Friday, January 19, 2007

Microfranchising: the next big thing

SWAMINATHAN S ANKLESARIA AIYAR

TIMES NEWS NETWORK[ WEDNESDAY, JANUARY 17, 2007 12:47:37 AM]

After Mohammed Yunus of Bangladesh’s Grameen Bank won the Nobel peace prize, microcredit has hogged the headlines. We now need to focus on the next big thing: microfranchising. Microcredit has certainly empowered poor women and helped alleviate distress in South Asia, but has severe limitations. Borrowing Rs 5,000 at an interest rate of 30% cannot move millions out of poverty. It can be a good beginning, but something extra is needed to take people to the next level.

That something extra is microfranchising. Mohammed Yunus pioneered this too, using poor women to operate mobile phones as public call offices (PCOs) in rural areas. Grameen Telecom, Yunus’ non-profit outfit, took a 38% stake in GrameenPhones, a commercial provider with a national cellular licence. Grameen Bank members with the best track record of running small businesses and repaying loans were trained and financed to acquire cellphones. Today Bangladesh has over 260,000 village phones, and Grameen Telecom is replicating the experiment in Uganda and Rwanda.

What is not widely publicised is that 62% of the equity of GrameenPhones is held by Telenor, an Oslo-based multinational. This MNC has operations in Scandinavia, Eastern Europe, Pakistan, Thailand, Malaysia, and Central Asia. So, the phone women of Bangladesh are not just products of Yunus’ generosity. They are microfranchisees of an MNC. Without the financial and technical clout of Telenor, GrameenPhones could not have gone far. Yunus demonstrated, unwittingly, that microfranchising could connect the poorest people in the world to the richest MNCs for mutual profit. NGOs, romantic pastoralists and leftists will hate to hear this. But it is a fact.

Another example of microfranchising has been highlighted in a recent issue of The Economist. Scojo Vision, an American company, is using microfranchsing to sell spectacles to poor people in developing countries. Scojo provides a “business in a box” along with training for rural vendors, who learn to use simple testing charts for vision and then make appropriate spectacles. The vendors’ cost of production is $2 per pair of spectacles, and they sell these at $3 each.

This is affordable for Indian villagers, yet yields a decent profit for both Scojo, intermediaries, and rural vendors. Hence the scheme is viable, and can be scaled up to cover thousands, possibly millions of vendors across developing countries. Scojo has sold 50,00 pairs of spectacles so far, and hopes to sell one million by 2016.

Just as Telenor needed a local partner to reach phone women in Bangladesh, so too does Scojo. In Bangladesh, its partner is BRAC. In India, one of its partners is Drishtee, the company that initially designed the Gyandoot programme in Madhya Pradesh, and now operates commercial rural internet kiosks in several states. Other prospective partners are ITC and Hindustan Lever, who also run rural electronic kiosks through their e-choupal and i-shakti initiatives.
Hewlett-Packard has a different microfranchising scheme for rural camera women. Wedding photos are a growing business in rural areas. Hewlett-Packard has trained rural women in Andhra Pradesh to use digital cameras to cover weddings and other celebrations. The photos are printed out on HP colour printers. This is a logical extension of the phone women experiment in Bangladesh, and will help HP promote use of its photo-printers. But rivals like Sony or Panasonic should consider training women to use digital video-cameras to produce video-films of marriages, and then burn these onto a CD. That will produce an affordable but prized memento.

There could be hundreds of other forms of microfranchsing. As C K Prahalad says, companies can tap a fortune at the bottom of the pyramid if only they devise ways to slash costs dramatically, organise logistics, and thus create millions of customers who never existed earlier.

Telenor, ITC, Hindustan Lever and HP are all examples of multinationals becoming partners with a new breed of rural businesswomen and businessmen. But Indian businessmen need to take to microfranchising too. The big opportunity at hand is rural telecom. Till recently, BSNL had monopoly access to the USO fund available to subsidise rural telecom. But now private sector cellular providers are also going to have access to the USO fund. So, an explosive growth of rural cellular telephones is coming.

This will be an opportunity to create millions of Indian telephone women, a la Bangladesh. Rural towns in India already have PCOs using landlines. But many parts of rural India will be reachable only or mainly by cellphones. In these places, a million phone women can bloom.

As in Bangladesh, microfinance institutions can finance the phones and identify women with a track record of running businesses repaying loans. Commercial banks like ICICI Bank may also finance phone women at low interest rates. The prospect should excite all cellular providers — Reliance, Essar, Idea, Airtel, the lot. It should also excite handset producers like Ericsson and Nokia, who can hope to sell lakhs of additional phones to phone women. And it should excite those who can think out of the box, and envisage an entirely new way of gaining fame and fortune.

Anil Ambani, are you listening? Ever since the split between you and your brother, Mukesh has tended to get the bigger headlines. Here is your chance to go one up. Instead of simply aiming to raise billions for takeovers of Hutch or whatever, why not aim to empower one million phone women in rural India? Why not aim to convert them into internet providers and new knowledge centres of the 21st century?

The mobile phone is rapidly evolving into a mini-computer that could soon make ITC’s e-choupals obsolete. So, strike while the iron is hot. Instead of just aiming to make millions, why not aim to make a million millionaires out of poor rural women? At the end of it all, Mukesh may still have bigger chemical plants than you, but you might just win the Nobel Prize for Peace.

6 comments:

Jonathan said...

I found your article very insightful, but you don't explain where the demand for millions of phone women lies.

Isn't the idea of a phone woman to provide cellphone service for her community? If so, I don't see how a rural village could demand more than one or two phones. I am no expert on Indian demographics; would such a scenario motivate demand for millions of village phones?

David Stoker said...

I think the demand has already shown itself in the developing world. Cell phones have already changed the landscape of the rural poor in a dramatic way. And plans are in the work for larger changes. See Wizzit (http://www.wizzit.co.za/) as an example. There is an unlimited amount of reasons why having increased access to communication will change the rural business and save and earn people, creating higher demand and higher demand.

The market will take care of how many phones the community will require. I have not been in India but have been in Ghana and Cambodia recently and there are cell phone vendors on every corner and they all must be making some sort of profit or they would get out of the business.

cat_aidg said...

Hi David,

Great post. Do you know of any examples of a non-profit setting up the type of micro-franchising model you describe (including the rapid growth) without the financial backing of a MNC?

David Stoker said...

I know of a couple non-profits that are attempting to use the franchising model. The Academy for Creating Enterprises in the Philippines let their graduates do startups and then helped franchise the successful businesses. Another one that comes to mind is FINCA teaming up with HoneyCare Africa and Kickstart in Kenya. Freedom from Hunger is also trying to do it on their own.

However I think teaming up with asocially responsible corporation is a very powerful model for quick growth. I think Yunus realizes this, see his recent yogurt business with Danone.

Khanindra said...

The article gives a clear direction of the direction in which the rual masses heading. Its not only giving cell phones but also integrating with other built on services which will improve the quality of life like knowlege dessimination, technology transfer. The masses are really victim of time and distnace. So, make a common vow and enlighten the rural India....
Khanindra Kalita

Keyon said...

I don't see how this is franchising. There is no equity involved. No "franchise" that can be sold.