FIELD Projects: Direction 3

To build a nationwide structure with greater market relevance, impact and economies of scale, the field must reorganize and restructure. Microenterprise organizations must seriously look at a set of possibilities to make themselves stronger. Some organizations have done this by comprehensively and systematically re-tooling to reach large numbers of microentrepreneurs. Other options also offer programs the potential to increase efficiencies and expand market coverage by establishing new relationships with other institutions. They include outsourcing functions; co-branding and distributing products offered by other national, regional or local players; mergers and acquisitions; and strategic alliances.

The following resources offer an overview of the issues of scale-up in the microenterprise and community development finance fields, illustrate a range of strategies through the experience of other organizations, and provide links to some potential partners.

Overview of Scaling up

Lessons Regarding Scale: Findings from a Literature Review by the Aspen Institute/FIELD and the Association for Enterprise Opportunity. As part of a study funded by the Citigroup Foundation, the Association for Enterprise Opportunity (AEO) and the FIELD program of the Aspen Institute conducted a review of research and writing on the topic of scale. This literature review examined work by AEO and FIELD, but also went further to examine research by other organizations – including those that examined scale in settings outside of the domestic microenterprise field, such as the community development finance, international microfinance and human service industries – with the aim of identifying the key lessons for microenterprise programs in the U.S. (2006, 15 pages, authored by the Aspen Institute/FIELD and the Association for Enterprise Opportunity.)
Linking Money and Mission: An Introduction to Nonprofit Capitalization. This important piece by Clara Miller of the Nonprofit Finance Fund discusses the critical links between mission, capital structure, and organizational capacity. In particular, the piece addresses the fact that any effort to expand a nonprofit organization's programs and activities requires a parallel capitalization strategy - and that failure to address needed changes in financial structure can expose the organization to significant risk. This information is critical to any organization considering a scale-up initiative. (2001, 13 pages, authored by Clara Miller.)
Scaling up Microenterprise Services. This publication provides an overview of the issues that need to be addressed when an organization chooses to dramatically increase the volume of its services and reach a much larger portion of its target market. An overview article discusses the lessons learned by eight FIELD grantees that received grants and participated in a learning assessment between 2000 and 2002. Articles by each grantee also document their experiences with new market research and marketing strategies, bank partnerships, product development and organizational re-tooling. Two articles also address the efforts of intermediaries in supporting scale-up across a set of microenterprise programs. (May 2002, 124 pages, authored by Elaine L. Edgcomb and others, The Aspen Institute/FIELD.)
New Pathways to Scale for Community Development Finance. This paper presents a new strategic framework for CDFIs and funders interested in facilitating product development and greatly expanding delivery. Arguing that models based on assumed replication of best practices alone will not work, it summarizes 10 case studies of successful for-profit and nonprofit scale-up efforts that demonstrate the importance of standardization and infrastructure building, followed by deliberate roll-out. The paper also argues that scale can be achieved at the product level, organizational level and field level, and highlights the essential factors in achieving success at each level. (December 2004, 21 pages, authored by Gregory A. Ratliff and Kirsten S. Moy, The Aspen Institute/Economic Opportunities Program.)
Scaling Up Microenterprise Finance in the United States: Summary of a Meeting Convened by the FIELD Program of the Aspen Institute. This report from a FIELD-convened meeting of leading microfinance providers in the United States and other experts summarizes what was known about U.S. microfinance as of 2004. It recommends: taking concerted action on market research; developing deeper relationships with private sector financial providers; exploring outsourcing back office functions as a way to increase efficiencies; developing credit repair products as a way to prepare more clients for business lending; and examining the possibility of developing a credit-scoring model for microenterprise lending. (June 28, 2004, 20 pages.)

Scale-up Strategy: Mergers and Strategic Restructuring

The Strategic Solutions Project was a six-year initiative aimed at improving the nonprofit sector’s understanding and use of “strategic restructuring.” Strategic restructuring is defined as a continuum of partnerships – including but not limited to mergers, joint ventures, administrative consolidations and joint programming – through which nonprofits attempt to anticipate or respond to external threats and opportunities. The project’s Web site provides a wide range of information and tools, including case studies, research and other resources, hand-on publications and consulting services.
Strategic Restructuring as a Scale-up Tool: The Case of MicroBusiness Development Corporation. FIELD forum Issue 17 explores how one organization – MicroBusiness Development Corporation (MBD) of Denver, Colo. – used strategic restructuring as a tool to achieve greater scale. The publication details how MBD used both merger and acquisition to expand its product offerings, client base, and financial and organizational capacities to serve larger numbers of clients. The case study points out that while there can be challenges to the restructuring process, when synergies align, restructuring can be a springboard for growth. (2006, 12 pages, authored by Joyce A. Klein.)
Microenterprise Mergers: Industry Trends Towards Scale? Three articles in the Association for Enterprise Opportunity’s newsletter, AEO Exchange, document the external and organizational factors that propel microenterprise organizations to consider mergers, and highlight two cases in their early stages of merging: Working Capital into ACCION USA and PaceWorks and Colorado Microcredit into the Microbusiness Development Corporation. Elements that made each successful are discussed. (AEO Exchange, Issue 5, January-March 2002; AEO Exchange, Issue 6, April-June 2002; AEO Exchange, Issue 7, July-September 2002.)
Mergers in Microenterprise Development. This PowerPoint presentation from a workshop at the 2005 AEO Annual Conference outlines experiences with three mergers in the microenterprise field (ACCION USA with Working Capital, MicroBusiness Development Corporation from PaceWorks and Colorado Microcredit and then with Business Capital of Colorado, and BusinessNOW of Goodwill with Microenterprise of Greater Atlanta), including key lessons learned. (May 2005, 20 pages, authored by Bill Burrus of ACCION USA, Kersten Hostetter of MicroBusiness Development Corporation, and Elizabeth Williams of the Association for Enterprise Opportunity.)
The Nonprofit Mergers Workbook, Parts I and II. These workbooks are a valuable hand-on tool for any nonprofit organization considering a merger. Part I focuses on the steps leading up to a merger, and covers issues such as: how to decide what type of structure meets the organization’s goals; how to seek and objectively assess merger partners; managing the board’s role in the merger process, and how and when to bring in outside expertise. Part II covers the post-merger integration process, looking at the role of the organization’s leader, and providing specific guidance on how to develop an integration plan that focuses on all aspects of the organization: the board; staff and volunteers; organizational culture and program; communications and marketing; and finance, fundraising, technology and other systems. Both workbooks include a host of practical tools, such as worksheets, and sample plans and documents. Part II includes a CD-ROM with integration plan software and electronic copies of other tools. More information on both workbooks, which can be purchased at Amazon.com, can be found at the lapiana.org Web site.
Mergers and Acquisitions – Is this Strategy for You? National Community Capital Consulting Services offers consulting services to CDFIs considering a merger or acquisition. NCS offers to facilitate comprehensive self appraisals, assist with negotiations, and work with board and senior staff of both organizations on programmatic, governance and operational issues. Help is available for internal assessments, market analysis, mission discussions, and analyses of operating performance, financial conditions, and human resource needs. See the NCCA Web site for more information, or contact Adina Abramowitz at adinaa@communitycapital.org.

Scale-up Strategy: Partnerships with the Private Sector

Scaling Up Through Bank Partnerships. This six-page chapter excerpted from Scaling up Microenterprise Services, describes ACCION New Mexico’s strategy for growing its loan portfolio through partnerships with a set of commercial banks. The credit delivery strategy uses bank branch offices as “ACCION facilitators” – informing potential clients about the program, providing interested applicants with ACCION materials, assisting in the application process and closing ACCION loans with microentrepreneurs.
Utilizing Partnerships to Test Emerging Market Strategies: A Case of H&R Block Initiatives in Five Cities. This case study from Shorebank’s Center for Financial Services Innovation discusses partnerships between H&R Block, local governments, and nonprofits around tax preparation, EITC claims, benefits screenings, and other services for low-income clients, and identifies a set of lessons learned. While not addressing microenterprise lending, the document illustrates the key issues involved in developing partnerships with the for-profit sector, and offers some guidance for making these successful. (July 2005, 20 pages, authored by Katy Jacob, Center for Financial Services Innovation.)

Scale-up Strategy: Distributing National Products

Circle Lending is a specialty loan administration company based in Cambridge, Mass., providing a full range of services for managing financial transactions between private parties. Home mortgages, personal loans, and small and microenterprise loans are among the type of loans that the company helps clients structure with family and friends. For microenterprise programs, a partnership can offer the opportunity to help clients who plan to borrow informally to do so in a way that builds their credit, constructs the most advantageous loan repayment schedule, and is more secure for both borrower and lender. Programs can affiliate and receive financial incentives for referrals to Circle Lending or establish partnerships offering additional services.
MicroMentor, a project FIELD created to help entrepreneurs grow their businesses through on-line mentoring relationships with experienced business professionals. The program matched microentrepreneurs with mentors with similar industry experience and expertise in the challenges facing protégés. On October 1, 2006, operation of MicroMentor was spun off to Mercy Corps, the international humanitarian relief and development agency.
ACCION USA is a microlender that offers loan products nationwide. Partnerships with local or regional organizations - microenterprise programs, banks and other community-based organizations - are a key part of its outreach and marketing efforts. Organizations can partner in a variety of ways including through referrals and offering co-branded loan products. For more information on partnerships with ACCION USA, see www.accionusa.org.

Scale-up Tool: Credit Scoring

Credit Scoring for Microlenders. This white paper published by FIELD describes the benefits that credit scoring can bring to microenterprise lenders. The paper provides case studies of two U.S. microlenders that have explored how to use credit scoring more effectively in their lending programs. ACCION New Mexico analyzed the relationship between the consumer credit scores and subsequent repayment performance of their loan borrowers, and is using this information to improve its underwriting and pricing policies. ACCION USA (AUSA) has gone even further, developing a microenterprise credit-scoring model that uses information beyond that used in consumer credit scores. The model has enabled AUSA to create new loan products and pricing; the organization also projects benefits in the form of improved efficiency and risk management. The paper also recommends steps that other microlenders can take to move toward greater use of credit scoring in their own operations. (January 2007, 48 pages, authored by Marisa Barrera and Andrea Berger of ACCION New Mexico, Joyce Klein of the Aspen Institute/FIELD, and Livingston Parsons of ACCION USA, the Aspen Institute/FIELD).
A Handbook for Developing Credit Scoring Systems in a Microfinance Context. This paper, which was published by DAI Washington for USAID, is intended as a guide for banks, microfinance institutions (MFIs), and donors who are considering applying credit scoring as part of their business model. The research drew on the experience of microlenders from three continents - Africa, Europe and South America - to illustrate a four-step framework for designing and implementing credit scorecards. While developed for microlenders in an international context, the approaches identified here clearly apply to microlenders operating in the U.S. (2006, 79 pages, authored by Dean Caire, Susan Barton, Alexandra de Zubiria, Zhivko Alexiev, Jay Dyer, Frances Bundred, and Neil Brislin.)

Have additional resources to suggest? Email us at fieldus@aspeninstitute.org.