Excellent. Thank you so much.
I'm sorry that I can't be there in person, but I'm very thrilled to have the opportunity to address you today. I know that for each of you this kind of proceeding is pretty normal for your day-to-day, but for me to have the opportunity to interact with all of you as decision-makers is really a thrill. I'm very happy, on behalf of my organization, to have that chance. Thank you for extending it to me and to Engineers Without Borders.
I think, first and foremost, it's important to affirm that we really want to give kudos to the government and to everyone involved. Development finance has been an issue that a number of governments and individuals within all parties have been looking at for many years, and folks have worked really hard on it. Those of us who sit outside of government have also played an active role for many years. I know that I, and people like Aniket, whom you heard from this morning, have been speaking on this issue for multiple years. We really support the progress that has been made on the commitment to create this kind of an institution, progress that does it in an innovative way that really adds to the tool kit that Canada can bring to bear in trying to address global-scale challenges.
I'm going to try to focus my comments on things that I believe will be a bit different from what you might have already heard from other people's testimony. I know Brett House from Scotiabank very well. He's someone I've worked with on this issue over the years. I've read his testimony. I just want to say that I really support and second most of the things that Brett said, so I'll save a whole bunch of time by giving my vote to many of the things that Brett offered to you as advice and counsel. I didn't hear Aniket this morning, but having worked with Aniket over the years, I also think that he has a lot of expertise and salient points to make, and I would second those, as well.
I just want to start with a very basic story that I think is important to help position the context in which a DFI really exists. I've been working across east, west, and southern Africa for the past 12 years. I essentially have the opportunity to speak to these issues in an informed way by virtue of having interacted with hundreds of entrepreneurs across the African continent, and having seen first-hand a lot of the challenges that people face in building sustainable and inclusive markets. I've heard from a number of people who have been working on that continent for a long time that the scale and the barriers to entry to do business in developing countries are so much more than an issue of capital. While we are obviously having a conversation around development finance, I also just want to say that the capital side of how we address these challenges is only one part of that. The issues of human capital and of understanding how to deploy capital in a way that is risk-adjusted to the kinds of needs and contexts in which we find ourselves operating in developing countries are as important as the availability of capital itself.
A story that I've heard and shared with many people before is that it took Coca-Cola, one of the largest and most efficient companies in the world, over 12 years to break even in its operations in sub-Saharan Africa selling a sugary and slightly addictive beverage in a context where the company has global experience with its value chains and distribution. So, when you think about trying to have impact through business development in ways that address the needs of the poorest and most vulnerable people, I think that can really help situate the challenge, and the scale of the challenge, of doing that. It's very hard to be an entrepreneur anywhere in the world. I know some of you on the committee have experience as entrepreneurs, and if you don't, you know entrepreneurs very well. Many entrepreneurs in Canada fail. Just to sort of add to the degree of challenge, it's far more difficult, in terms of the environment and the operating context, for entrepreneurs in developing countries to succeed.
It's very important to bear that consideration in mind in terms of the expectations we have for a DFI in this context and the kind of patience that Canada and other countries that have already established DFIs need to be able to demonstrate in order to be useful. Part of what I want to say from a design perspective, in terms of setting the mandate of this DFI, is simply that we have the opportunity to make a series of decisions around how and where we want to situate ourselves in the continuum of existing development finance institutions and to bring to bear some of the lessons and experiences others have had by virtue of being in operation for many years.
I think when the Prime Minister and Minister Bibeau made comments a few weeks ago in Montreal, when they announced that the institution would be set up in Montreal, they said a number of really critical things. I would like to highlight a couple: first, focus on addressing the needs of the world's poorest and most vulnerable, which is very important to say specifically; and second, do so by leveraging the expertise and potential of small and medium-sized enterprises, particularly those led by women and youth. All of those statements we really strongly support and believe in. We think a development finance institution can and should be innovating and taking on the kind of risk that allows us to be additive and useful and building markets in ways that address those specific needs.
I think it's also important to name that this is exceedingly hard to do. While it might seem innocuous to talk about a focus on the world's poorest and most vulnerable, the truth is that a lot of DFIs end up placing their capital in business opportunities that by design are not aimed, I would say, at addressing the needs of those particular distinct target populations. That's not to discredit them. Markets need to be built in diverse ways across the world, and that is something that DFIs should continue to do. It's only to say that as Canada has said very clearly in their own language, that they want to have a focus on those hardest-to-reach populations, then in doing so we need to take on a different kind of design approach in how we think about how our DFI will actually be able to do that in an operational way.
I'll just share a few recommendations that are quite specifically drawn out in view of that language around the world's poorest and most vulnerable. We know that nine out of 10 jobs in the developing world are provided by the private sector, and yet at the same time the access to long-term financing for many small business owners is an exceedingly difficult issue. SMEs themselves represent just about 66% of full-time employment in developing countries. Employment, in this case creating jobs, is crucial if you think about the fact that by 2050, I think, there will be over a billion young people on the continent of Africa alone. The importance of being able to provide good and viable job opportunities for people to contribute to society is something that all of us have a very significant interest in ensuring happens in as expedient a way as possible.
At the same time, obviously Canada has taken an approach, in many ways through its foreign policy, to affirm the importance of women and girls in all things that this country does, knowing that women and girls face distinct and terrible disadvantages in terms of their opportunity to engage in a productive life, and particularly so in the economy. Some of my recommendations are very specific to how Canada can essentially put that into action.
First, I want to talk about the importance of a portfolio approach where we're balancing out risk across that portfolio, knowing that some of our investments will be designed to see very a specific return, while others will accept a different return expectation by virtue of having a development goal associated with it that needs to be attempted and pursued in a more patient way.
Thus the first recommendation I would make is to dedicate 15% of the development finance institution's portfolio to providing patient capital to very-early-stage, higher-risk small and medium-sized enterprises and those that are specifically focused on creating targeted and tailored market solutions for the poorest and most vulnerable people living in low-income countries.
Canada can really distinguish itself by intentionally pursuing a risk-adjusted, below-market return in order to support companies that can catalyse new markets for the poorest and most vulnerable. Many DFIs end up making deals in low-income countries. Canada can go beyond that by trying to actually provide some of its DFI capital to business solutions that are tailored to meet the needs of those who are presently underserved or fully under-represented in the market today.
That is a harder thing to do. That's why I recommend that only 15% of the portfolio go towards those really high-risk investments, because in seeing this as a broader portfolio, it's important to take on those risks, but also not to have Canada's full scope of its institutional mandate be saddled with that kind of risk.
The second thing I want to suggest is making loan guarantees available for women-owned SMEs. As Minister Bibeau and Prime Minister Trudeau discussed, wanting to have a focus on women-led businesses is also still going to put an extra degree of challenge on Canada's plate concerning the way we do it, because systemically, women entrepreneurs in developing countries the world over face many more challenges and are discriminated against in that pursuit.
Women have lower non-performing loan rates—they simply default less than men—and yet they're viewed by financial institutions as a far riskier bet to receive financial investment. Existing multilateral and bilateral development finance institutions already use loan guarantee facilities targeted at women as a way to decrease the risk perception that continues to be hung around the necks of women the world over on the part of banks, and consequently do so in a way that encourages lending to those kinds of entrepreneurs. This is a very effective and well-substantiated way for a development finance institution to do something that commercial financial institutions and markets will otherwise not do. In view of our strong focus on women entrepreneurs, we think this is a very effective way for Canada to make a dent in that kind of issue.
The last recommendation I would offer really hearkens back to something I said off the top, which is that the challenges experienced by small and medium-sized entrepreneurs today are so much more than the availability of capital. If Canada's DFI wants to take a comprehensive approach, technical assistance and the whole suite of business support services that need to be made available to entrepreneurs are of great importance.
We therefore encourage Canada to have a technical assistance facility that can be extended into the kinds of investments and partnerships with financial institutions that our own country will try to pursue. At the same time, it should also provide technical assistance directly to entrepreneurs, and particularly to women entrepreneurs, so that the investment we make in those people vis-à-vis our DFI is more secure and we know that we will be able to support them through the growing pains and challenges of building a business. Many case studies indicate how critical it is to follow on investment with technical assistance, but I'm happy to speak to that issue in questions that you might have after my comments.
With that, I'll wrap up and just again say thank you for giving me the opportunity to be here.