Franchising Microfinance

The Bradach article discusses franchising as one potential way to assist social entrepreneurs in successfully replicating their businesses. In that vein, I'm posting a link to a recent paper on franchising microfinance that was co-authored by UCLA's own Bhagwan Chowdhry.

As many of you know, Professor Chowdry is a recognized authority on the subject of microfinance, and in this paper he offers one solution -- franchising -- to the problem of borrowers defaulting on their microloans.

Essentially the argument states that, due to a proliferation of microlenders in many areas, borrowers can simply obtain a loan, default, and then hop to the next lender for additional credit. Because there isn't a standard, widely available "credit bureau" or similar metric available to vet potential borrowers, most lenders are unable to ascertain a particular borrower's repayment history.

Franchising -- essentially forming a lender alliance -- the paper posits, could assist lenders by facilitating communication among members and preventing delinquent borrowers from obtaining additional credit elsewhere. The article is a bit "quant-heavy", but it's interesting and worth a read. Here's the link:

http://www.isb.edu/faculty/Working_Papers_pdfs/Franchising_Microfinance.pdf