1. Final Report
MICROFINANCE AND MICROFRANCHISING:
A FEASIBILITY STUDY
CLIENT: FINCA INTERNATIONAL
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 16, 2006

2. 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 ................................................................... 13
GRAMEEN VILLAGE PHONE RESULTS (STAFF AND OPERATORS)............................................. 13
HONEY CARE RESULTS ....................................................................................................................... 16
KICKSTART RESULTS ............................................................................................................................ 19
FINCA STAFF SURVEY RESULTS....................................................................................................... 22
VIII. EVALUATION SCORECARD.......................................................................................... 28
DESCRIPTION ......................................................................................................................................... 28
SCORING SYSTEM .................................................................................................................................. 28
TABULATION OF SCORES ..................................................................................................................... 30
RESULTS AND ANALYSIS ...................................................................................................................... 31
IX. RECOMMENDATIONS...................................................................................................... 33
GENERAL RECOMMENDATIONS ........................................................................................................ 33

3. RECOMMENDATIONS FOR FUTURE PARTNERSHIP BASED ON GRAMEEN VILLAGE PHONE
RESULTS .................................................................................................................................................. 34
HONEY CARE AFRICA .......................................................................................................................... 35
Pilot Project Design ............................................................................................................... 35
Training and Support ............................................................................................................ 38
Loan Structure ......................................................................................................................... 39
Partnership Structure............................................................................................................. 40
Potential Income for Business Owners ............................................................................ 42
Costs ........................................................................................................................................... 43
Timeline for Implementation of Pilot Project with Honey Care .............................. 44
Necessary Next Steps............................................................................................................ 44
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 ................................... 50
Necessary Next Steps............................................................................................................ 50
X. CONCLUSION ...................................................................................................................... 50
BIBLIOGRAPHY................................................................................................................................ 52
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-21
APPENDIX 3.4 – FINAL COMPOSITE SCORES FOR KICKSTART OILSEED
PRESS..................................................................................................................................................A-34
APPENDIX 3.5 – FINAL COMPOSITE SCORES FOR KICKSTART BLOCKS PRESS
...............................................................................................................................................................A-42
APPENDIX 4 - TIMELINE FOR IMPLEMENTATION OF TEST PILOT PROJECT AND
ACTIVITY DESCRIPTIONS ..................................................................................................A-51
APPENDIX 4.1 – HONEY CARE TIMELINE AND ACTIVITY DESCRIPTION A-51
APPENDIX 4.2 – KICKSTART TIMELINE AND ACTIVITY DESCRIPTION .....A-54
APPENDIX 5 – SURVEY INSTRUMENTS ......................................................................... A-57
APPENDIX 5.1 - FINCA SURVEY INSTRUMENTS........................................................A-57
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4. APPENDIX 5.1.1 - FINCA Uganda Staff Questionnaire .......................................A-57
APPENDIX 5.1.2: FINCA CLIENT QUESTIONNAIRE (FOCUS GROUP)A64
APPENDIX 5.2 – HONEY CARE SURVEY INSTRUMENT ........................................A-66
APPENDIX 5.2.1: Honey Care Africa Management Survey .................................A-66
APPENDIX 5.2.2: HONEY CARE AFRICA PROJECT OFFICER
QUESTIONNAIRE ..........................................................................................................A-68
APPENDIX 5.2.3: HONEY CARE AFRICA NGO SUPPORT SURVEY .......A-70
APPENDIX 5.3 – KICKSTART SURVEY INSTRUMENTS............................................A-72
APPENDIX 5.3.1: KickStart Staff Questionnaire......................................................A-72
APPENDIX 5.3.2: KICKSTART BLOCK PRESS MANUFACTURER
QUESTIONNAIRE ..........................................................................................................A-74
APPENDIX 5.3.2: KICKSTART BLOCK PRESS MANUFACTURER
QUESTIONNAIRE ..........................................................................................................A-75
APPENDIX 5.3.3: KICKSTART OILSEED AND BLOCK PRESS RETAILERS
QUESTIONNAIRE ..........................................................................................................A-76
APPENDIX 5.4 – GRAMEEN PHONE SURVEY INSTRUMENTS...........................A-78
APPENDIX 5.4.1: Grameen Village Phone Staff Questionnaire ..........................A-78
APPENDIX 5.5: MICROFRANCHISEE QUESTIONNAIRE .......................................A-84
LIST OF CONTACTS............................................................................................................. A-89
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5. List of Tables
TABLE 1: FINCA UGANDA LOAN STRUCTURE ................................................................ 24
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
TABLE 6: POTENTIAL REVENUE FOR COMMUNITY CENTER ................................... 37
TABLE 7: POTENTIAL INCOME FOR BEEKEEPERS ....................................................... 43
TABLE 8: LOAN AMOUNTS FOR KICKSTART MICROFRANCHISE
OPPORTUNITIES ..................................................................................................................... 46
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6. 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
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7. 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.
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8. 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,
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9. 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.
viii

10. 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.
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.
II. CONCEPTUAL FRAMEWORK
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.
1

11. 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
2

12. 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, etc.vi 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”.
III. 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
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13. Although research in this area is still in its early stages 1 , 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.
1
The MicroFranchising concept was first introduced in 2004 at the BYU 7th Annual MicroEnterprise
Conference by Stephen W. Gibson.
4

14. 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.
IV. RESEARCH DESIGN
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:
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15. 1. What is the ideal framework for FINCA International to combine its core competitive
advantage as an MFI with MicroFranchising?
a. What responsibilities for project implementation would FINCA assume, and what
responsibilities does it expect a partner to assume?
b. 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?
c. What is the timeframe for development and implementation?
d. What additional resources would FINCA International need in order to establish the
pilot project?
e. 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?
2. How do MicroFranchise Organizations operate? What role could microfinance play in
supporting the development and growth of MicroFranchising opportunities?
3. 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?
4. How compatible is each partner organization with FINCA Uganda in terms of capacity,
operations and expectations for a partnership.
Methodology
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:
6

16. 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.
V. MICROFRANCHISE PARTNERS
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
7

17. 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.
Preliminary research uncovered an existing relationship between GVP and FINCA to provide cellular
phone service to customers in villages served by FINCA in Uganda. As a result, setting up a test pilot
8

18. project with GVP became redundant because the two partners have already moved well beyond this
stage. Two options exist for enhancing this partnership:
1) Consider expanding into a new country together. While such a role may be feasible, the amount
of preliminary research GTC needs to conduct before entering a new country takes such a plan
beyond the constructs of the capstone team’s research.
2) Seek to develop new enterprise opportunities for FINCA clients using the existing technology
and framework provided by GVP. Although Grameen Technology Center is currently
developing new ideas, FINCA’s desire to work with a product with proven success precluded
the team from considering this option
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
9

19. 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
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
10

20. 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.
VI. STUDY AREA – UGANDA
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.
11

21. FINCA Uganda expressed immediate receptiveness to our arrival and indicated that they would arrange
interviews, provide translators and accompany the team during its fieldwork. 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$130.xxx 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
12

22. VII. EVALUATION OF INTERVIEW RESULTS
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.
13

23. 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
Competition
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
14

24. 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
15

25. 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
16

26. 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.
Partnering With Honey Care
In many ways, Honey Care is an ideal partner. Although it is a for-profit enterprise, it has chosen a
business model that takes advantage of the capacity of small landholders to provide its honey rather
than choosing an industrialized farming process. While this may be less efficient, Honey Care is
committed to this model in order to provide opportunities to low-income farmers. Moreover, the
quality of its honey bears this choice out. While there are certain gaps in its business model, the
organization has created a seamless production and distribution process – selling the inputs, providing
training to producers, purchasing the raw material, processing the honey, and distributing it throughout
Kenya and now internationally. Honey Care estimates that it could triple production before satisfying
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27. current demand, and this does not account for as yet untapped markets and existing or upcoming
product extensions.
Honey Care has experience working with microfinance partners. Interviews conducted with one such
partner – K-Rep Bank (“K-Rep”) – suggest that the relationship has been positive even through the
largely experimental project they have implemented. Problems that have arisen in that partnership have
either been overcome or have implementable solutions that will be addressed in Section IX These
include division of responsibilities, loan structure, group organization, equipment ownership, and
ongoing extension support.
Challenges and Opportunities
Partnership
Both beekeepers and staff members reported that extension support was inconsistent. Beekeepers
indicated that they might see a project officer from Honey Care or one of its partners every several
months. Often beekeepers did not receive troubleshooting assistance because project officers were not
available or it did not occur to beekeepers to seek their council. Much of this negative feedback was
based on the decreasing level of support that Honey Care and K-Rep have worked into their extension
support process in order to increase efficiency. Original high levels of support to individuals were
found to be simply unsustainable on a large scale. Still, partner staff suggested that Honey Care officers
cover too wide a geographic range to adequately support their beekeepers. One suggested that
extension officers should be more closely tied to the communities they serve. Possible solutions to this
challenge are addressed in greater depth in the recommendations section.
Beekeeping
Most issues related to the productivity of the hive are simple to resolve with proper instruction. Apiary
construction and location were named as a problem by some beekeepers, but can be properly
constructed if lessons from training are applied. Other farmers reported poor colonization due to pest
problems. These issues can be resolved with the help of extension support workers. A third common
issue - beekeepers harvesting too soon or too late – can be resolved with adherence to scheduling, more
consistent hive inspection, and improved access to beekeeping equipment.
As indicated, coordination and problems with equipment sharing were also reported. Many farmers
said they would prefer to purchase their own harvesting equipment rather than wait for their turn for
shared items. This waiting period can be crucial to extracting the maximum amount of honey.
Beekeepers also reported difficulty actually reaching a harvesting center for extraction. Some centers
were located two or more bus rides away from the farms and therefore farmers had difficultly finding
the time and money to get there. Recommending that all farmers who take out loans are within a 20 km
range of the extraction center can solve this. If a farmer is outside of this range and still wishes to
become a beekeeper, then he or she must be aware of the additional challenge and should be advised to
cluster his or her hives with someone who lives within this range.
A common frustration for beekeepers is the long waiting period between the time of purchase and the
first harvest. Interviews have shown that the more farmers fully understand the waiting process before
starting, the more likely they are to keep up their dedication through the colonization period.
Many potential beekeepers voiced concern over working with bees. In particular, many women were
scared by the prospect of being stung. Some current beekeepers were scared away from their hives after
being stung. However, beekeepers can reduce their chances of being stung by using protective gear and
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28. following proper safety steps that are shown during training, or alternatively, may hire others to care for
the hives or perform harvesting tasks. Most experienced beekeepers grew accustomed to working with
bees over time and simply became accustomed to an occasional bee-sting.
Interest in Microcredit Loans
Beekeepers interviewed were generally satisfied with their relationship with loan providers and the
structure of their loans. Most of these beekeepers stated that they were interested in taking out
additional loans to purchase hives in the future. It was commonly felt that the loans were beneficial
because they created a continuing relationship with Honey Care and partners that ensured ongoing
support.
KickStart Results
The Oilseed Press
The Oilseed Press was developed to address the need for affordable cooking oil in Kenya. However,
demand for this product is low in Kenya, due to the lack of active marketing of the technology and the
availability of good oil seeds, two issues which will be addressed in section IX in relations to our test
project in Uganda.
The Oilseed Press Business Package includes a press, bucket filter, a detailed manual, spare parts and a
tool kit. In addition, the buyers receive technical training on how to use the Oilseed Press.
Oilseed Press Enterprises-Costs and Revenues
KickStart estimates that 67% of the buyers of the Oilseed Press use it to start a new cooking oil
production business, while the other sales are to existing businesses or organizations.xlvii Our research
identified the current start-up costs for a new oilseed press enterprise as US$420 for the oilseed press
and a monthly operating expense of US$370 for hiring labor (US$3/day for crushing 60kg) plus the
cost of sunflower seeds. Depending on whether sunflower seeds are cultivated or bought, the amount
of oil that is produced a day and the cost of laborers, it is estimated that at an average monthly profit of
US$370, owners could potentially recoup their initial investment within two months.
Important Characteristics of Business Owners and Market Conditions
Basic math and literacy were identified as important skills needed to successfully operate an Oilseed
Press business. Advanced social skills, the ability to manage others, and access to capital were also
considered helpful. xlviii The essential factors identified as necessary to ensure the success of a new
Oilseed Press enterprise are that the business owners have access to good oil seeds and that the
cooking oil has wide demand, is affordable and of good quality.xlix
The Block Press
The Block Press is currently being used to address the demand for affordable shelter. This technology
can be used to sell blocks or start low-cost construction businesses. According to KickStart, the
building block created with the block press is competing against all the ways that people currently build
their homes; from mud to concrete. Rich people can generally afford concrete homes or will buy from
a known company, while the poor build their homes out of mud, so the Block Press has enabled
entrepreneurs to start small enterprises that fill a niche. They provide affordable building blocks to the
poor who have the capacity to invest in improving their homes.l
The Block Press Business Package includes the press, a kit to determine the right mix of cement and
soil, which helps to determine what percent of cement (usually around 5%) should be used based on
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29. the content of the soil, and a detailed manual. In addition, as will be discussed in more detail later on,
the buyer receives technical training on how to use and maintain the Block Press. The Capstone Team
did not encounter reports of any problems with the quality of the technology.
Block Press Enterprises-Costs and Revenues
KickStart estimates that 50% of the buyers of the Block Press technology use them to start new
enterprises, while the remainder of sales is to other organizations such as NGOs that use them in their
programs. li Our research identified the current start-up costs for a new block press enterprise as
US$560 for the block press and a monthly production expense of US$345 (based on producing 350
blocks per day using cement and free soil and including the employment of four laborers (US$3/day
each)). It is estimated that at an average of US$230 in profit a month (depending on how many blocks
are produced and the price of the building bocks), owners could potentially recoup their initial
investment within three months.
Important Characteristics of Business Owners and Market Conditions
Basic math skills and literacy were identified as essential to successfully operating a construction block
manufacturing businesses.lii In addition, advanced social skills, the ability to manage others and follow
directions, negotiating skills, and access to capital were considered important. Having at least a primary
education, specialized technical knowledge or skills, basic physical fitness/good health and a well-
developed professional and/or personal network were also considered helpful.liii Perhaps most notably,
already having some construction or building skills were identified by several different respondents as
necessary to successfully operate a construction block manufacturing business.liv
Respondents identified the following factors as essential to promoting the success of a new Block Press
enterprise: consistent access to necessary inputs; proximity to locations with an active construction
market in the niche that the blocks fill; high product quality standards; and the ability of the business
owner to skillfully market and sell their product.lv It is preferable for businesses to be located in areas or
close to areas with immediate access to good soil. If they are not able to be located in such areas, then
business owners may need to factor in the cost of transporting soil or blocks when considering
investing in a construction block manufacturing business.
Partnering with KickStart
Interviews with KickStart revealed and reinforced a number of important benefits in partnering with
the organization. KickStart is a market-orientated social enterprise organization with an internal
monitoring and evaluation system that helps to improve its efficiency and to lower product costs. It
maintains strong relationships with private sector players such as manufacturers and hundreds of retail
stores that have helped it to promote the development of sustainable production and distribution
channels. KickStart develops high quality products and has a highly developed marketing system in
place to raise awareness of its products among the poor. Partnering with KickStart would not only
enable microfinance clients to gain access to these great technologies, but could also help to promote
the use of the technologies throughout FINCA networks.
Challenges and Opportunities
Partnership
Interview respondents cited a number of current challenges that would impact the formation of a
partnership between FINCA and KickStart. Principal among them is KickStart’s termination of support
for the two presses. Several circumstances produced this outcome, but basically, this is due to the lack
of donor support for their further involvement. Each press earns an unusually low margin on sales due
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30. to high production costs. This prevents manufacturers from generating enough income to reinvest in
advertising and marketing to generate additional demand. Because the irrigation pumps are earning
much higher returns, donors prefer to support them, instead of the presses. Sales are therefore
generated almost entirely through word of mouth. In addition, as KickStart does not have funding to
work with the presses, support to business owners is limited to start-up training, input preparation,
press operation, and basic bookkeeping, which are provided through participating retailers and have
only been conducted by KickStart in small number of cases.
In order to maximize the income potential of press owners, it will be important to enhance the existing
training offered and help owners establish linkages in the production and distribution chain that are
currently lacking. A partnership with FINCA and a guaranteed market in Uganda may enable KickStart
to set aside additional resources to contribute to this process. Existing expertise at KickStart and among
its partners will also be essential.
General Business Operations
Some of the specific challenges facing some Oilseed Press and Block Press business owners that were
reported are: a lack of skills in bookkeeping; the inability to identify markets for the products and to
create market networks; a lack of credit and difficulty in accessing inputs (good soil or sunflower
seeds).lvi
Oilseed Press
Unfortunately, Oilseed Press businesses in Kenya have encountered some difficulties, as the availability
of good sunflower seeds is very low. The government is controlling what seeds can be used and there
is poor germination of seeds that are bought from the government. In addition, the government has
allowed cheaper imports of cooking oil that has favored some companies. As a result, some cooking oil
producers using the Oilseed Press have found it difficult to compete with the cooking oil which is now
available in supermarkets. However, our field research found that many cooking oil producers feel that
there is a market for their sunflower oil, but they are simply unable to secure a constant supply of
sunflower seeds.
Therefore for the test pilot project it will be essential for individuals interested in starting an Oilseed
Press business to ensure that they will have access to oil seeds before they decide to invest in this type
of business. FINCA staff and clients indicated that a number of regions in Uganda grow either
sunflower or sesame seeds. One possible sourcing strategy would be to target one of those regions for a
test pilot project. Another would be to link FINCA clients who are seed growers with clients in the test
pilot project region. A third approach would be to work with the Ministry of Agriculture to identify
another consistent source of seeds if it does not already exist in the pilot project area.
A second challenge that respondents in both Kenya and Uganda cited is competition from cheaper
foreign imports and substitutes. In some cases, although the quality and nutritional value of oil
produced from the Oilseed press are clearly superior, it is not visible to buyers who may be mistrustful
of the product they are buying. Additional efforts must be made by press owners to differentiate their
product, perhaps by offering taste tests, conducting demonstrations, or seeking some form of
certification from the Ministry of Agriculture.
Block Press
The primary challenges cited by respondents included creating a proper soil/cement mix to maximize
block quality and possessing adequate construction experience to sell the product successfully to the
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