Canadians are deploying an idea from Bangladesh to ease poverty at home. Microcredit, which was made famous by Bangladesh-based Grameen Bank, is gaining popularity in Canada.
The concept has been used successfully to extend credit to poor entrepreneurs and, even though Canadian lending organizations have yet to turn a profit, some aboriginal leaders say it can be an important part of a strategy to fight poverty in Canada’s marginalized native communities.
Microcredit typically involves lending small amounts of money to people who can’t borrow from mainstream banks, and loans are extended in tandem with community-level support for borrowers. Inspired by Grameen, Canadian credit unions and non-profits are handing out loans as large as C$15,000 (US $14,320) to poor Canadians with limited assets on the basis of their business plan and character.
“People often say to me, ‘In Bangladesh, $200 can go a long way,’” said Stewart Anderson, manager of community investment and aboriginal communities at Vancity, the largest credit union in English-speaking Canada. “Well, $1,000 or $5,000 can have an equally huge impact in Canada.”
Although Canada is one of the world’s richest countries, about 15 percent of Canadians are poor, and it is even worse for aboriginal people. A survey published this year found that half of aboriginal children live in poverty, while a 2003 study concluded that aboriginal youths were more likely to be jailed than to graduate from high school.
Betty Ann Lavallée, the national chief of the Congress of Aboriginal Peoples, called recently for a national microfinance strategy for aboriginals, saying that microfinance could be a “game changer” that would improve the social and economic well-being of poor aboriginals.
For some Canadians, the game has already changed. Half of borrowers who were on social assistance no longer rely on government subsidies, according to a study of a program run by Alterna Savings, a credit union that has handed out C$2 million (US $1.9 million) in microloans to poor Canadians in Ontario.
Alterna’s program is an offshoot of a Grameen-syle microcredit model that was pioneered in Canada in the 1990s by Calmeadow, a Canadian non-profit organisation that runs such programs in Latin America. But Brenda Spotton Visano, an economics professor at York University in Toronto, said that microcredit really began to take off in Canada after Grameen Bank and Muhammad Yunus, the Bangladeshi economist who developed the concept, jointly won the Nobel Peace Prize in 2006.
“That raised the profile of the idea of a small lending operation outside of the banks,” she said.
The rise of microcredit in Canada is part of a growing trend in developed countries, including the United Kingdom, Australia and the United States. Grameen America had over 12,000 clients in 2012.
Canadian organizations have launched a range of programs, including ones that target new immigrants, women and youth. Most are small-scale. For example, ACCESS Community Capital-fund, a Toronto-based microcredit initiative, handed out 27 loans last year. Its clients have started a day-care centre, a health and wellness centre and a flower shop, among other ventures.
While programs have funded successful enterprises and some have reported repayment rates in the realm of 85-95 percent, it is a struggle for them to turn a profit. Vancity’s program is self-sustaining, but others have difficulty recovering costs.
“It’s a program that doesn’t pay for itself,” said Susan Henry, manager of communities at Alterna Savings. But the social impact is a compelling reason to support it, she said.
Microcredit borrowers tend to earn low incomes or be on welfare, have poor credit records or none at all, have little business experience and own few, if any, assets. Some don’t have a bank account.
They include women like Collett Thorpe, a single mother who dreamed of transforming her home-based day-care service for five children into a full-fledged centre. She obtained two loans totalling C$7,000 (US $6,680) from ACCESS in 2012 to help with start-up costs. Her centre now cares for 35 kids.
Proponents of microcredit, including Chief Isadore Day who leads Serpent River First Nation in Ontario, say that providing such individuals with access to credit can create an important avenue for empowerment.
It can also help clients build a positive credit record, assets and business experience that allow them to get credit cards and loans from mainstream financial institutions, said Spotton Visano.
Rosalind Lockyer, executive director of PARO Women’s Centre in Thunder Bay in northwestern Ontario, which runs one of Canada’s largest peer lending initiatives in which borrowers take joint responsibility for loans given to members of their group, said that expanding microcredit in remote areas of the province could generate opportunities for aboriginal women, whose employment prospects have worsened significantly with the decline of industrial activity in the region.
Through a combination of peer support, grants and loans of C$2,000 (US $1,900) or less, PARO helped women create 59 new businesses and 40 jobs during the 2011-12 fiscal year. PARO-financed ventures include tourism businesses, health and wellness initiatives and artisanal enterprises.
FILLING A GAP
The value of the loan, however, amounts to more than the money itself. Peer-lending circles of four to seven women, as well as training and mentorship initiatives offered by PARO, ensure loans are well-used, Lockyer said.
Such grassroots support fosters the ability of borrowers to succeed, said Spotton Visano, but it also raises the cost of delivering microloans.
Martin Connell, the co-founder of Calmeadow, which chose to wind down its costly Canadian operations or leave them in the hands of other groups, including Vancity, Alterna and PARO, said that microcredit simply isn’t profitable in developed countries like Canada, where low-income entrepreneurs are spread out in cities and rural areas. It is far easier to expand operations in developing countries, where costs are lower and a critical mass of poor entrepreneurs can often be found in a small geographical area.
But Spotton Visano said that cost recovery should not be the main goal of such programs. Their value lies in their ability to fill a gap created by the banks, while improving the economic welfare of poor entrepreneurs and their communities, she said. “On first blush, it may not seem as though there’s a return on investment that would be attractive to folks,” said Chief Day. “[But] you’re definitely going to affect society in a big way.”