Mr. Speaker, I appreciate the enthusiastic support of certain members of the House on this important matter. There is quite a number of very enthusiastic members in the House, at least on this side.
I wanted to speak to this bill from the perspective of a member of the national Liberal caucus task force on the future of financial services. We spent some eight months canvassing and listening to Canadians on this issue. We heard from 150 witnesses in seven different cities.
At the beginning of the day and at the end of the day the issue Canadians spoke to us about most was that of access to capital. After all strangely enough it is their money. Canadians want to use it as they see fit, subject to prudent lending principles.
Bill C-53 is about access to capital, a loan guarantee program which will fill a gap where private lending is reluctant to go.
Let me concede that the task force got somewhat hijacked by the proposed mergers. I would say that the banks proposing the mergers did themselves no service when they tried to jump the gun with their proposals. I would suggest that the biggest reason Canadians are leery about the proposals is their sense of discomfort with respect to access to capital. Canadians intuitively feel that when four banks become two banks it will reduce their access to capital on a competitive basis.
That is what this bill is all about. It allows small business access to start up capital and financing which is fair, equitable and competitive.
In our analysis we looked at the competitive environment. In chapter 3, titled Access to Capital for Small Business, our analysis was as follows. The existence of adequate competition in the financial services sector is vitally important to ensuring SMEs have adequate access to financing at affordable rates. Small businesses are highly dependent on the chartered banks for financing. This dependence has been increasing over the last few years.
The conference board has shown that domestic chartered banks held 50.3% of the SME financing in 1996 compared to 48.4% in 1994. In addition they held 72% of the outstanding commercial loans to SMEs in 1996, up from 66%. There is a significant linkage between SMEs and chartered banks.
Then we looked at the gaps. While the overall situation in SME lending markets has improved in absolute numbers, and I stress absolute numbers, over the past few years due to the development of innovative products and general growth in the volume of demand for financing, the proportion of SME financing to total business financing by the chartered banks actually declined by about a full percentage point.
Testimony to the industry committee over the past few years from bank representatives indicates that the loan loss ratios of SMEs is lower, if not the same, to large businesses.
We then turned to government involvement. The Small Business Loans Act was one of those issues. We said that one of the principal programs is the Small Business Loans Act. The SBLA has been focused particularly on assisting young, small and new business in accessing financing through private lenders. The SBLA is currently being revised and will continue to be a vital participant in small business lending. I emphasize it will continue to be a vital participant.
We did identify one notable gap and that is the absence of support for working capital financing which this bill does not address. I think it appropriately does not address this because access to that kind of financing premises an involvement on the part of the government which in our view is inappropriate.
The quarter ending December 31, 1995, which was the earliest date that the Canadian Bankers Association supplied any lending statistics to the industry committee, reported lending to small and medium size business at $45.4 billion. Lending to large businesses at that time amounted to $123.7 billion, making SME lending account for 26.8% of the total loans. This is a significant portfolio and is of great significance to Canadians.
As I said, we have noted the gap in working capital. We encourage governments to consider other ways of accessing this particular financing need.
One idea is being circulated by the Canadian Community Reinvestment Coalition and is relatively simple. A scoring report card would be developed whereby lending activity would be assessed by geographic area; by numbers and volume of loans in assessment areas; the numbers and volume of loans to low and moderate income loans; small business; farmers and community development loans. Banks and other lenders would have a score card and would be assessed annually on their performance.
This idea originated in the United States. While translating American experience here has some limitations, it is an idea that merits consideration on the part of the government and indeed on the part of all members of parliament.
May I say that initially the U.S. banks resisted fiercely this kind of report card, but now they embrace it with enthusiasm. They see it as a promotional tool they never had before and a way to access loans they have never been able to access before.
Incidentally, when the Bank of Montreal took over the Harris Bank of Chicago, the Harris Bank had one of the poorest records in the United States on this issue. It now has one of the best. In speaking to representatives of that bank and other large banks, I am encouraged to see that none of them vigorously oppose the report card concept. They do have concerns about what goes into the report card and how it is initially scored, but as an overall idea they are not resistant to it.
I am a believer in the concept that government should not be unduly involved in the financing of the lives of Canadians. The attraction of this idea is that it would not involve direct government participation. However, I am knowledgeable enough and after having had 22 years of law experience, there is a role to be played by government to come alongside Canadian entrepreneurs. This bill addresses that need.
Ultimately one would wish that the private financial market would step in. The indication from the United States is that their experience in this particular area is that those in the private financing market like to poke into these areas and to access places where they have been very reluctant to go. They want to show that they are involved in their communities. In the interim, there is this need for continuing government involvement.
I would like to again leave the House with what I consider to be the benefits of this bill. Most significantly, this bill meets the needs of small business, the entrepreneurs who are the driving spirit behind nearly 80% of new jobs. They are the young, small firms recognized and targeted by the bill's loan guarantee provisions.
Bill C-53 offers them continuing stable access to financing even as the financial services industry is in the throes of restructuring. We have heard how that the status quo cannot remain the same. We all agree. The question is how.
The bill offers taxpayers the assurance that the loan guarantee program will continue to move toward cost recovery. It is delivered by private sector professionals, not bureaucrats. It uses private sector money, not taxpayers' dollars.
Under the revised program parliament will release more accurate information and performance measurements by which to judge the program's effectiveness. I would suggest that the proposal being floated by the coalition is in fact one of those report card concepts that needs to be worked into the analysis of whether the private financial sector is in fact accessing these areas. The new five year review provision gives parliament a closer and more active role in scrutinizing the program.
Canada's 2.5 million small businesses and self-employed entrepreneurs can flourish and grow in an encouraging environment.
Our women and men in small business need to see that the federal government values and encourages their willingness to take risk.
The bill before the House is a product of an informed review by financial and audit experts, widespread consultations with borrowers and lenders and extensive examination by the House and its members.
On all accounts it is a sensible and integrated set of improvements to an already strong and creative program. I urge all members to support the bill.