Thank you, Mr. Chair.
Hello.
Committee members, I'm very pleased to be here today to support the committee in its study of the development finance initiative.
Développement international Desjardins is part of the Desjardins financial group. It was established in 1970. It's a not-for-profit organization, and its goal is to share Desjardins' experience working in the financial sector and in the co-operative financial sector with institutions in developing countries.
Nowadays DID works with a broad range of financial actors in developing countries, and our goal is to improve access to quality financial services. Since 2009 we've been working especially with entrepreneurs launching these financial institutions or SME finance institutions in five different countries in Africa and Latin America, which we funded with support from GAC, Global Affairs Canada, as well as DFIs and private investors. In fact, we have been working with seven DFls over the last eight years, just to give you a perspective on our experience with DFIs. They've provided about $21 million in support, a combination of grants. About 30% of that is technical assistance grants and then we have some debt and some equity.
My comments today are very much from the co-investor perspective working together with DFls as well as the client perspective because we have received funding from DFIs. There are many advantages to working with DFIs. They're patient investors. They tend to take more risk than private investors. We can often get larger amounts from DFIs than from private investors. They tend to be the ones who stay when things go less well. In an economic downturn, private funding tends to disappear whereas DFI funding will often stay. They provide investments in local currency, which we find essential in developing countries. In fact, when DID makes investments in exotic currencies, we use an agency called TCX, which is a hedging agent for exotic currencies. That didn't exist before. It was set up by a group of DFIs.
There are many advantages to working with DFls, but there are also some disadvantages or challenges, I should say. They tend to be a little inflexible and bureaucratic. Our experience is that it's very difficult to obtain smaller investments from DFIs. When we started launching institutions in sub-Saharan Africa, we just needed small investments. We were looking for less than a few million dollars, and the DFIs told us that was just way below their minimum ticket size. Most of them start at $7 million or higher. That makes it almost impossible for start-ups and for innovative new initiatives to find funding from DFIs. We think it would be helpful for the DFI to reserve a part of its budget for smaller transactions or for investing in start-ups.
Working with DFls sometimes involves long delays and complicated legal negotiations. Just to give you an example, it took us three years to negotiate a relatively small equity investment with a DFI quite recently—three years. We think it would be very innovative for the DFI to have a bit of a lighter touch, especially when it comes to smaller investments. Thinking a little bit outside of the box, when Desjardins' private equity investment team wanted to make their services more appealing to SMEs or to entrepreneurs, they replaced their standard 40-page shareholder agreement, which always involved years of negotiations, with a four-page shareholder agreement. This was completely revolutionary. If a DFI did something like this, it would be a small revolution.
We would hope to see a flexible DFI that has the possibility to be at least flexible with a part of its budget. We believe this would allow for innovation. On the question of how the DFI should measure outcomes, I very much agree with Mr. Medhora, who spoke before, that we shouldn't seek to measure outcomes. Outcomes can only be measured in a controlled environment where we know all the variables, and for an investor, that's impossible.
We believe that the DFI should be requested or required to report on its outputs and activities. We want to ensure that the conditions are in place to create the desired outcomes, but from our point of view, it wouldn't be realistic to ask an investor to measure outcomes.
We're very pleased with the establishment of the DFI, but we are concerned that this could lead to the perception that the government shouldn't engage in any other kind of investment for development. We see the DFI as part of a continuum, so on the one side we have pure aid, at the other end we have pure investment, and in between there can be a mix of the two in this kind of continuum.
Although Global Affairs Canada is not currently enabled to invest in initiatives that are for profit, we would love to see that in the future. We think that would allow for investments that are riskier and in countries where perhaps the DFI wouldn't be able to invest. We hope the government will continue to develop a wide range of complementary development tools, where riskier investments could be done by GAC, for example, and perhaps the DFI could combine some of its investments with donations for capacity development. We think that would be very helpful in riskier sectors such as agricultural finance.
We certainly respect and agree with the need for the DFI to be autonomous, but we do believe that if the DFI is to distinguish itself internationally, it is essential for it to work in complementarity in some way with the other Canadian development actors. IDRC, GAC, and civil society would be the ideal way for the DFI to really show its complementarity to Canada's development strategies. We believe this could be done with at least a part of its portfolio.
There has been a lot of discussion about blended finance, whereby public funding is leveraged to attract private funding. Obviously the simplest and most common way of doing that, which DFIs do often, is to subordinate their investment to the investments of private investors, but we don't think that's the only way. We've seen many different kinds of structures that we believe could be called blended finance and that could be considered blended finance as well. In fact, why not think of a structure where Canadian investors or Canadian citizens could invest in the DFI or buy shares in the DFI? To me, that would be a truly innovative case of blended finance.