Microconsignment: The Microfinance Alternative

Microconsignment: The Microfinance Alternative

Glasses were one of the first products to use microconsignment, which required training on reading eye charts and providing eye care. Photo:<a href="http://www.flickr.com/photos/joshsamson/3702875851/sizes/m/in/photostream/">GoRun26 (flickr)</a>
Glasses were one of the first products to use microconsignment, which required training on reading eye charts and providing eye care. Photo:GoRun26 (flickr)

Chances are you're pretty familiar with microfinance. But have you ever heard of microconsignment? Microconsignment is similar to microfinance in a lot of ways, but with a unique twist. Basically, instead of giving an entrepreneur a loan to be repaid over an agreed upon period of time, the aim of microconsignment is to give access to a good or service to a community that is without.

For example, in a community where the nearest doctor might be a days drive away, a microconsignment group might work with an entrepreneur to open a shop where people can get their eyes tested and buy prescription eyeglasses. The entrepreneur gets training on how to do an eye exam and run a business, as well as the materials they need to open up shop and market their business. Only after the products sell, the entrepreneur pays back the initial cost using a percentage of his or her profits. Another key difference with traditional microfinance models is that much of the risk stays with the lender.

Greg Van Kirk first tried the microconsignment model in his days as a Peace Corps volunteer. He saw an opportunity, and decided to found Soluciones Comunitarias, a microconsignment institute operating in rural South America. The New York Times' wrote about the microcosignment pioneer in a recent post on their Fixes blog.

Yolanda Garcia was one of the first entrepreneurs to work with Soluciones Comunitarias, introducing glasses into her community in rural Guatemala. She admitted to the New York Times that her first attempts at selling were not hugely successful. Had she taken out a loan to buy the glasses that didn’t sell, Garcia may have had to take out more loans just to pay the first back. “Why put all that risk on somebody up front?” Malini Krishna, the vice president of development for Soluciones Comunitarias explained to The Times. “Why not help them put the glasses out there and then get repaid when glasses sell?”

Since product doesn’t always sell, business can be slow for the five year old company. However, Soluciones is already turning a sustainable profit. According to Tina Rosenberg, a New York Times contributor on social issues and solutions, it took Grameen Bank -- one of the founding microcredit institutions -- 18 years to reach the same point.

And Soluciones does something else right; it trains its employees well. Garcia, along with some of the other early entrepreneurs, is now a co-owner and operator of the company and trains new employees to become social entrepreneurs in their own communities.

The consignment model made all the difference for Garcia, who has gone from a housewife with a primary school education to a co-owner of a successful company. “If I had had to take out a loan I wouldn’t have done it,” Garcia said, “I always felt I wanted to do something, but we didn’t have the economic resources beyond what we needed for the day.”

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