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Canada and Microcredit: Building on Experience

Notes for remarks by Hon. David Kilgour, M.P. Edmonton Southeast, Secretary of State (Latin America & Africa)
to Small Business Loans for the Poor: A Forum on Microcredit
sponsored by Results Canada, Edmonton Community Loan Fund and Parkland Institute
University of Alberta, Edmonton, June 12, 1999

We often think of Canada’s involvement with microcredit as a recent development. Microcredit has gained international attention through such innovations as the Grameen Bank in Bangladesh and the BancoSol in Bolivia. But the funding of microenterprise through small loans was important to the growth of commerce in Canadian settler society and later in the forerunners to credit unions.

Around the turn of the century, Alphonse Desjardins organized a citizens’ meeting in Levis, Quebec in response to high interest rates, consumer losses and imprisonment for unpaid debt. There, he outlined plans for a caisse populaire or people’s bank. Nearly two thirds of the 128 people there were members within a month, contributing very small savings. This began the widespread Mouvement des Caisses Populaires Desjardins in Quebec.

The Antigonish movement begun by Dr. Moses Coady was a forerunner of the credit union movement in English-speaking Canada. Many more credit unions were established during the Great Depression of the 1930s. Today more than 7 million Canadians are credit union members with more than $100 billion in deposits.

This short glimpse back at Canada’s own experience with microcredit serves to remind us that these forms of finance are not particular to the so-called "Third World." I say "these forms" because there are numerous models of microfinance and what works in Bangladesh may be very different from what works in West Africa or in Edmonton.

It is a great pleasure to be here today and to speak on such an important topic. Some of you are old friends, as I’ve been pleased to attend previous events organized by Results Canada. I salute also the Edmonton Community Loan Fund and Parkland Institute, which were also active in organizing this forum.

As Secretary of State for Latin America and Africa, I’ve been fortunate to visit a number of successful microcredit projects in Latin America and Africa. Canada plays an important role in supporting many of these projects – especially through CIDA, but also through the Canada Funds for Local Initiatives, which are administered by Canadian Embassies and High Commissions, and which give priority to locally initiated projects.

CIDA has been supportive of microfinance and microenterprise as tools of development since its inception in 1965. About $100 million or five per cent of Canada’s International Development Assistance budget goes to these through CIDA. In all, Canada supports microfinance projects in about 50 countries.

Sense of ownership

The challenge in assisting such projects, of course, is how to be most helpful while letting participants feel a sense of ownership. Or how to ensure accountability without imposing stifling bureaucracy. The most successful projects appear to be the ones where participants feel a sense of ownership and accomplishment, and ultimately these are the most useful and sustainable. Microfinance is about more than providing funds. It is about empowerment, by boosting confidence and imparting management skills. "Cultivating entrepreneurship" is how CIDA describes it.

Canadian development programs aim to increase the accessibility of financial and non-financial services to the poor, with special emphasis on women. We try to ensure that the poorest of the poor benefit from these programs, and that projects are sustainable. Technical support is as important as financial support. CIDA directly funds organizations in developing countries and countries in transition, as well as providing support through Canadian NGOs such as Calmeadow.

Poverty is both a lifestyle and a trap. It is hard to escape. It becomes a vicious cycle in which the poor not only lack the means to rise above it – trapped in the struggle for day-to-day existence – but also lack the skills and confidence to succeed.

In the developing world, the informal economy has provided a relief valve in a climate of high unemployment. Family enterprises and individuals engage in precarious street ventures with very little overhead, eking out a living each day. Such activities, which fill the streets of major cities throughout Latin America, Africa and Asia, are often unregulated, semi-legal, or completely criminal. While there are many social problems associated with the precarious informal economy – health hazards, congestion and crime – they also channel the poor into entrepreneurial activities. Provided with the necessary access to small credit, many of these small informal ventures can grow into successful businesses, empowering the poor.

Does the informal economy of the developing world have a parallel here in Canada? I would argue emphatically that it does, but the challenges are quite different. At one level, the importation of such Third World innovations as "squeegee kids" and various street vendors is a sign that many here have turned to alternatives outside the formal economy. In Canada, however, this remains on a fairly small scale in part because of a comparatively advanced social safety net. The growing underground economy here is more an attempt to avoid taxes and regulations than a response to poverty.

Home-based business

Of great significance in this country is the number of home-based businesses. Many involve women needing greater flexibility to care for families while pursuing careers. Women, by the way, have also been the most successful micro-entrepreneurs in developing countries. Some home businesses involve those laid off by corporate or government "downsizing," who have chosen to strike out on their own. Often these home-based entrepreneurs are well educated and use modern electronic business tools such as computers, fax machines and wireless communication. In this way they are very different from the more precarious informal entrepreneur in the developing world.

The rise in importance of very small enterprise creates a microcredit challenge here too. Traditional finance is quick to provide loans to entrepreneurs with collateral, and this may be the case for those with working spouses or accumulated assets. Institutions such as the Business Development Bank of Canada are often able to step in and provide assistance to others such as youth, Aboriginal entrepreneurs and other small enterprises.

Yet Canada faces unique challenges which make it difficult for us to apply the lessons of microfinance and microenterprise from the developing world to our own country – especially as a means of poverty alleviation. Today Canada is no longer a rural settler society, but rather is a highly urban country with a mobile population. Our sense of community is eroded, and this makes it harder to put in place the kind of loan circles and peer support systems that work in countries such as Bangladesh. In the developing world, the extended family is often the norm. Grandparents, aunts and uncles or even older children take care of younger children while parents work. In Canada, the nuclear family is the norm, and even this is challenged by the rise of family breakdown. About 15 per cent of Canadian families have only one parent, and 56 per cent of single-parent families live on low incomes.

This means that many of Canada’s poor often lack the necessary family support to become micro-entrepreneurs, and in many cases they lack the education and skills to take part in the new digital economy. Small enterprise then is not a solution that can easily be applied to Canada’s poor – unless other structures are in place to provide support.

Holistic approach

CIDA’s experience in the developing world has shown the need to take a holistic approach. In CIDA’s institutional action plan on microfinance and microenterprise development, the importance of complementary policies and systems is noted. These may include an enabling legislative and regulatory environment which encourages the growth of strong, transparent and effective financial institutions. Helping the poorest of the poor in the developing world also requires efforts to improve health, basic education, and infrastructure – especially in rural areas.

Canada’s challenge of poverty is different, but a holistic approach is just as essential. We take basic health, infrastructure and legislative environment for granted – just as the existence of the extended family is taken for granted in many developing countries. Poverty in this country has other causes, such as family breakdown and lack of training, and these must be addressed here.

The need for solutions that empower the poor is just as great in Canada as it is in Latin America or Africa. Microcredit is a valuable tool enabling the poor to take ownership of the solution, and to build the confidence and skills to free themselves from the trap of poverty. It can work here too, but only if the different context of Canada’s poor is taken into account.

I began by pointing out that small credit has a long history in this country, both in settler society and the emergence of credit unions and caisses populaires. Given the lessons from Canada’s international involvement in microcredit and the enthusiasm of the people at this forum, microcredit may well have a strong future in Canada too.

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