In this report I explore the three areas of micro-development through entrepreneurship – micro-franchising, micro-lending, and personal financing. Each of these three areas include a case study of a specific individual. The research was conducted in various cities over Guatemala in a two month period for two consecutive years. This research was conducted by myself, David Richards, and research partner Bryan Bennett. Research was conducted for and organized by Jason Fairbourne, director of the MicroFranchise Development Initiative at BYU and co-author of “MicroFranchising: Creating Wealth at the Bottom of the Pyramid.” Research was funded by the Center of Economic Self-reliance.

Micro-Franchising

At 7:00 it’s a cool morning in La Tinta, situated in the northern highlands of Guatemala.  Axel Curcul makes his early walk to the local community center. He is enthused to find three customers already waiting for him. He opens up the building and begins to set up his small campaign for Community Enterprise Solutions.

Axel is a micro-franchisee for Community Enterprise Solutions (CES). He has been with CES for over a couple years and loves to be a part of the organization’s cause. CES is micro-franchise that enables hopeful men and women in developing areas to sell various products that benefit the community. For the variety of locations visited, a micro-franchisee will organize a product campaign at a local community center or church where he or she can sell the products. Usually two micro-franchisees will perform these campaigns two days after publicizing of the event to the community.

The most important product to CES is Sojo seeing-eye glasses. Each micro-franchisee receives training and certification in order to properly perform eye examinations at the campaigns and prescribe the correct glasses to their clients. Other CES products include sunglasses, eye drops, energy efficient light bulbs, water purifiers, and vegetable seeds. Improved stoves are a new beneficial product the organization is hoping to introduce. The stoves will be built at each customer’s home and will provide proper ventilation for fumes.

Axel performs about 4 campaigns a month in various cities in the Alta Verapaz region of Guatemala. He may also bring another friend or family member to help him out with his campaign. Axel enjoys the business model of CES because it allows him to use a an established and marketable name without the cost of running a store front. He also appreciates the limited time commitment to run campaigns. It takes only 2-3 days and 6-8 hours a day in order to prepare and perform each campaign. Axel is also a college student and can fit enough time to accomplish his studies. For each campaign he earns a decent income of around 300 Quetzals, around $43, approximately $2.70 an hour.  In order to improve profits, Axel enjoys utilizing his creativity and ambition to publicize about his campaigns.

Of the many types of publicity, CES provides flyers for their micro-franchisees to hand out and explain what the products can do for the people in the community. Axel spends most of his time, around 3 hours, handing out flyers two days prior to his campaigns; flyers provide him about 15-20% of his customers. However, most of his success comes from radio announcements. Many of the small townships he visits have a local radio station where he can pay $3.60 for an advertisement to air six times after 6:00 PM every half hour. Up to 80% of his customers heard of the campaigns through radio ads. He may occasionally pay for a loud speaker, which is mounted on a house near the center of town; for $8.60 he can receive 20 announcements for three days. However, the loud speaker only brings him about 5% of customers.

Axel enjoys that CES provides him the opportunity to earn income in a field he is interested in. He understands the importance of seeing well and educates himself about many eye diseases. He aspires to become an optometrist with his own clinic in five years. As an outgoing individual he enjoys meeting new people. The combination of ambition, knowledge, and sociability makes him a great micro-franchisee for CES.

Axel’s campaign in La Tinta was a success. He achieved over $140 in sales of medicine and glasses and made a net income of roughly $85. Two days before his campaign he distributed some customized fliers and ran a few radio announcements from the local radio station. The city has a population of only 3,000 people, mostly comprising of farmers. Since the city is so far away from home, he left the day before his campaign and stayed overnight La Tinta. During the campaign, about 30 people arrived to receive free eye exams and 20% of those made a purchase. He was happy to report of his success in La Tinta and hopes to encounter the same results in his following campaign.

Axel is just one of many people around the world who are experiencing the benefits of Micro-franchises. Micro-franchising is growing worldwide, creating a new trend of socially conscious companies. CES is just one many micro-franchises such as Vodaphonevillage, CFW Clinic, Honey care Africa, and Fan Milk which span across several developing countries in Africa, Latin America, Asia, and the Pacific. The business concept inspires to provide people of lower income the opportunity to start a successful business using a proven business model, a brandable name, and network of support.  The potential of growing Micro-franchise business could have a vital impact on the advancement of many developing countries.

Micro-Credit Lending

San Juan La Laguna is a small town situated on the shoreline of the popular Lake Atitlan, a clean blue laguna spanning over 50 square miles nestled among steep hills, jungle covered volcanoes, and gentle waterfalls. San Juan’s residents are mostly native farmers and speak the local dialect of Tz’utujil. Near the town center an entrepreneur named Juan Carlos runs a small cyber café named “Multi-Servicios Mike” or Multiservices Mike. Juan is happily married with one small boy named Mike, from whom the business is named. His business provides internet service, document preparation, copies, cell phone minute recharges, and school supplies. Last year Juan only sold a few school supplies when he was running the business out if his in-laws home.  Once he was approved a loan from BanRural he moved to a location near the center of town and expanded his business.

The micro-loan has helped Juan move ahead in his business, but it does come with some obstacles. He expects to spend the next two years paying off his loan with 6% interest and get by with very little net income.  His loan has become an obstacle for him to realize the profits he is making, but he hopes once it is paid off he can enjoy the extra 15% of income he is paying out. However, Juan’s ambitions may lead him to continual loan payments. Once he gets approved for another loan he wishes to remodel his current location, increase the café’s size, and sell computer accessories.

Juan’s business experiences very strong business cycles. These cycles depend on agricultural cycles with October to December bringing the most revenue during harvest season. The beginning of school in August and September also helps boost sales. During slumping sale seasons Juan will usually adjust his prices accordingly. Copies during slower times in the year copies will cost Q 0.10 less (roughly $0.01) and hourly internet will drop one Quetzal (roughly $0.15).

Multi-Servicios Mike accredits most of its success to return clients. According to Juan about 80% of his clients are return clients with an average visit of two days. He asserts that his customers enjoy superior customer service and faster internet. The various products and services he provides also attract customers since his competitors are much more limited. Most of his local competitors have smaller locations and don’t provide document preparation and cell phone minute recharges, which is a lucrative differentiator.

A loan has helped support Juan to fulfill his dreams for a business. He has high hopes for the future and sees that future materializing through the help of micro-loans.

Personal Financing

Its 7:00 AM in Quetzaltenango. Octavio Guzman, entrepreneur and father of one, walks to his store facing a busy street. As he proceeds to open the locks to his store door a booming and clattering bus roars past and fills the air with black exhaust. Accustomed to the traffic, he calmly opens the door and sets up his piñatas for a new day’s work.

Octavio is a creative entrepreneur constantly thinking of new product ideas for his home crafts business. Through his daughter’s capital, he was able to rent a store location and begin his business. Beginning with piñatas he started to sell all kinds of characters for birthdays and celebrations. However, he has found that his creative talent for crafts it’s a lucrative skill. Octavio started to make wall decorations of cartoon and animal characters by collecting discarded Styrofoam, cutting out the form of the character, and panting on the details. He said his Styrofoam characters are a favorite product for his consumers.

Due to hard circumstances he strives to be as resourceful as possible. His finds new ways of cutting costs and reducing waste. By mistake he discovered that scraps of Styrofoam soaked in water and heated over time create very useful glue. He now makes all the glue for his piñatas and other crafts from remaining Styrofoam scraps. When he makes maps of Guatemala he uses egg cartons for volcanoes. He realizes that his people have become more wasteful than resourceful. His next goal is to create a book for teachers to use in the classrooms that teach kids how to make useful items out of discarded materials.

Octovio is proud of his independent business that didn’t require a bank loan. He feels that bank loans are not advantageous for the poor. The requirements for a loan are too high and have too high interest. Also, the loans available are not in sizable amounts for his small business. Octavio doesn’t feel that the loans appeal to micro-businesses. Fortunately, his daughter has a stable business and helps with financing his business.

Analysis

For many, Micro-credit lending has given much success to the ambitious poor and even to the lending agencies. Banks and lending agents have unexpectedly encountered some of the lowest default rates through micro-credit loans. Lending to the poor has proved to be more reliable than big businesses. Most of these micro-loans are used to start up new businesses. Micro-credit loans have helped many new business owners get started. However, other complications arise for these developing entrepreneurs.

The issue for many entrepreneurs in developing countries is the lack of proper business experience. Nearly all small start-ups interviewed in Guatemala did not keep a form of booking in order to record expenses, profits, income, etc. Most operate on “cash flow basis” – when cash is available you buy more products, when it’s not, you don’t buy. Many people who manufactured their product had very little clue if their product price was high enough to cover their product cost. It was unfortunate to calculate out their expenses and discover their selling price was set below their cost. As well, the majority of small business revisited the second year had stayed exactly the same or were shut down. A serious lack of goals and determination to grow was absent.  However, many entrepreneurs were fine with “getting by” in the business – not seeing the need to expand or sell more. Lastly, in close conjunction with the past observation, good marketing was unpracticed. Advertisements usually never pass their own doorway. A simple sign is all that hangs in front of their business or home door. If you walk more than two blocks away, locals may have no knowledge of the entrepreneurs business.

Micro-franchising can fill in the costly gaps where micro-business entrepreneurs fall behind. An essential benefit to micro-franchising is the required training that provides knowledge on bookkeeping, marketing, and goal setting. Once these concepts are taught, the franchise can follow up with franchisees on their performance. Each skill of bookkeeping, marketing, and goal setting is enhanced with coaching and experience from the franchisor.

It is exciting to see Guatemala experience the benefits of micro-franchising alongside micro-credit lending. The opportunities for growth in Guatemala are improving. An outstanding number of beneficiary organizations operate in Guatemala. Foreign volunteers are drawn to the country’s beautiful vistas and culture. Many non-profit organizations have benefited the lives of the people they serve.  However, for many developing countries like Guatemala the lifeblood to long term economic relief is the motivated industriousness of its own people. Social ventures that support productive and self sustaining principles will be the true agents to relieve third world classification.  Micro-franchising is such a venture that can have a significant impact on the growth of local and national economies.