model comparison

How is the MCM different from microcredit and microfranchising?
What are the different attributes of comparative models?
Why not microcredit?
How is the model different from an entrepreneurial risk perspective?
How does the model differ from a reinvestment of earnings perspective?
How does consignment create a different entrepreneurial relationship than credit?
How is the model scaled up differently than other approaches?
When should the MicroConsignment Model be implemented vs other credit driven models?
Is the MicroConsignment Model a substitute for microcredit?
Is the Micro Consignment model a “better” model than microcredit or micro franchising?
How can the MicroConsignment Model work in tandem with comparative models?
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How is the MCM different from microcredit and microfranchising?
The key is to introduce and deliver high value-added products such as near-vision glasses, water filters, energy-efficient stoves and solar lamps, products that that demand customer awareness and a service approach, into rural villages in the developing world effectively and efficiently. NGOs could donate them but donating is not sustainable and often not effective in the long term. These items must be sold. And the only way to sell them in a scaleable and accessible way is through local entrepreneurs. So why not have local entrepreneurs use their savings to buy them and sell them? For two reasons:  many have no savings, and they rarely have access to a local distributor who could provide them. Then why not use a typical micro-credit structure where entrepreneurs take out a loan? This solves the financing problem but fails to address the issue of access to local distributors. Then what about a micro-franchising mechanism?  To help entrepreneurs get started and grow, organizations (microfranchisors) seeking to create access to products can empower local entrepreneurs (microfranchisees) to use or promote a micro-credit mechanism to provide financing. In Uganda, for example, Living Goods does a fantastic job empowering women micro-franchisees to sell hygiene products and the like. It sources the products and sells them to women entrepreneurs who buy the products, with borrowed money, and then go door-to-door solving their neighbors’ needs. Thus they become Avon ladies for the poor.  HealthStores does great microfranchising in Kenya, helping individuals set up village pharmacies that sell medicines to the poor. BRAC, a very well resourced organization, has helped millions in Bangladesh. This approach works well for the products that Living Goods, HealthStores, and other micro franchisors like them are promoting. The key difference between micro franchising and micro credit has to do with the timing of the purchase. In a microcredit-financed model like microfranchising, the entrepreneur first buys the products on credit and then sells them. She then uses her sales revenue to pay back the loan, and ideally buys more products to sell after taking out her profit. When she sells, everyone is happy: the financing organization achieves its mission and earns revenues, villagers get what they need, and the woman can help support her family. But when she doesn’t sell, the villagers are in the same place, the organization does not achieve its mission, and the woman is stuck with both inventory and debt. A consignment model works in reverse. The entrepreneur is first provided with products at no cost.  Then she sells them, pays the supporting organization, and pockets her profits—but only after she completes a sale. At that point she gets her inventory restocked and the cycle begins again. Just as in a credit scheme, when she sells, everyone is happy. But when she doesn’t sell, the repercussions for the organization and the entrepreneur are very different from those of microfranchising. Just as in a credit-financed scheme, when the woman doesn’t sell, organizational capital is tied up out in the field. But this capital is tied up in the organization’s products that the entrepreneur is simply holding for sale and not in a loan that the entrepreneur must find some way to pay back. The woman can go out and sell the next day, or the next week or next month. She lives to sell another day without the burden of a debt payment that is pushing her further into poverty.
What are the different attributes of comparative models?

Why not microcredit?
Microcredit alone isn’t the solution because it only solves one piece of the puzzle; access to financing. Microcredit is primarily a solution for existing businesses with a known supplier whereby beneficiaries use credit to buy in bulk in order to lower cost of goods sold.
For example, microcredit is a proven method to provide essential financing to entrepreneurs. However, access to credit does not necessarily create the access to products and services where they are needed but don’t currently exist.
To explain this further let me draw a distinction between how microcredit works and how MicroConsignment works. As you know, microcredit is about creating access to capital. Microcredit is by and large designed for individuals with existing businesses so that they have access to capital to buy goods in bulk so that they can address growing demand and/or make a higher margin on sales by lowering their cost of goods sold. The bank gives the credit, sometimes provides small business training, and then waits for the person to pay back. Success is measured by the person paying the loan back and practically speaking the bank is agnostic as to how they make their money to pay back. Apart from certain restrictions, the borrower can engage in whatever business he or she chooses regardless of whether the product sale of the borrower has social impact or not. MicroConsignment is different. The goal of MicoConsignment is to create access to new and essential products and services in rural villages THROUGH local entrepreneurs. Both models are about access but micro credit is about access to capital to entrepreneurs. It only looks at the entrepreneur. MicroConsignment, by nature, looks at the villager first (what do they need?) and then creates the entrepreneurial opportunity to address that need. Soluciones Comunitarias is the local entity to ensure that the entrepreneurs have what they need to address what the villagers need in a sustainable way. Microcredit would not work here (as I have tested and seen) because these are new products addressing new markets and there is a level of awareness building and benefit explanation that is needed. As well, a new entrepreneur should not be and would not be willing to take out a loan for a perceived high risk endeavor. Starting with credit would be create huge obstacles as you would lose potential entrepreneurs because they would be too “afraid” to start the work and/or because they would need to get a much higher level of initial buy in from their spouses. MicroConsignment allows them to test drive the model and achieve profitability within a month of the initial training. Microcredit would not. MicroConsignment also allows for flexibility. If an entrepreneur has an unsuccessful month for any variety fo reasons, she is not affected negatively by being obligated to pay back a loan. As well, and of utmost importance, by using consignment instead of credit, we are assured that we are all figuratively speaking sitting on the same side of the table. We will only be successful if the entrepreneurs are able to successfully sell products and services in villages. To this point, it is simply “smart business” for us to be continually providing support and to be working with the entrepreneurs and most importantly, to be continually responsive to the needs of the entrepreneurs. In essence, we have to be continually working with them to help them address the challenges they confront or they will be unsuccessful and consequently we will be unsuccessful. That being said we do not pander (this is bad business as it is an inefficient use of our limited resources) but rather work to make sure that the have the greatest opportunity for success.
How is the model different from an entrepreneurial risk perspective?
The MicroConsignment Model takes this into account and aims to “do no harm.” In this model, save the sunk training costs which are needed in both models, the organization’s capital is not lost if the woman stops selling briefly or even entirely; the organization can simply take back the products and consign them to a new entrepreneur. A key component is that individuals can “test drive” an entrepreneurial opportunity. They get classroom and field training that enables them to make informed decisions and gain the skills they need. Thus, the consignment structure empowers women who have little education and no business experience to invest their time and “sweat equity” in a venture in which they can earn a profit from their first sale. If it doesn’t work out, a woman is not left with burdensome debt and product inventory; ideally she will leave with new skills and knowledge but not a loan obligation.
How does the model differ from a reinvestment of earnings perspective?
A difference between MCM and models such as microcredit and microfranchising is the way entrepreneurs reinvest their earnings. When credit is used as the enabling mechanism, entrepreneurs often use all or much of their earnings for personal or family consumption needs before they have time to restock their inventories.  That stunts their growth. Remember that they are usually low-income women who often live a hand-to-mouth existence, so they are easily tempted to consume their revenues. In contrast, MCM entrepreneurs reinvest efficiently in their ventures. Because they buy their goods after they make a sale, they do not see as theirs the portion of their revenues that goes to restocking their inventory. So they don’t consume what isn’t theirs. Of course they have to learn not to spend the revenues they need to reinvest. We have found that they never do. We have trained and equipped nearly 300 entrepreneurs over the past seven years, and not one has run off with the money. This is mostly because the MCM is not just a financing mechanism, but in fact creates a mutually respectful relationship between the organization and entrepreneur. The women entrepreneurs are offered a compelling opportunity that is empathetic to their situation. They respond in kind. This is human nature.
How does consignment create a different entrepreneurial relationship than credit?
With the MCM, the first indication of success comes not when an entrepreneur pays back a loan, as with microcredit, but rather when she creates access in her village. Impact is measured in sales to villagers, not sales to entrepreneurs. Metaphorically speaking, this means that the entrepreneur and implementing organization are sitting on the same side of the table and are motivated to build a mutually beneficial relationship. In this way, the organization is more like a venture capital investor than a bank: it sells products not to the entrepreneur but through her.  Therefore, everyone involved looks first at the villagers’ needs and the sale of the products.
As well, training and outreach are relevant, offered in the local language whenever possible, and are embedded in the model as an integral activity, not as a separate obligation. People should seek training because they believe it will improve their chances of succeeding.  Within MCM, entrepreneurs and regional leaders are forced to meet monthly. Because the entrepreneurs are not buying anything, no one is succeeding unless the end users buy products. Interdependence and the sharing of best practices are in the DNA of the model.
How is the model scaled up differently than other approaches?
The MicroConsignment Model is an approach that provides high-quality, targeted support to a relative few, who, in turn, help many others, rather than trying to help many at the same time and failing with all but a relative few. Looking at it through the lens of the Pareto Principle (the 80/20 rule), in my micro- credit trainings I tried to reach 100% of the women and was only reaching 20% at best. The other 80% were not benefiting—so I was using my time very inefficiently. Within the MCM the approach is to reach 100% of people by focusing direct support on 20% who then support the other 80%. When inputs and activities are focused on benefiting a core group of people, they can benefit exponentially more people through their work. Within the MCM, the 20% are the entrepreneurs and the 80% are the villagers.
When should the MicroConsignment Model be implemented vs other credit driven models?
Is the MicroConsignment Model a substitute for microcredit?
No. These are different models that serve different purposes. Microcredit seems to be most successful in helping to grow existing business, much the way commercial loans and other forms of debt help existing businesses in the US gain the working capital they need to grow. Micro credit is primarily about access to capital for entrepreneurs who have going concerns. And the micro credit organization is largely agnostic as to what the product or service of those entrepreneurs is.  The Micro Consignment Model is about creating first-time access to essential technologies, products and services by creating new opportunities for entrepreneurs. It is about getting “new,” life–changing solutions to people through local entrepreneurship and is therefore by nature a much more holistic model.  Selling glasses, compact-fluorescent lightbulbs and energy-efficient, safe cooking stoves isn’t a common profession in many parts of the developing world. It’s a risky proposition to start any business let alone one that isn’t commonplace in your community. Would-be entrepreneurs can easily be scared off by that risk. Using debt (eg microcredit) to fund a new venture adds risk to the process. In addition to the opportunity cost of starting something new and the reputational risk of potentially failing, an entrepreneur is on the hook to pay back the loan they used to fund their “start-up.” This is apart from the fact that there are no local distributors from where to buy the solutions. In the US, entrepreneurs rarely use debt to fund start-ups and almost never use debt exclusively, so it only makes sense that microcredit isn’t necessarily the best option for entrepreneurs in the developing world.
Is the Micro Consignment model a “better” model than microcredit or micro franchising?
How can the MicroConsignment Model work in tandem with comparative models?
In Guatemala, we have created an MCM entrepreneur-owned social enterprise, Soluciones Comunitarias (SolCom) as our implementing mechanism.  But creating a new entity is only one way to implement the MCM and grow it sustainably. Any organization in a developing country that focuses on serving rural constituents can start an MCM venture. If an infrastructure already exists, the training and initial product purchases are the only up-front costs. From then on, costs are associated with revenues and are variable. An organization can identify, train, equip, and support five entrepreneurs or fifty. It can conduct campaigns three times a month or once every three months. It spends money only when it offers activities.  But these organizations do have to watch out for mission creep as they adopt the MCM system and services, and be sure whatever they take on is compatible with their own organizational mission.
National and regional microcredit organizations can add the MCM to their existing initiatives, which creates powerful leverage. For example, as an MCM implementation platform a microcredit organization can create effective new income-generating opportunities for its borrowers. An example is the microcredit institution Fundacion Paraguaya; my partner and I trained them to implement the MCM for VisionSpring’s reading glasses initiative. A group of the Fundacion’s borrowers are now earning money and serving their communities by selling reading glasses through the MCM—and the Fundacion now has both a new revenue source and another way to serve its clients. Though an MCM always requires some modification, it can be started and implemented without creating a whole new organizational infrastructure. It can be an “add on.”
Another way to implement MCM is on the local level, as we have proven in Guatemala. In 2008 our leadership team identified a new opportunity to increase scale efficiently. In the past we worked almost exclusively with local organizations and associations to help us identify potential women entrepreneurs in new regions, but now we have developed a full-service approach: the organizations themselves act as entrepreneurs and sell products at kiosks in locales where foot traffic is highest and in local village campaigns. Just as the women MCM entrepreneurs are known as asesoras comunitarias (community advisors), the organizations are known as socios comunitarios (community partners). This structure can create great leverage because these organizations already work with rural beneficiaries who can buy the MCM solutions. The local groups benefit as they earn revenue and are seen as contributing in their communities. Often they train their own entrepreneurs, or we do.
SolCom members have especially succeeded as MCM entrepreneurs with some rural libraries that the Reicken Foundation has created in Guatemala. The libraries use the income generated from product sales to pay for their Internet signal. From June to September of 2009, three such libraries, acting as socios comunitarios, sold a combined 174 pairs of eyeglasses, 85 bottles of eye drops, 16 water filters, 105 energy-efficient lightbulbs, and 63 packets of vegetable seeds. This not only helped the libraries’ constituents and enhanced their own reputation, it also earned the libraries a combined profit of $525, with no up-front investment, so the libraries are less dependent on donations. SolCom earned revenues of $2,100, which it used to pay expenses and invest in new products. This is a great example of the “win, win, win” solution this model can create.
Finally, the MCM can be implemented through microfranchisers, in one of two ways. First, some microfranchiser credit schemes enable franchisees to buy their products; they can now offer them new value-added products and services through the MCM. The franchisees can add products that are initially “uncertain” to complement their “risky” mix. Instead of the MCM replacing existing, functional, microcredit-based strategies, it can add microfinance as an effective add-on and alternative. Second, new product innovators and manufacturers can promote the MCM as a way for organizations to get new technologies out the door. Nick Swoden of ToughStuffOnline, an innovator in solar energy and lighting solutions, recently said to me:
ToughStuff’s microfranchising effort, the Business-in-a-Box program, has partners that love the MicroConsignment Model. The partners prefer this model to microcredit because it greatly limits the risk an entrepreneur must bear. This is especially critical when launching new technology, like solar products. The other benefit we hear is that the MCM is much simpler and easier to manage and scale. Whereas microcredit, with its scheduled loan repayments, is actually quite a complicated model with high transaction costs, our partners who aren’t financial institutions are able to launch and scale a MicroConsignment Model program without taking years to learn this business.