FGDA Thematic Workshops “Share” Series

“Microfranchising: an innovative vehicle for microenterprise promotion” November 7th, 2014

Speakers’ Profiles Giuliano ANDREUCCI Managing Director – ZYP Srl, Rome Giuliano has carried out entrepreneurial activities for 18 years and started social entrepreneurship activities 8 years ago. He developed the project “ZYP ethical franchising” in 2007 and realized it together with 3 partners. In 2012 the four partners established ZYP Onlus in order to fund women empowerment projects in Italy and around the world, reaching a total amount of funds of over €100.000. They are now working for the internationalization of their project. Marianna CALABRÒ Director – Microcredito per l'Italia SpA, Padua From September 2013 Marianna is Director of Microcredito per l’Italia SpA, for which she has coordinated the activities in support of entrepreneurial and business development in central and northern Italy from 2012. She contributed to the international strategic development of Banca Popolare Etica, where she has been working from 2004 to 2008 developing partnerships and agreements with European banks. She was Director of Sefea (Société Européenne Finance Ethique et Alternative) from 2008 to 2010, working in administration and management positions and monitoring investments in European microfinance. From 2010 to 2012 she was manager of the development & cooperation project in Haiti for Caritas Italiana. Marianna holds a degree in Political Science with a master in International Economic Institutions. She is interested in international politics and cooperation, with a particular focus on financial inclusion and rural economy, where she is specializing through a Master at SOAS, University of London. Marie DEGRAND-GUILLAUD Marketing and Product Director – ADIE, France Graduate from ESCP Europe, one of the top French business schools, Marie worked for 5 years as a strategy consultant before joining ADIE, where she now works as Marketing and Product Director. Her international background – Marie was project manager for an Indian NGO in Calcutta, junior Expert for the International Labour Organization, and a consultant in London for the Financial Report Council – so as her training in social entrepreneurship – she followed the International Social Entrepreneurship Program at INSEAD – have proven essential for her current mission as Head of the Adie Social Microfranchising Initiative. Jorge RAMIREZ PUERTO General Manager – European Microfinance Network, Belgium Jorge started working for the European Microfinance Network as General Manager in April 2012; he has a BA in Economics and Business Administration and a MA in European Studies, having developed his career in several European countries for different public and private organizations. Jorge has a long experience in the management of internationally funded projects addressing economic development policies like Foreign Trade, EU integration, Entrepreneurship, Innovation, R&D, Low Carbon economy and SME financing which is how he first encountered microfinance. During these years, he has been leading different teams as well as developing strong skills in advocacy, fundraising and networking related activities. He speaks fluently on Spanish, Catalan, English and French and is trying to improve its Portuguese. 1

FGDA Thematic Workshops “Share” Series

Participants: SURNAME - Name

INSTITUTION

ANDREUCCI Giuliano

ZYP Srl

BERTOLA Monica

Permicro SpA

CALABRÒ Marianna

Microcredito per l’Italia SpA

DAGRADI Diego

Fondazione Giordano Dell’Amore

DE MATTEIS Laura

Fondazione Giordano Dell’Amore

DE RIVA Elena

Independent consultant

DEGRAND-GUILLAUD Marie

ADIE - Association pour le Droit à l’Initiative Economique

DOZ GIANCARLO

Croce Rossa Italiana-Comitato Regionale FVG

FRANCHIN Amelie

Independent consultant

MUJYARUGAMBA Augustin

AIPEL / ISEC Consortium

NEGRO Maria Cristina

Fondazione Giordano Dell’Amore

PERI Giorgio

MAG2 Finance

RAMIREZ PUERTO Jorge

European Microfinance Network

RODRIGUEZ PULIDO Patricia

ACAF Italia

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FGDA Thematic Workshops “Share” Series

Document of synthesis of the workshop “Microfranchising represents an innovative example of support to microenterprise creation, offering turnkey business models to low-income entrepreneurs who lack a viable business project idea or do not want to start their business alone”. This is the point of view shared by ADIE, the winner of the 2014 edition of “Giordano Dell’Amore Microfinance Good Practices Europe Award” organized by Fondazione Giordano Dell’Amore in collaboration with European Microfinance Network (EMN). Specifically the Award was addressed to the proposal “Adie Social Microfranchising Initiative (AMS)” which has already created around one hundred jobs in France through the first two microfranchise networks and its overall objective is to create between 3,000 and 5,000 jobs by 2020. On November 7th 2014, Fondazione Giordano Dell’Amore organized the workshop: “Microfranchising: an innovative vehicle for microenterprise promotion” in collaboration with the European Microfinance Network. The workshop aimed to offer to specialized Italian professionals the possibility to discuss in detail this innovative microfinance service and the experience and operating principles of the French leader as well as the Italian progress. GOOD PRACTICES IN EUROPEAN MICROFINANCE SECTOR - JORGE RAMIREZ PUERTO The European Microfinance Network (EMN) was founded in 2003 by ADIE (France), nef (UK) and evers&jung (Germany) with the support of the European Commission and the French Caisse des Dépôts et Consignations (CDC). EMN has currently 83 members in 22 European countries. As microfinance is a non-standardized bottom-up phenomenon, which comes from society, we can recognize that there is such a big diversity of organizations working on microfinance in Europe and actually among EMN members you can find for example consulting and research organizations, banks, NGOs, non-banking financial institutions. That makes the role of the EMN secretariat to put all the interests together quite challenging sometimes. The overall interest is to improve financial inclusion, but the way these organizations do that is quite different, not only because of their distinct approaches, but also because of diversities in cultural aspects. Some of the activities undertaken by this Network are the collection of good practices and sharing of experiences, and for this reason EMN believes it is really important to collaborate with Fondazione Giordano Dell’Amore for the organization of the Microfinance Good Practices Europe Award. The European Commission defines microloan as a loan under €25.000 to support the development of self-employment and microenterprises. This definition is based only on the amount of the loan so it entails that anybody, also banks, can do microfinance. There is a debate inside the Network to try to change this definition and shift from a focus on the amount and purpose to a focus on who is providing microfinance, what kind of organizations we are talking about, and for whom. The EMN published the sixth edition of a survey about microcredit provision in the EU. 450 organizations in Europe were contacted and 150 replied to the survey, that is about 33%. The main figures show a very big growth in number of microcredit: 380 thousands of microcredit disbursed in 2013; 79% of them were business loans and 21% were personal loans. The average amount was €8,500,that is a bit higher than the previous years. (The survey is available at www.europeanmicrofinance.org/docs/emn_publications/emn_overview/Overview2012-2013_Nov2014.pdf). There is plenty of models, there is a big variety of institutions in Europe, from public to private institutions, non-banking financial institutions, NGOs focusing on a specific segment of population. Here it is a selection of good practices that are available on EMN website from two points of view: one is a selection of good practices on entrepreneurship and the other looks at good practices addressing different segments of the population.  MFIs usually provide financial services and training for business startup; but after the launch of the company, the MFI does not support the clients to set up their commercialization strategy or to identify potential clients. NEEM, a Swedish MFI, through the program “Big fish and small fish”, 3

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put clients in contact with big companies or multinationals in Sweden which are continuously arranging tenders and processes to subcontract specific activities; in this way, the small startups supported by NEEM can apply directly for these contracts. Microfinance providers need to adapt their services to the reality of the clients. SAVINGS HOUSE “MOZNOSTI” is a Macedonian MFI which won “Fondazione Giordano Dell’Amore Microfinance Good Practices Europe Award 2013” because it developed a system in order to deliver microcredit to undocumented businesses. Through this system, loan officers visit the place where the client does his or her activities, which is usually a small shop, and make photographs to document the business activity, based on which the credit committee approves the loan later on. This MFI also created a community-lending system similar to tontines or ROSCAs in order to deliver microcredit to nomads and gypsies. PRIZMA, in Bosnia and Herzegovina, implemented a campaign to deliver microloans in very small amounts directed to microenterprises. These loans are not used for business development, but they are quickly disbursed (two days for approval and disbursement) to solve particular small problems, for example to pay the electricity invoice. Provision of tailor-made training before and particularly after the loan disbursement is key for the sustainability of a startup business, usually delivered thanks to the essential help of volunteers. FEBA (UK) commits to monitor the startup through coaching or mentoring up to four years after the loan disbursement. Witihin the four most vulnerable population segments generally identified (youth, women, migrants and seniors), it is not easy to find microfinance projects addressed specifically to seniors, even if they are potentially very good clients because they have expertise and most of them have already some savings, but are unemployed or retired soon. SENIORS ENTREPRENEURS is a French organization which provides specific services for senior people. They realized a project to put together seniors and youth, where the seniors can be mentors or shareholders in the new business of a younger person. This initiative facilitates the transfer of knowledge among generations and it can also lead to the handover of a business already setup from a senior who wants to retire to a younger person. THE PRINCE’S INITIATIVE from Scotland, previously known as Prince of Scotland Youth Business Initiative, today provides services for seniors entrepreneurs. PRINCE’S INITIATIVE FOR MATURE ENTERPRISE (PRIME) and CREDAL have specific project targeted to senior people. Regarding specific women target, MI-BOSPO, also in Bosnia and Herzegovina, created a specific network for women entrepreneurs delivering to them financial services and Business Development Services (BDS). ADIE from France and PARTNER from Bosnia created programs specific for youth, through which they deliver tailor-made training before, during and after the loan disbursement. They found that it is really difficult to motivate youth to attend all the trainings; a solution to this problem could be to make the training compulsory if they want to receive the microcredit. They also offered financial literacy programs to their clients, in order to give them basic financial knowledge.

Some examples of microfinance good practices addressed to migrants are the experience of Nantik Lum in Spain and PerMicro in Italy: Nantik Lum realized “Programa Impulsa” that actually is a co-development program between Spain and Dominican Republic: jointly with its Dominican partner, Nantik Lum makes a double agreement with a Dominican immigrated in Spain and his/her relative in Dominican Republic. A microcredit is disbursed to the relative to setup a microenterprise in the country of origin; then, half of this loan is repaid through the remittances of the immigrant and the other half is repaid through the revenues of the business in Dominican Republic. Non-financial services such as financial literacy and business development services are offered to the participants in both countries. 4

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PerMicro works in very close relationship with migrants associations, which are key to build trust among migrants communities. When a client lacks collateral for personal or business loans, Permicro relies on the economic but above all moral guarantee that these associations can give to the potential client, testifying his trustworthiness and reliability. ADIE’S MICROFRANCHISING EXPERIENCE IN FRANCE – MARIE DEGRAND-GUILLAUD ADIE (Association pour le Droit à l’Initiative Économique) is a French non-profit association. It was created in 1989, and since then it has granted over 130,000 loans. In 2013 they helped creating more than 200 self-employed jobs per week and supported over 14,000 microentrepreneurs. ADIE has 120 agencies in mainland and overseas France, and employs 450 employees and 1,300 volunteers; volunteers are key for the success of ADIE’s activities and usually deliver Business Development Services (BDS). ADIE realizes an impact study every year; in 2013 it resulted that the insertion rate1 was 84% after 3 years, while each enterprise has created 1.26 jobs. ADIE provides above all business loans (85% of all loans disbursed) but also personal loans (15% of all loans), which have to be used for employment purposes only, for example to buy tools or undertake a training. The average loan disbursed is €3,500, and in 2013 the total amount of new loans disbursed was equal to €50 million. The interest rate is around 7%. Three types of guarantees are available: (1) the client can find a personal guarantor, that is another person able to economically guarantee its loan in case he/she is not able to repay; (2) some communities, such as Sub-Saharan African, Turkish and Pakistani use a group guarantee on the model of traditional microfinance methodology; (3) the third type is a moral guarantee given by two “witnesses” coming from the environment of the potential client who are morally responsible that the client will repay its debt but they are not economically responsible for the loan. For the group and the moral guarantees ADIE adopts a progressive approach as for the amount that can be lent; each agency has its own rules for the amounts of the microloans but they have to respect also some guidelines fixed at national level which establish that in case of moral or group guarantees the amount to be lent can range from €2,000 to €6,000 for business loans, even if, according to French laws, the maximum amount for business microloans is €10,000 (and €3,000 for personal microloans). Another product offered by ADIE is professional microinsurance, available only for business and not for personal purposes, disbursed in partnership with insurance companies such as AXA and MACIF. ADIE developed four microinsurance products and each covers only 50% of client’s needs. Microinsurance is offered only after a two-weeks training and a test. Business Development Services (BDS) are delivered through physical and online tools; the newest one, launched in July 2014, is a search tool on the MFI’s website linked to a profiles’ list of the microentrpreneurs financed by ADIE in order to make their activity known to the public. Finally, there are two people in ADIE dedicated to lobbying and advocacy practices, for example to make legislation easier and adapted to microfinance and microentrepreneurs’ needs. The product presented in detail below is social microfranchising, from the French term “microfranchise solidaire”, which is a very small business (microbusiness) replicated along a network whose participants share services and tools. It is different from social or ethical franchising which is a network of franchisees who replicate a social business (a business with social aim). In 2009, ADIE launched this product in order to reply to a demand coming from more and more people who wanted to start a business and were provided with entrepreneurial spirit but didn’t have a business idea or didn’t want to start their business alone. ADIE decided to develop microfranchising in order to give 1

It means that the business created or improved through the microloan is generating enough income for the client to live or that the MFI’s client has found an employment with a contract longer than 6 months.

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these people a turnkey business model, offering them a ready-made business model or a network of services and other entrepreneurs who can accompany the potential entrepreneurs. Through social microfranchising ADIE aims at creating between 3,000 and 5,000 independent jobs by 2020. With the first two microfranchise networks created, over 120 jobs have already been generated and the cumulated job creation potential exceeds 1,000. Five other projects are under study or at pilot phase. The microfranchise network is created to replicate at a larger scale a well-performing microbusiness; it works as follows: a microfranchisor is a microenterprise who owns and guides the network through a trademark, shared services and know-how; he is in charge to provide all what is needed by the network, for example operational toolkits, website, etc. The microfranchisees are independent microentrepreneurs with their own business who sign a contract with the franchisor to get access to all the services offered through the payment of small royalties (like normal franchising); they pay also an entry fee for the initial training session and materials. As the microfranchisor has many expenses because it has to provide services to the network’s participants, it is necessary to find many franchisees in order to make sure that the microfranchisor’s business is profitable, otherwise all the network is not sustainable. ADIE provides microcredit to the microfranchisees in order to cover their investment to enter into the network; the total investment requested to the franchisee cannot exceed €10,000 because ADIE wants to make sure that even if a person has no money at all, he/she can join the network through a microcredit (and, as seen before, the maximum amount which can be lent for business microloans in France is €10,000). The following picture explains how the whole ADIE Microfranchising Initiative is operated.

ADIE (indicated in blue) acts at different stages: there is a dedicated incubator formed by three people doing market analyses and building business models. They develop the concept of the network; when it is ready, they look for business partners (indicated in grey) that have expertise in the kind of business ADIE wants to launch. The partner, which is a big company or a social entrepreneur, has to find the strategy goal of the microfranchising business and to give advice to the incubator, playing an active part. After this conception phase, a pilot is started and, if the pilot is working well, ADIE launches the project. For the project’s roll-out, ADIE and the business partner create first of all an investment fund in order to establish a microfranchisor enterprise and finance its 6

FGDA Thematic Workshops “Share” Series capital. Currently the investment fund totaled €500,000; ADIE is a minority investor but it has an operative role, as it decides where and how much invest together with other investors, while the business partners are majority investor. After the microfranchisor enterprise is set up, the investors recruit a person to run this enterprise; he/she benefits of the trademark, services and know-how of the business partner and is also responsible to recruit, select and train the microfranchisees. ADIE’s branches finance (through microcredit) and support (through BDS) the microfranchisees. These are not obliged to be clients of ADIE: if someone has the money needed for the initial investment, he/she can join the network without asking for a microcredit. Two microfranchise networks (indicated in purple) have already been created:  “La Microfranchise O2 Adie” is a network of gardeners launched in 2011 together with O2, a large French company which delivers home services (such as childcare or home cleaning). This network was started because O2 tried to offer gardening services hiring employees according to its usual business model, but it didn’t work properly. So the partnership between ADIE and O2 was a business idea developed to solve the strategic problems O2 faced. The microfranchisor was selected among the professional gardeners O2 had previously employed, and today there are 35 microfranchisee gardeners in the network who operate all over France. €10,000 have already been invested in this network and other €15,000 will be invested soon. There are many benefits for a microfranchisee who joins the gardening network: he/she will get an initial training, high quality tools at a low price (bought wholesale by the franchisor), known trademark (O2 is very well known in France), commercial methods (how to develop a good relationship with clients), a call center to connect with the franchisor and other franchisees (in case a franchisee has a problem or new ideas to share), management and billing software. It has been estimated that after one year of activity the gardener franchisee get a net monthly profit of €1,700 that is 1.5 times the French minimum wage.  The microfranchise network “Chauffeur & Go” was launched in 2010 and today it is formed by 90 drivers without vehicle (they drive the car of the client). This network was developed in partnership with one social entrepreneur and for this reason its coverage is limited to Paris, its surroundings and other five big cities. €80,000 have been invested in this network. ADIE is trying to promote and make this initiative known in order to find new business partners and scale it up. To this purpose, ADIE Social Microfranchising Initiative participated and won various competitions: it was awarded with the 2014 edition of “Fondazione Giordano Dell’Amore Microfinance Good Practices Award”, the 2014 edition of the Social Innovation Tournament by the European Investment Bank and it was one of the 15 initiatives spotted by the French president in the framework of the project “La France s’engage”. PROGRESS IN THE ITALIAN CONTEXT: THE EXPERIENCE OF “MICROCREDITO PER L'ITALIA” – MARIANNA CALABRO’ Etimos Foundation which has been working for over 25 years in finance and social economy in Italy and especially in developing countries. In 2009 Etimos started to work in Italy in the aftermath of an earthquake which hit Abruzzo region, through a fund with a term of nine years by Italian Civil Protection aimed at developing a program to support the economic sector and the microentrepreneurs in L’Aquila (in Abruzzo region) in order to strengthen the economic activities which had been damaged. The initial fund consisted in a guarantee fund of €5 million used through agreements with local banks in order to help them give small credits to people in a disadvantaged condition. In 2011 Etimos Foundation decided to create Microcredito per l'Italia (MxIT) to deliver microcredit in Italy: as a social enterprise, social promotion goals are in its articles of association, legal status and mission; as a specialized operator, microcredit is their core business and they consider long term 7

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sustainability as a primary requirement of their activity; as a financial intermediary, MxIT received in 2012 the authorization to operate from the Italian Central Bank so it is subject to the Bank’s supervision. MxIT considers microcredit as a tool for financial inclusion and economic development; to this purpose, its main activity is to support self-employment and micro-business through microcredit and support people who lost their job or need to restructure their business or develop a new one. MxIT decided to do not open branches because it didn’t want to appear as a bank which disburses smaller amounts, in fact it operates through regional operators who connect with networks, organizations and communities already in place in the areas where MxIT works, strengthening these subjects and using them as a first filter to understand the needs of the population targeted. A fundamental role is played by volunteers on the territories where MxIT works, who help it to screening the lacks of the potential clients. After the emergency MxIT decided to transpose its model in other regions, using volunteers integrated in the territory as mentors for microentrepreneurs, who help people to develop their business idea or manage their firm or deal with already existing debts; when credit is needed, the volunteers send the potential customers to MxIT. As microentrepreneurs often are not willing to take a training, MxIT recognized that this model of volunteers operating as mentors is more easily accepted. Even if the aim is to bring the model at a national scale, the focus remain on fighting against financial exclusion by developing interventions in very specific areas or on very specific topics through the help of local partners. In July 2012 Renzo Rosso, a private entrepreneur owner of Diesel chose MxIT to manage a fund of €5 million in order to arrange a micro-credit program aimed at enterprises affected by the earthquake that struck in May 2012 in Emilia Romagna, Lombardia and Veneto regions. As in other areas MxIT constituted a guarantee fund and partnerships with banks in order to give microcredit at lower interest rates. Up to June 2014, MxIT volunteers coached over 2,500 people who wanted to start a business or restructure their activity either in Emilia Romagna or Abruzzo. Over 1,000 loans were disbursed for a total amount of over €25 million; around 85% of these loans went to microenterprises and among these, 34% went to women and 28% to start-ups. The target client is someone which is a new financially excluded: Italian economy is traditionally composed by small enterprises usually run by families or self-employed, but, after the economic crisis this kind of entrepreneurs faced many difficulties to receive financing by mainstream banks. Last year an Italian foundation working to fight poverty (Fondazione Un raggio di luce Onlus) became a shareholder as it decided to invest in MxIT to extend its area of intervention to Tuscany region and help to create jobs through microbusiness and promote social enterprise. This time MxIT decided to disburse funds directly, instead of acting only as a guarantor. In Lazio region MxIT was working with a big local bank, then it won a public call of the National Micorcredit Body (Ente Nazionale per il Microcredito) and started another project to support women entrepreneurship. In Veneto region it was established a partnership with Veneto Lavoro, a regional agency for employment, through which MxIT tries to identify, through the agency’s database, people who have the skill to undertake self-employment and entrepreneurship. Two other projects are going to be launched soon in the areas where MxIT is already present “In-firm microcredit” which is a microcredit program developed inside a big company, dedicated to the company’s employees and above all the franchising one. As many customers in its area of operation are craftsmen or artisans who sometimes lack business structure or do not want to start a business alone, MxIT has just launched its project “Franchising for craftsmanship”. Through a partnership with specialized advisors already working in traditional franchising, they wants to support craftsmen and microenterprise creation with the realization of a franchise network. This can be an innovative way to support skilled artisans and create jobs for talented young people in the form of self-employed businesses, through a standardized and replicable approach. Their objectives are: preservation of Italian craftsmanship; enhancement of innovative experiences in creative and cultural fields; creation of sustainable and solid businesses in social and civil sector; encourage enterprises to employ skilled artisans; promotion of a fair 8

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business model based on networking. The first step of this project is the launch of a call for ideas to identify potential franchisor and franchisees to match. MxIT will not directly develop the franchise network as in the case of ADIE, but they will operate as intermediary offering support to develop business ideas through the partner advisors specialized in franchising, and also delivering financial services to the franchisees (up to a maximum investment of €25,000). “ETHICAL FRANCHISING” – GIULIANO ANDREUCCI ZYP, founded in Rome in 2007, links franchising formula with an ethical mission: the development and empowerment of women through business. The founding members and associates are businessman and businesswomen who decided to work in the social sector, and not vice versa. Their core business is clothing repairs, and they opened 60 shops in Italy (most of them in Rome) creating more than 150 jobs, 90% of which are run by women. ZYP’s peculiarity consists in using 100% of the royalties it receives from the network (€92 per month for each shop) for its social projects aimed at the development of women through enterprise. For its sustainability, the microfranchisor directly manages a number of shops (at least five) and receives also an entry fee from new shops created. ZYP Onlus was created to finance various social projects through the royalties received by the franchisees. It financed businesses for women and transferred skills and brand to projects in Naples, Brazil, Rwanda and Ghana among others, through partnership with local NGOs (the project in Naples was run in partnership with Fondazione Pangea Onlus). The project in Rwanda deserves a special mention: ZYP financed a group of 30 women who opened their own tailor shop, the first ZYP shop in Africa. Three years later they are about to open a showroom in Zanzibar (in Tanzania) which will sell to tourists the products manufactured in Kigali (in Rwanda) shop.

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