Evidence of meeting #26 for Foreign Affairs and International Development in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was microfinance.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

  • Wendy Hannam  Executive Vice-President, Sales and Service, Products and Marketing, International Banking, Scotiabank
  • Morris Rosenberg  Deputy Minister, Department of Foreign Affairs and International Trade

3:30 p.m.

Conservative

The Chair Dean Allison

Pursuant to Standing Order 108(2), our study is on the role of the private sector in achieving Canada's international development interests. We'll begin.

I want to welcome Wendy Hannam, who is the executive vice-president of sales and service, products and marketing for Scotiabank international banking.

Wendy, thank you very much for being here today.

Colleagues, we have changed the order today because we wanted to make sure we would have as much time as we could with the ministers this afternoon. We appreciate everyone's flexibility.

Wendy, we certainly appreciate your flexibility as well in meeting with us.

We're probably going to have bells in, I'm going to suggest, the next 20 or 25 minutes. We'll see if we can go for at least half an hour—I think that would be reasonable—so that we can get some testimony and then have at least one round of questioning. When we come back we'll be with the minister.

I'm going to turn the floor over to you, Wendy. You have an opening statement. Then we'll have questions back and forth from both sides of the table.

Again, welcome. The floor is yours.

March 12th, 2012 / 3:30 p.m.

Wendy Hannam Executive Vice-President, Sales and Service, Products and Marketing, International Banking, Scotiabank

Thank you very much, Mr. Chair and committee members, and thank you for the invitation.

I’m Wendy Hannam, executive vice-president for sales and service, products and marketing, in international banking with Scotiabank. Scotiabank is Canada's most international bank, with operations in 55 countries and a team of more than 75,000 employees serving over 19 million customers around the world.

Our international banking division encompasses all of the bank's personal and commercial banking services outside Canada, primarily in the Caribbean, Latin America, and Asia. I am responsible for strategic planning, management, and delivery of personal banking services and small business banking services through our team of 36,000 employees in 45 countries.

I've been engaged in conversations throughout the past year with the Canadian International Development Agency on enhancing collaboration between Scotiabank and CIDA. I'm pleased to have the opportunity to address this committee about Scotiabank's experience and its ideas about achieving international development goals.

The committee has specifically noted an interest in how private sector entities can be catalysts in generating long-term economic growth and alleviating poverty in developing countries. We strongly support this vision and approach. There's a growing consensus that growth, poverty reduction, and improving people's lives require a vibrant private sector and active partnership in economic development.

Today I'd like to speak with you about Scotiabank's history and approach in developing markets, the link between development objectives and the business of banking, and some relevant success Scotiabank has had in this area. I'll also offer some recommendations based on what has worked well.

First I'll speak about our approach to developing markets. The issue of how best to achieve development goals in emerging markets is a very important one for Scotiabank, given our deep roots and more than 120 years of history in developing countries, beginning with the opening of our first branch in Jamaica in 1889.

We take a grassroots approach and keep a long-term view of how best to contribute to the growth and development of local economies. We learn the market first, build strong relationships with governments and the private sector, establish a presence, and grow our operations over time. We hire locally and build our teams as much as possible with people who understand the unique local context. Because of our approach and long-term commitment, we are seen as a local bank in each market, and in many important ways we operate as a local bank.

Part of our commitment to corporate social responsibility is to have a very strong presence in local communities, which we do through our support of hundreds of local and regional charities, civic causes, and non-profit organizations. Scotiabank Bright Future, our global philanthropic and employee volunteer program, is aimed at addressing the needs of local communities at a grassroots level.

Scotiabank supports financial literacy initiatives that provide customers with access to education, resources, and advice related to personal finances. For example, we're partners with Junior Achievement on the Economics for Success program in 10 countries in Canada, Latin America, and the Caribbean. This program teaches students the fundamentals of personal finance and explores related education and career opportunities.

But while philanthropy does have a meaningful impact on local communities in developing markets and is a major component of what might be considered traditional CSR, it is not what I want to highlight today. Over 90% of jobs in developing countries are in the private sector. The pace of job growth and quality of employment in the private sector are critical to development. The involvement of the poor in economic growth through formal markets—known as pro-poor growth—is the best way to get people out of poverty and represents the exit strategy for government aid.

Making businesses more inclusive is essential. An inclusive business is one that seeks to alleviate poverty by including lower-income communities within its value chain, while not losing sight of the ultimate goal of business, which is to generate a profit. A real impact can be made by leveraging these for-profit businesses.

Inclusive growth is both broad-based across sectors and inclusive of the large part of the country's labour force. It includes attention to the welfare of the poor, but also to the opportunities for the majority of the labour force, poor and middle class alike. The inclusive growth approach looks to productive employment as an important means of increasing incomes of excluded groups.

I'll now be looking at the special role of the banking sector. The banking sector has a critical role to play. Generally it alleviates poverty and inequality by enabling economic growth through the provision of credit. In addition, the institutional infrastructure of the financial sector contributes by bringing down the cost of information, contracting, and transactions, which in turn accelerate growth.

In addition, with governments facing the challenge of developing infrastructure with limited budgets, banks help to address this gap through the design, structuring, and implementation of financial solutions for infrastructure projects. Scotiabank has a specialized unit, Global Infrastructure Finance, with dedicated teams for Latin America, Europe, and Asia. For the developing countries in Latin America, we focus mainly on those countries where the bank has a banking presence—Mexico, Chile, Peru, Colombia, and Brazil.

Perhaps most important, banks directly address poverty by providing access to basic banking services in a formal market, acting as a force of inclusion. In most developing countries, access to formal financial services is limited to 20% to 50% of the population. There is now growing awareness that access to a wide set of financial tools, such as savings products, payment services, and microfinance, provides the poor with much greater capacity to increase or stabilize their income, build assets, and become more resilient to economic shocks while increasing family security.

Speaking to our success in Haiti, Scotiabank's experience in Haiti following the devastating earthquake in January 2010 provides a good example of the different roles philanthropy and inclusive business each play in a crisis in a developing country. Immediately following the earthquake, our team in Haiti worked around the clock to ensure branches were safe and secure for the return of our customers and employees, opening three of our four Haitian branches within just a few days. Scotiabank assisted international agencies in distributing aid to 100,000 people, donated funds to the Red Cross and our employee relief fund, and helped arrange temporary housing for those who needed it.

In late 2010 the bank, together with Digicel, launched a mobile wallet financial service under the brand name TchoTcho Mobile. This service helped make banking accessible in a country where only 10% of people have a traditional bank account but 85% of households have access to a mobile phone. With much of the country's infrastructure damaged or destroyed by the earthquake, the service allowed customers to safely perform basic financial functions such as withdrawals, deposits, transfers, and payments to keep the economy moving. Businesses used the mobile wallet to accept payments from customers for goods and services and to pay their employees. The project has been a huge success in terms of financial inclusion and supporting development. It is also profitable.

At the end of 2011, TchoTcho Mobile had more than 473,000 users and handled almost 10,000 transactions a day in a country where just 4 million people have cellphones. The project is supported by a nationwide network of more than 900 correspondent agents. This project received international acclaim for its contribution to economic development, including the beyondBanking award of the Inter-American Development Bank and the 2011 Global Telecoms Business Innovation Award for consumer service innovation.

We're now preparing to launch a mobile wallet in Peru and El Salvador, and we plan to offer the service in other Latin American and Caribbean countries.

Another inclusive business initiative we've been very successful with is microfinance. Scotiabank provides innovative microfinance services to small-scale entrepreneurs and micro-business owners in Peru, Chile, Dominican Republic, Guatemala, and Jamaica. Our CrediScotia subsidiary in Peru is the bank's biggest microfinance operation. We define microfinance clients as self-employed or micro-business owners with annual gross revenues below $100,000 Canadian who need funding to invest in the development and growth of their business.

Microfinance has been shown to be an important driver of economic development in underserved communities. It is a key tool for supporting the goals and aspirations of women in particular. Approximately 60% of our microfinance clients in Peru are women. It also helps to grow the formal economy by providing accessible financing to people who would otherwise have to turn to informal channels.

To end with some recommendations, CIDA's three priority themes are already closely aligned with Scotiabank's values and activities. As described above, there is strong evidence that financial sector development provides a high impact on development overall. In Haiti, the Caribbean region, and Peru, there are already successes where the bank is working with CIDA, but there is clearly potential for our two organizations to do more. I have had very open and productive discussions with CIDA over the past year and look forward to continuing those discussions in specific areas we've identified.

Specifically, one, encourage CIDA to publish a private sector development strategy.

Two, as the role of the private sector becomes the increasing focus of governments, development agencies, and international financial institutions, the contributions of the private sector are not well understood or communicated by other stakeholders or the public. Increased communication among CIDA, private sector partners, and the public would help.

Three, given the limited resources and focus on budget restraint, the efficiency of assistance and maximum impact becomes critical. It is important that the public and private sectors leverage their comparative advantages. In light of this, CIDA should have flexibility to fund feasibility studies, co-invest, or assist in risk mitigation for private sector projects.

Four, scale is a key factor in maximizing impact and needs to be recognized. This means leveraging the strengths of large private sector partners and collaborating with multiple partners.

Five, ask whether CIDA is currently structured to have the flexibility and mandate to effectively engage with the private sector. There are a range of models for development agencies, development banks, and international finance institutions. The committee should consider whether CIDA has the structure and the mandate to effectively partner with these institutions and with the private sector. For instance, some national development agencies—in the U.K., the U.S., and Germany, for example—have established funds or development finance institutions specifically to support their private sector development efforts.

Finally, six, directly engage in building basic financial infrastructure: property rights, secure transaction laws, collateral rights, credit bureaus, small and medium enterprise tool kits, financial literacy, regional regulatory harmonization, and financial regulation.

I believe that Scotiabank’s history and our deep commitment to the development of emerging markets, including our recent inclusive business successes, put us in a unique position to offer our insights on this matter. I hope these recommendations are helpful to you in your deliberations.

I’ll be very pleased to answer any questions you may have.

3:45 p.m.

Conservative

The Chair Dean Allison

Thank you very much, Ms. Hannam.

We're going to start with Ms. Sims, please. You have seven minutes.

3:45 p.m.

NDP

Jinny Sims Newton—North Delta, BC

Thank you very much, and thank you for your presentation.

I certainly appreciated having a copy a bit ahead of time so we could read it before we came to the meeting.

I think there is an acknowledgement around the table that there are some benefits to microfinance and microcredit programs, because they can help the world's poorest communities, and they also give women hope and some equity.

The microfinance sector has come under some scrutiny recently, particularly in India. In February, the Winnipeg Free Press published a story entitled, “Indian state pushes microfinance prosecutions after revelations of lender links to suicides”. The government there blamed a spate of suicides on aggressive lending and collection tactics.

I'm not saying that Scotiabank had anything to do with this, nor am I trying to tie your practices to the ones that may have led to the problems in India. However, we know that when lending and borrowing are not conducted in a responsible way, there can be a significant social and economic consequence. We've just seen that south of the border with the housing market meltdown and the mortgage foreclosures.

We also know that some of the poorest and most vulnerable communities here in Canada have been the targets of ruthless, predatory lending practices from the payday loan industry. How can Canadian institutions like yours make sure that predatory lending practices do not take place in the microfinance systems of developing countries?

3:45 p.m.

Executive Vice-President, Sales and Service, Products and Marketing, International Banking, Scotiabank

Wendy Hannam

Thank you for your question.

Scotiabank's involvement in microfinance started when we purchased a bank in Peru. Peru is the most developed country in terms of microfinance, with a long, long history. As we've built the microfinance business inside Scotiabank, we've used the Peruvian model to expand to the Dominican Republic, Haiti, Chile, and other markets.

I just spoke at the University of Ottawa before coming here, and some of the students asked how microfinance works; does it look like traditional banking? I explained that as a Canadian with 25 years of banking experience in Canada, two years ago going to Peru and seeing our microfinance business for the first time was quite enlightening for me too. I am fascinated by the opportunities it provides to allow entrepreneurs to provide a living for families and create jobs.

The way microfinance works is quite different from what we would know as branch banking. In our case, our officers travel by motorcycle to the communities where customers live and work. They go with pen and paper, and they will actually have a discussion with the business owner about who they're selling to, how much their sales are, how much they are paying in supplies, how much the utilities are. Financial statements aren't common in this business, so the officer actually has to figure out how much this business makes and how much they can afford to pay. Based on that knowledge, they'll make a decision around the lending criteria.

That same officer is also responsible for collecting the loans. So on another day they'll go back on their motorcycle to the community to collect as well. Obviously we don't condone or engage in any kind of predatory collection practices.

We have a very, very large distribution network of branches and kiosks in retail stores and a number of non-traditional distribution outlets that we'd be used to here in Canada—places where people can go to make their payments. We make it very easy for them to find an outlet to make a payment.

Not to belabour it, but the business that is fascinating to me and is going to transform the world is the mobile bank—the bank that's held in a cellphone. Increasingly we will be able to distribute loans onto the phone, and people will be able to make payments, again, through these distribution outlets, through the phones.

3:50 p.m.

NDP

Jinny Sims Newton—North Delta, BC

Thank you.

As you know, one of the stated goals of CIDA's overseas development assistance is to reduce poverty. We believe there can be no substitute for the role of the public sector, though we do believe there is a role the private sector can play.

Would you agree that when it comes to international development there must be a strong role for public institutions like CIDA, whose goal is to reduce poverty?

3:50 p.m.

Executive Vice-President, Sales and Service, Products and Marketing, International Banking, Scotiabank

Wendy Hannam

We think there's absolutely a role, and we think there's an opportunity for an even closer partnership than what exists today. As I said, I've been working with CIDA for the last year, and we've had some very good discussions. We definitely see opportunities to partner, to work together more closely on the ground when we're both doing work in the countries, to share what we're doing, to share best practices and knowledge.

Especially on the last point I made, we in the lending business need to rely on property rights. We need to be able to rely on collateral. Where this doesn't exist, we can't make loans. When we can't make loans, we can't fund those business owners who are trying to make a living for their families and grow their businesses.

We track, and we've seen migration from the microfinance, which is really just a family owned business, to creating jobs, growing into small businesses. We've seen a big migration—

3:50 p.m.

NDP

Jinny Sims Newton—North Delta, BC

Thank you.

Throughout your report I read a couple of times about your ongoing collaboration and relationship with CIDA. I was pleased to hear that.

Can you expand on what that looks like?

3:50 p.m.

Executive Vice-President, Sales and Service, Products and Marketing, International Banking, Scotiabank

Wendy Hannam

I've had several meetings with the minister, and also with Margaret Biggs and some of her team, to talk about ways we can partner.

Some of the things we've done are sharing names of CIDA and bank officials on the ground so we can facilitate them getting together to talk about the projects they're working on.

3:50 p.m.

NDP

Jinny Sims Newton—North Delta, BC

I'm delighted to hear that, because we're hearing from a lot of NGOs who are coming to meet with us that they're finding it very hard to communicate or establish any links.

3:50 p.m.

Executive Vice-President, Sales and Service, Products and Marketing, International Banking, Scotiabank

Wendy Hannam

Yes, likewise. Exactly.

3:50 p.m.

Conservative

The Chair Dean Allison

Thank you very much.

We're now going to move over to Mr. Dechert for seven minutes, please.

3:50 p.m.

Conservative

Bob Dechert Mississauga—Erindale, ON

Thanks, Ms. Hannam, for being here today.

I was very interested to hear about the microfinance programs Scotiabank operates in Peru and in other places. I noticed you didn't mention that you have a microfinance operation in Haiti at the moment—or maybe I got that wrong and you could clarify.

A number of us—Ms. Laverdière, Mr. LeBlanc, the Minister of Foreign Affairs, and I—had the opportunity to visit Haiti in January. We met with Scotiabank officials there, and they were very helpful and told us some very interesting things that Scotiabank is doing, including the cellphone payment mechanism.

I have a couple of questions for you. First, is the cellphone payment service a service that would allow Canadians who have relatives in Haiti to remit amounts to them as a way of getting some of that necessary seed capital? If I'm a Scotiabank customer and account holder here in Canada, can I go to Scotiabank and have it transfer funds to Scotiabank in Haiti and then distribute them to my relative via the cellphone transfer? If so, what is the cost of doing that?

Second, can you tell us what steps need to be taken—what conditions need to be put in place in Haiti—to enable you to offer a microfinance service there as you're doing in Peru? What preconditions were available in Peru that allowed Scotiabank to carry out that kind of business that need to be put in place in Haiti?

I think you mentioned property issues, and we've heard previously in this committee that there are some very significant problems with the land title system in Haiti. Is that part of the problem you're talking about?

3:50 p.m.

Executive Vice-President, Sales and Service, Products and Marketing, International Banking, Scotiabank

Wendy Hannam

Thank you for your questions.

First to the mobile phone question. Today, the service doesn't exist where you can remit funds from Canada to the phone in Haiti; it's an internal Haiti service right now between Digicel and ourselves. But the next evolution of the mobile wallet, while it certainly would be cross-border...we're just over a year old in the wallet itself in Haiti, and we need to continue to build the functionality for intra-Haiti transfers, first of all. They're so vital.

You asked about cost. Before the cellphone, the only way for a family member in one community to transfer funds to a family member in another community a hundred miles away was to physically take that cash and find what they hoped was a trusted taxi driver or bus driver or somebody who would get the funds there. Sometimes they wouldn't get there. When they did get there, it was often at quite a cost: 20%, 30%, 40%. Now it's pennies, literally, to make that transfer by phone. The family member in the next community receives a text message and the money is on their phone.

To the microfinance, we do not have a microfinance business in Haiti right now; we are interested in establishing one. We just set one up in Jamaica this year. We'd like to do a feasibility study on the market, as we would in any market: what is the size of the market? We expect that it's sustainable.

Your point is very valid on property rights on land and on titles and so on. If we need to register collateral, we need to be able to rely on that collateral. That doesn't exist in Haiti today.

3:55 p.m.

Conservative

Bob Dechert Mississauga—Erindale, ON

Is it your view that governments like the Canadian government, through CIDA and similar organizations, could play a role in helping to prepare the legal framework in countries like Haiti so that microfinance could play a role in helping those countries?