First there was Micro-Finance, connecting the ‘unbankable’ and traditionally un-collateralized to sources of credit that could be leveraged into their own businesses or micro-enterprises.
If, however, some loanees were not able to develop businesses, or scale, or sustain them, they were left with outstanding debts, that when difficult to repay resulted in default. Not an attractive social entrepreneurial (socent) model for traditional investment. Although an incredible boon to individuals in developing countries, especially to women, and a testament to innovation in the socent and social capital arenas.
Enter, Micro-Franchising. It adds an already existent product or service to sell by the “entrepreneur” (or Micro-Franchisee) as well as support (tactical, marketing, etc.) from the franchisers, and most importantly, as the Acumen Fund’s White Paper on the subject states, the Micro-Franchisee’s “reliance on a business model that has been tested and proven to work.” The model has Franchiser’s retaining the right to an overall business and selling the replicable business model to a franchisee in a developing economy.
In a May 2011 article in Forbes magazine, Dr. Brett Smith, Professor of Entrepreneurship and Founding Director of the Center for Social Entrepreneurship at Miami University’s Farmer School of Business, discusses the MicroConsignment Model, (MCM) as the next lower risk, and higher yield development of this concept.
Smith says financing alone is not enough to create entrepreneurs.
The MCM model shares the Micro-Financing and Micro-Franchising model characteristic of including or empowering the stakeholder to help her or himself out of poverty versus accepting or having to become reliant on less self-determining sources of relief or aid. And like Micro-Franchising, MCM lowers the barrier for the entrepreneur by bypassing his or her need to have to select a credible entrepreneurial opportunity- and by providing the products, tactical management support, and proven business model for the endeavor.
Smith proposes that it goes beyond theses models, however, in its ability to reduce risk for the Micro-entrepreneur. Because the products are consigned versus franchised, it eliminates “the potential for the havoc that can result from outstanding loans or failed franchises.”
But can it also reduce the risk on the other end of the entrepreneurial equation the investment end? Attracting institutional financing, already difficult enough in the traditional world of business, is one of the current Holy Grail’s in the socent arena and not necessarily as a detriment to its pro-social focus, but rather, representing the promise of its use to create more social enterprises and therefore address more social ills.
Whereas the barrier to traditional investment in Micro-financing lies in the absence of traditional collateral and the risk of the investor’s return, and Micro-Franchisees, even with proven business models and support from the franchiser may not be able to sustain businesses, and again risk the investor’s return (more of course, unfortunately to the detriment of the franchisee and any of his/her personal collateral/investment), MCM, although still retaining the risk of failed businesses, may prove to be a model which can produce a greater number of successful entrepreneurs and therefore a greater ‘marketable’ return on investment. Of course, until the creation of a stable social capital market, which attracts traditional investment, or until Social ROI is in and of itself ‘profitable’ for traditional for-profit businesses and corporations investors are still currently required to place a primary focus on the social returns which is why MCM’s are currently majority funded by donations from socially minded individuals.
One group Community Enterprise Solutions, is working to make this social capital market more attractive, by producing Micro-Consigners en masse through a replicable business model and by compiling and publishing the social as well as financial returns of its donor’s ‘investments’. This begins to illustrate to traditional investors, that metrics are available on which to discern the financial return on potential social investments.
CE Solutions provides consignment opportunities with cook stoves, eyeglasses, solar chargers, seeds and energy-efficient light bulbs.
In addition, and key to its success, is not only tactical management support from the organization, but also strategic partner support in the communities where the consigners operate (from NGO’s, to the Peace Corps, to volunteers), logistic support from players in the field of health, water purification, such as Barefoot Power, and Helps International, and finally product and distribution support from partner multi-nationals such as Johnson and Johnson and GE.
CE solution’s use of the MCM model has the additional following benefits for its entrepreneurs and their communities:
- Entrepreneur’s increase their monthly/annual income usually above the BoP threshold
- Underserved Community members have sustainable access to products which were previously unavailable to them and are respectfully and appropriately introduced into their communities
- Entrepreneurs with little education/time can become successful
- Community problems are addressed by locally owned and managed businesses reducing the need for continuous relief efforts
Information and Media taken from the CE Solutions website @: http://www.cesolutions.org/microconsignmentfeaturedbenefits.html
Additional information taken from Acumen Fund @: http://www.acumenfund.org/uploads/assets/documents/Microfranchising_Working%20Paper_XoYB6sZ5.pdf
And from Forbes Magazine @: http://blogs.forbes.com/ciocentral/2011/05/10/social-entrepreneurship-the-microconsignment-model/