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May 12, 2010

Micro-Franchising

Micro-franchising for innovative and clean goods

A recent development in microfinance is to identify a technological innovation that, embodied in a new durable good or equipment, could improve the life of the poor directly or by the revenues achieved through the commercial sales of the services it provides.

For instance, mobile phones have been purchased by poor women in Bangladesh (using a micro-loan) and the services of phone calls sold to the entire village, boosting not only the woman revenues (and her capability of paying back the loan) but also her social centrality ("Before nobody invited me to marriage cerimonies, now I am the first to know and be invited, because they use the phone to invite all the others", as Muhammad Yunus quoted at the Asian-Pacific Microcredit Summit 2008).

The key partner is the producer of the innovation or the global service provider (e.g. the mobile phone producer or the phone company) that is crucially interested in selling in rural areas and to the poor. By signing and implementing franchising partnerships with economic giants or new entrants, MFIs become the vehicle of modernization of the areas where they operate, empower the technological level of their clients, and diversify their products.

In other cases, the microfinance institution could be selling durable goods directly, operating a commercial margin to contribute to fixed costs.

A particularly important categories of durables that should be channelled through this kind of agreements are green clean technologies, e.g. solar-powered lighting systems. In our book on "Innovative Economic Policies for Climate Change Mitigation" we put forth the proposal of leveraging microfinance for the diffusion of clean tech across the poor, so to make coherent and compatible the two goals of poverty eradication and climate change mitigation.
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