Evidence of meeting #34 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 countries.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

  • Stephen Foster  Director, Commercial Crime Branch, Royal Canadian Mounted Police
  • Gisèle Rivest  Officer in Charge, Operations of National Interest and International Corruption, Commercial Crime Branch, Royal Canadian Mounted Police
  • Christopher Dunford  Senior Research Fellow, Freedom from Hunger

5:10 p.m.

NDP

Paul Dewar Ottawa Centre, ON

You wouldn't advocate taking away funding for already pre-existing programs to be replaced by—

5:10 p.m.

Senior Research Fellow, Freedom from Hunger

5:10 p.m.

NDP

Paul Dewar Ottawa Centre, ON

I say that because I'm in the opposition here. We have a government that's capped its development aid budget and is cutting back on things like funding the TB projects that we've done in the past.

Of course, as a politician I want to make sure we're clear about what we're talking about, not replacing one for the other, but certainly advancing the idea of microfinancing, its value, as opposed to saying that we can cut our aid budget on the one hand, and, oh yes, by the way, we can sprinkle around some microfinancing and look as if we're having a great impact.

That's my job to point that out, not yours, and I have just done that.

Finally, I just want to ask you about microloans, because I think a lot of people would be surprised when they hear the rates that are charged for microloans. Could you just touch on what's the average? And of course people will want to know why the cost is so high.

5:10 p.m.

Senior Research Fellow, Freedom from Hunger

Christopher Dunford

Sure. This is, of course, a very controversial area, particularly with the advent of profit-maximizing investors investing in microfinance. There have been some spectacular examples in India and in Mexico of investors making a great deal of money when an IPO is issued for a microfinance institution.

The issue for interest rates is that it is more expensive to reach the poor. Quite often you have to take the bank to them, which means you equip a credit agent with a motorcycle and off they go into the hinterland, or even if it's in an urban area, it requires leaving the bank and coming to the community. That, by itself, requires special training, special support, transportation, and so on, so it's more expensive, plus the economies of scale are not so favourable in that it costs as much to make a thousand dollar loan as it does to make a hundred dollar loan. If you have a whole bunch of hundred dollar loans, that's problematic from the point of view of making enough money to cover your costs.

Those are the basics, but there's also a good deal of difficulty in really understanding what microfinance institutions actually charge, what the true effective interest rate is. Even the providers of such loans often don't really understand the true APR of their loans. There's a movement afoot to really become much more transparent about this so that the poor, when they have alternative sources of financing, can compare them more on an apples-to-apples, and oranges-to-oranges basis.

You asked about the average. It depends on the country. Mexico is very high,so 80% APR would probably be typical. In Bangladesh it would be maybe 20% to 30% APR.

5:10 p.m.

Conservative

The Chair Dean Allison

Thank you.

Ms. Brown.

April 30th, 2012 / 5:10 p.m.

Conservative

Lois Brown Newmarket—Aurora, ON

Thank you very much.

Thank you, Mr. Dunford.

I'd like to explore that a little bit more. I have a business background, and I do understand risk and loans and what it costs to borrow money. There is a cost attached to it, and microfinance is a business form. They have to assess their risk on a continual basis. In some of the microfinance projects I saw, women were able to access enough money and they bought a dozen chickens. They started with a dozen chickens, they multiplied their flock, and they were selling eggs to the whole village. They created quite a business.

First of all, I want to set the record straight that Canada has not cut back on the money we are giving for vaccinations. In fact, last year we gave $50 million to the GAVI Alliance, and they are working to ensure we eradicate such things as tuberculosis. So the Government of Canada is very intent on putting those kinds of investments into countries.

I want to go back to something we talked about a little bit earlier. When I talked about the trickle-down effect, you said they're at the bottom, and you used the words “ripple effect”. You've just talked about people who are the managers who are going out into the communities. They're the ones who are getting the training on handling the money and doing the accounting part of it for the actual business that is borrowing the money.

I wonder if you can talk about those types of jobs and how they're impacting society. What I saw in Bangladesh again were people who were being trained to go to the villages, to take stock of what loans were out, and then to make new loans if that was necessary, to accept the repayment, and to take that back to the bank.

That's a whole different level of money management that is starting to take place in that society. I wonder if you can talk about the value of this to the development of that country.

5:15 p.m.

Senior Research Fellow, Freedom from Hunger

Christopher Dunford

Well, I don't know of hard evidence, but it certainly seems to me that this must be a major impact, especially in more rural areas that are served by microfinance institutions, but also in urban areas that are served by multiple microfinance institutions. There's often quite a bit of competition in the more urban areas amongst microfinance institutions, and they are hiring large numbers of people. I think the estimate is something like 3,500 microfinance institutions worldwide, and that doesn't include credit cooperatives and such. All of these institutions are hiring more staff as a result of the need for those staff to be making smaller transactions, going out into the rural areas and such.

Now, there are two impacts. The obvious one is that these people are getting jobs and they are getting career development. They're learning skills. But in addition, this is a way in which the young to middle-aged people of these countries can engage in giving back to their own communities, because they very often come from these same areas. Often that's a requirement, that they speak the local language of the communities they're serving. So they very often are from these communities, and this gives them an opportunity not only to earn money themselves, which can be channelled back to their relatives, perhaps, in similar communities, but it also gives them an opportunity to engage in their country's development, and they really are inspired by that.

This is particularly true when they're more than loan officers, when they are actually engaged in an educational process with their clients. They develop a relationship of listening and engaging with their lives in a way that can only be beneficial, not just to the clients but to them as individuals and to those they talk to elsewhere in the society. That engagement with the poor and what their lives are really like, getting past stereotypes, can really be a very important factor in the development of a country.

So I'm glad you brought this up, because it is an important impact of the development of the microfinance industry.

5:15 p.m.

Conservative

Lois Brown Newmarket—Aurora, ON

I'll make just an observation, since I'm running out of time. I have been in these countries. Particularly in Bangladesh, even though they don't have hydro, they don't have the infrastructure for hydro or for telephone, everybody has a cellphone and everybody is connected. So their opportunity to connect with a much broader sector of society is changing exponentially. I expect that we are going to see many of these impacts happen with microfinance as well, that not only are they doing their own business in their own locale, but because they're connected by cellphone now to other places, they have the opportunity to develop other markets.

5:15 p.m.

Conservative

The Chair Dean Allison

Thank you very much.

We're going to finish off today with Mr. Dechert.

5:15 p.m.

Conservative

Bob Dechert Mississauga—Erindale, ON

Thank you, Mr. Chair. Thank you, Mr. Dunford.

I'm going to start off by following up on what my colleague, Ms. Brown, was just talking about, in terms of technology that makes payment mechanisms easier to do, especially in developing countries. We've heard a lot from other witnesses about cellphone payment mechanisms.

Could you comment on how that plays a role in microfinance, from your perspective?

Another question is on the role that diaspora groups can play. One of the great strengths of the Canadian economy, as in the United States and many other places, is that we have people here from around the world, from many of these developing countries that we're trying to assist, who have become successful here in Canada. We're interested in ways that we can motivate and assist diaspora groups with providing microfinance, helping them make remittances in a more cost-effective way to their friends and relatives in these countries so that those funds can be put to use in microfinance.

I wonder if you've had any experience in the United States working with diaspora groups from any of these countries. Could you comment on that?

5:20 p.m.

Senior Research Fellow, Freedom from Hunger

Christopher Dunford

With regard to your second question, relating to diaspora groups, I can't say that Freedom from Hunger has had direct experience. Clearly this is a major opportunity for microfinance institutions that we are aware of. Many of them are, in fact, becoming very involved in facilitating transfer payments from people in the U.S. or Canada to countries like Haiti and Nicaragua and such.

This is a new area for microfinance institutions.

Regarding payment transactions through cellphones and other technologies, this is not, of course, exclusive to microfinance institutions. It's a pioneering area. There are a lot of cellphones out there. Most of them are very primitive. They're not smart phones. People will often have cellphones even in rural areas that are beyond the normal reach of cellphone service.

You have to be careful to assess the number of cellphones out there in terms of how many of them are actually being used effectively, much less being used for transfer payments and such. But it's very promising, and certainly there is a lot of very active experimentation. The Gates Foundation is particularly pushing this as a way for people not only to do transfer payments and financial transactions, but to save, to open savings accounts and save regularly, and even to receive loans.

There is the spectacular example of M-Pesa in Kenya. It's not entirely clear that the relatively unique combination of circumstances that made M-Pesa so successful is readily available yet in other countries.

So the enthusiasm for cellphone-based financial transactions is outpacing the reality of it, but it's still an extremely active area of experimentation and it's very promising.

In some cases, people see this as a way of working around the limitations of microfinance institutions and the need for the high-touch nature of microfinance as it's been traditionally developed. I find that a little alarming, because a lot of the benefits, the softer benefits, of microfinance are in the interpersonal interaction between staff of the institution and the people at the community level.

So it remains to be seen, but I think what we'll see and are seeing already is that the cellphone or some kind of device like that in the hands of field agents can be used as a way of improving their work, so that they're more effective as trusted intermediaries for the people they are working with in the field and as a source of information beyond financial information.

5:20 p.m.

Conservative

Bob Dechert Mississauga—Erindale, ON

Thank you.

In your view, how important are remittances from diaspora groups to the development of economies in these developing countries? Do you have any—

5:20 p.m.

Senior Research Fellow, Freedom from Hunger

Christopher Dunford

Oh, they're huge.

I'm no expert on it. I read the same materials you do, no doubt. Remittances far exceed official development assistance. It depends on the country, though.

We have been involved in Haiti, and I've often said that the greatest hope for Haiti is the Haitian diaspora and the support they can get from their overseas relatives.

5:20 p.m.

Conservative

Bob Dechert Mississauga—Erindale, ON

You mentioned in your comments the importance of education, and you've just mentioned the importance of remittances. What is your view on temporary foreign worker programs, where people go from developing countries to developed nations, work for a while, and then go back home taking some of the skills and hopefully some funds and capital with them. Is that a good model?

5:20 p.m.

Senior Research Fellow, Freedom from Hunger

Christopher Dunford

I hesitate to judge it a good model, but it's certainly a common model in some countries.

Certainly in the Philippines you see this quite a lot. In Thailand I've seen it a lot. Those are the two Asian countries I'm most familiar with.

We've seen, just as an example, that Filipinos or Filipinas who have worked overseas come back with a certain amount of capital, and they look for an opportunity to invest it. They become moneylenders, on the softer side of moneylending, you might say, because they are deeply embedded in the community, and they see an opportunity to help business people in their community by providing them with access to capital that they wouldn't have otherwise.

So you see people bringing money back and finding creative ways to set themselves up in business, not just building a big fancy house that looks remarkably fancier than the one next door. You see that as well, but you do see them investing in businesses that benefit the economy.