honey at the critical moment when yields would be highest, since they do not have to wait for their turn to use the suit, especially during crucial harvest periods.

A number of beekeepers reported that local market prices were higher than what Honey Care offered, despite the fact that Honey Care’s price is above the international market rate. As a result, some indicated that they sold some of their honey locally or expressed an interest in doing so. This can increase income for beekeepers, but may create some challenges with loan repayment that will be addressed in Section IX (Recommendations).

Important Characteristics of Beekeepers

The most important characteristic for beekeepers is dedication. Complications can come up in beekeeping and farmers must have the determination to seek help to resolve problems. Women have been found to be more dedicated to long-term care of the hive. Interviewees felts that youth are more prone to losing interest in beekeeping and are more likely to move from the farm or search for sources of income that produce more rapid returns. As a result, they may be more successfully employed to care for the hives by other family members or owners who lack available time or are fearful of bees.

Beekeepers will benefit if they are able to work in groups. It is more time-effective to keep the hives of several farmers clustered together because all hives can then be easily inspected together. In addition, keeping the hives together can also help in the colonization process. The groups of farmers who cluster their hives will assist each other with monitoring and harvesting. Groups might also choose to invest jointly in harvesting equipment.
Basic math skills and literacy have been identified as useful skills to successful beekeeping. They are useful for note taking during trainings and accurate record keeping.
Successful beekeepers must also have sufficient land and the right mixture of vegetation around the apiary. Certain vegetation, such as banana trees, mango trees, and bottlebrush and caliendra are particularly helpful in promoting honey production. Beekeepers must be able to construct the apiary far enough from animals, children, and other disturbances. If a beekeeper does not have these resources, then he or she must be able to partner with another beekeeper who doesxlvi.
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