Foreign Affairs Committee on April 30th, 2012

[Romeo Saganash, NDP, Abitibi—Baie-James—Nunavik—Eeyou, QC]

Thank you, Mr. Chair, and thank you to our guest for his very important presentation.

I think the numbers you mentioned are pretty staggering, and this is an important area in which there is still a lot of work to be done. The various initiatives taken over the years have been helpful, I believe. Many have received praise for the positive results they have achieved throughout communities in developing countries. I've visited many of them over the years.

Thank you for that presentation, and thank you for the various initiatives that you've spoken about quite eloquently.

This is my first question. I know you've mentioned this in passing in your presentation, but should the private sector be playing a bigger role in international development efforts?

[Christopher Dunford]

Well, I can really speak only for the financial services area, where the private sector is already the dominant actor.

In fact, the general sentiment in financial service circles, particularly microfinance in developing countries, is that the government should play a less active role than it has historically done.

On the other hand, microfinance is a relatively new industry—and it's fair enough to call it that, even for those who are socially motivated and reaching truly poor people. As such, it's going through what you might call a shake-up period in which mistakes are being made, new models are being developed, and there's a lot of learning going on. Part of the learning is about what role government needs to play in regulating microfinance without stifling microfinance.

As I mentioned, particularly in the case of those institutions that accept savings deposits from the public, regulation is absolutely mandatory. But banking regulation, as it's typically done, tends to be problematic for microfinance institutions, which require more latitude to charge higher rates, because it's more expensive to reach the poor, but at the same time not to abuse that right by charging excessive amounts in order to attract profit-seeking investors.

[Romeo Saganash, NDP, Abitibi—Baie-James—Nunavik—Eeyou, QC]

Thank you. I have a second question.

You choose to work in parts of the world where poverty is endemic, especially in rural areas of developing countries where people have few resources, including natural resources, of course.

We are seeing with this government presently a new development in priorities focusing on countries in which Canada has political or mining interests. Development aid in Canada is increasingly politicized rather than focused on addressing that very issue you spoke about, extreme poverty. For example, we recently learned that CIDA will be cutting its funding to several countries, including Benin, Bolivia, Nigeria, Rwanda, Zimbabwe, and so on.

Can you expand on how your organization chooses the countries in which it operates? Is it based on need over other interests?

[Christopher Dunford]

It's based both on need and opportunity. As I said, we train other local organizations on how to develop and adapt a service package that includes microfinance. There has to be a fairly active civil society in which there are local organizations that have sufficient management capability and the proper social motivation, from our perspective, to be good partners that are eager to learn what we know how to show them to do. Also, they need to have the capability of taking what they learn and expanding that to reach large numbers of people.

That opportunity to work with organizations that can reach large numbers of chronically hungry people is a very important concern. Clearly, within any country we would hope to partner with organizations that are reaching the very poor, as poor a population as they can. In an extremely poor country it might be problematic to have sufficient civil society with sufficient capability to partner with us. We can understand why that might be problematic for aid agencies, in particular, to work in such countries. But there are countries that are better off, and I mentioned that we work in India, the Philippines, and Mexico, which are clearly middle-income countries and yet have major pockets of poverty, even chronically hungry poor. It is the same with the Andean countries. Only in francophone west Africa and Ghana, where we work, is it very clear that we're reaching countries that have very large proportions of their population in the chronically hungry category.

[Romeo Saganash, NDP, Abitibi—Baie-James—Nunavik—Eeyou, QC]

In these microfinance institutions and cooperatives, can you give us a sense of how important it is for local ownership and capacity building in these communities? Could you elaborate on this and give us a sense of what is the importance of these areas?

[Christopher Dunford]

Local capacity, as I mentioned, is tremendously important. I'm not sure I could say that local ownership is as important as local capacity, in other words, ownership of a microfinance institution as a private sector institution. Often they are commercial entities that are shareholder owned. In those cases, the shareholders may very well be external agencies or individuals.

Generally, when they are individuals, they are local to that country. They are nationals. When they are external agencies, of course, they can provide a major infusion of capital. I'm referring actually to official development assistance agencies and multilaterals, not just bilaterals but multilaterals like the Inter-American Development Bank.

There are also a large number of what are called microfinance investment vehicles. These essentially are pools of capital that individuals have put together into a company. That company then makes equity investments or loans to microfinance institutions. When they make equity investments, they take an ownership position.

So far, I don't see that that's problematic, as long as local management in fact is nationals and they have the capability to run a good organization that can achieve the objectives of the organization.

[The Chair, Conservative, Dean Allison]

Thank you very much.

We're going to move over to Ms. Brown for seven minutes.

[Lois Brown, Conservative, Newmarket—Aurora, ON]

Thank you, Mr. Chair.

Thank you, Mr. Dunford. It's very interesting to hear you speak.

I was in Bangladesh three years ago. I actually had the opportunity to meet with Muhammad Yunus for an hour and to speak with him about his organization and his view. I've read his book, Banker to the Poor. I've started his second book, but I can't say I've finished it yet. But I've had some very interesting conversation.

The one thing I know about Grameen and BRAC, which work in Bangladesh, is that they are definitely for-profit organizations. In fact, Mr. Yunus, in his book, talks about 20% interest rates they charge for microfinance loans.

I've also been in Burkina Faso, Benin, Togo, and Ghana, where you're working.

I'd like to know a little bit more about the source of capital you have for doing the microfinance. Is there a trickle-down effect?

When I was in Bangladesh, they introduced us to some of the women. They referred to them as shasta shabika. They are women who have been trained by the banks themselves to be the ones who can diagnose the first stages of tuberculosis. They are the ones who are able to give the medications and to keep people getting their medications regularly. It's actually becoming a business for some of these women. They are taking extra training as, really, what we would call public health nurses in its infancy. But I look at that and say there is a trickle-down effect that microfinance is actually having in the community.

I wonder if, first of all, you could talk about where the capital is coming from. You say you've got investors. What is the rate of interest that is charged to the women who are getting these microfinance loans? Is there a trickle-down effect in society that is causing a ripple effect with other business starting up?

[Christopher Dunford]

To the first question, Freedom from Hunger does not itself have investors; as I said, we're a classical charity. However, we did spin off or help create a sister organization called MicroCredit Enterprises, which is one of these microfinance investment vehicles—to make a clear distinction between an MFI, a microfinance institution, and an MIV, which is a microfinance investment vehicle.

I'll use the example of MicroCredit Enterprises because I'm on the loan committee of that organization, so am fairly familiar with its loans—it doesn't make equity investments. The loans that it is making to microfinance institutions in these various countries are earning for MicroCredit Enterprises about 8% per annum, when it's a U.S. dollar loan. When it's a local currency loan, the actual percentage rate may vary. Usually it's higher, because there's a higher risk in lending in a local currency; there are currency risk issues.

Regarding the kind of income that an MIV makes, this is a very competitive market now; there's a lot more capital chasing after good microfinance institutions to loan to or invest in than there are of such in existence right now. Even though there are many of them—thousands of them—only a few hundred are really suitable for these kinds of international lending and investment.

Most of these institutions either started as charities in their own right and built up a corpus of lending capital or their loan portfolio was built from donations and then from retained earnings from the interest they charge to the clients. So they are basically gaining their capital from charitable or subsidized sources as well as from earnings they make on the loans to the poor themselves.

We like to work, in West Africa in particular, with credit unions. That's a very different capital mobilization model, in that they are mobilizing capital primarily from the towns and the cities, from the middle class, and we've shown them how to invest that capital as loans to groups of women in more rural villages. In essence, it's capital being moved from towns into the rural areas of the same country.

Turning to your second point, I'm very familiar with the shasta shabika model. It's very much one of the health protection options, as I call them, that microfinance institutions can adopt. BRAC, in Bangladesh, is probably the worldwide model for this kind of integrated service, and much of the work we do with microfinance institutions and similar institutions elsewhere is modelled to some extent on the BRAC model.

Keep in mind, though, speaking to your point about the trickle-down, that we're trying to work very much with institutions that are making their loans to the poorest people they can possibly reach, so there shouldn't be trickle-down in terms of the direct impact of the loans. Only a certain proportion of the community may take these loans.

You wonder what happens to the other members of the community who don't find the loans attractive or otherwise don't join one of these programs. We do see a ripple effect out into the rest of the community, but the effects are modest.

In terms of new business formation, the shasta shabika is an example of new business being fostered by the microfinance institution itself, helping them become a seller of local health products locally. In order to do so, they can take a loan from BRAC or from one of our partners to buy their inventory and then sell it with a markup.

[Lois Brown, Conservative, Newmarket—Aurora, ON]

Somewhere in Ouagadougou I have a credit union account that has money in it that is being lent to people in the microfinance area. I haven't even received a statement from them, but I have money there. So it is interesting.

[Christopher Dunford]

Excellent.

[Lois Brown, Conservative, Newmarket—Aurora, ON]

From my studies in economics I know that principle number six is that productivity is the principle for success in raising the standard of living of any country. As we see these microfinance businesses start to take hold in many of the developing countries, we see the productivity rising, and in some places rising very quickly, because these people are now masters of their own fate. They are taking responsibility for their own lives. It was very exciting to see, when I was in Bangladesh, in Benin, in Burkina Faso, in Togo, all of these microbusinesses providing real economy and opportunity for families in these countries. It was very exciting.

The chair is telling me I'm out of time.

[The Chair, Conservative, Dean Allison]

Thank you, Ms. Brown.

We're going to move back over to the opposition.

Mr. Eyking, you have seven minutes.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Thank you, Mr. Chair.

Thank you, Mr. Dunford, for joining us here today.

In many of these war-torn or poor, undeveloped countries, what happens many times is that the men are displaced, or they're not usually in the picture as much as women in driving the family initiative or a business initiative. So many times the biggest opportunity is with the women of the community, even though they have a lot of responsibilities already.

I have a couple of questions.

Is there a correlation between the provision of microfinancing services and empowering women? That would be my first question.

[Christopher Dunford]

Yes, there is definitely a correlation, in the sense that when you see women join one of these groups, initially the typical member is very shy and reluctant to speak up in the group meetings, especially if there is a foreigner in attendance. It's quite remarkable that a few meetings later, or after a month or two of their participation, you can see a marked difference in their self-confidence and willingness to speak up, and in other, softer manifestations of empowerment.

Their actual decision-making power within their household and within their community takes longer and is more problematic. It depends very much on the microfinance institution and the effort it puts into training these groups to help them become self-managed, and for the women themselves to control what's going on—that's what's most empowering. But just the act of taking a loan and successfully repaying it can be very empowering, at least in some dimensions.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

I guess, especially for their daughters sitting around a kitchen table and seeing what their mom can do, that kind of stuff helps the next generation.

Are there enough programs in the microfinancing world tailored for women? Are there programs that take into consideration, when they're doing the business model, that she might still have to take care of the kids and do a whole bunch of stuff like that? Are there programs that are tailored that support women that are different?

[Christopher Dunford]

Yes, they are, but to answer your question of whether there are enough, there's not a good classification of microfinance programs that distinguishes how effective they are at helping women take advantage of the microfinance opportunities. Generally, the programs that are most successful are those that also provide education in the form of engaging the women in topics that are of real importance to them, such as the health of their children and their own health—particularly as it relates to maternity, breastfeeding, and such—but that also address the kinds of businesses and provide some education in the basics of business for the kinds of very tiny businesses that they typically pursue. The “microfinance with education” programs tend to be fairly effective.

There's certainly not enough of such programs, because there are an awful lot of women who do not have the opportunity to even join. Then of course there is the issue of the men in the households, and that's perhaps a different question.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

This year, 2012, is the year of cooperatives. Only 70 or 80 years ago, many rural areas of Canada were...probably not similar to underdeveloped countries, but we were in pretty rough shape, and cooperatives helped pull a lot of rural communities and other communities across Canada into prosperity and into working together. Many times you see these communities sharing an irrigation system or equipment or whatever; it's very important.

Are there enough programs out there that can help cooperatives? Do you see that as a big need?

[Christopher Dunford]

There's certainly a big opportunity, to the extent that there's an active cooperative movement in a country. Francophone West Africa has a very active financial cooperative movement, which is why our partner of choice in francophone West Africa is the credit unions or the savings and credit cooperatives.

I should say that the women who come together in these groups, which are ideally of 15 to 30 members.... They are in effect pre-cooperatives; they're not formally registered as such, but they are following the same cooperative principles. That size is truly ideal.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

It's traditional for them to work together.

[Christopher Dunford]

It is, so in essence we're just providing more structure and discipline to a model that they already follow as part of their culture.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

It's something that should be worked on more, I guess. Or programs should be encouraged within government and with the financial institutions...?

[Christopher Dunford]

Right, but there really is a difference in the kind of cooperative I'm talking about, which is, as I said, a pre-cooperative. It's small enough for the women to really know what each other is doing, both outside the meetings and during the meetings, so they really can engage in cooperative governance.

Larger cooperatives, such as credit unions that have thousands of members, or agricultural cooperatives that have hundreds of members, may be somewhat more problematic as far as benefits to the individuals in those cooperatives are concerned. So it depends on the cooperative. It depends on whether it's a financial cooperative, an agricultural cooperative, or whatnot.

But there are opportunities for cooperatives to receive loans and to really make progress—if it's an internally well-managed cooperative.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Do I have more time, Mr. Chair?

[The Chair, Conservative, Dean Allison]

You have one minute.