From Access to Finance to Access to Franchise

This paper demonstrates the role of microfranchising in addressing the challenges that microentrepreneurs face. It also examines the role of MFIs in facilitating microfranchising. The paper includes case studies that present models used successfully to scale operations in remote locations.

While microfinance has lessened capital constraints, microenterprises still face numerous obstacles to sustained growth and wealth creation. These include low pricing power, high costs, thin margins, operating in saturated markets, higher per unit outlays and little negotiating power. Microfranchising provides entrepreneurs with access to business processes, products and procedures of global brands. Its advantages include:

• Simplification of entrepreneurship by following proven procedures;
• Reduction in the requirements necessary to open a business;
• Reduction in risk;
• Benefits that derive from mutual dependence between franchisor and franchisee.

MFIs can assist with the financing of microfranchises. MFIs are experienced in collecting payments from microenterpreneurs. In addition, they are skilled in analyzing clients cash flow history, revenue growth, leverage ratios and other financial metrics to determine whether to extend a loan. They can use these competencies to determine which clients may succeed with a microfranchise.