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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