Proceedings of the Standing Senate Committee on
Social Affairs,
Science and Technology
Issue 25 - Evidence
OTTAWA, Tuesday, February 16, 1999
The Standing Senate Committee on Social Affairs, Science and Technology met this day at 10:05 a.m. to consider the dimensions of social cohesion in Canada in the context of globalization and other economic and structural forces that influence trust and reciprocity among Canadians.
Senator Lowell Murray (Chairman) in the Chair.
[English]
The Chairman: Colleagues, this morning in our ongoing study of social cohesion in Canada, we will speak about access to money. Members of our panel will address, among other questions, the following: How well served are ordinary citizens by existing financial institutions? What are the gaps and the barriers? What new mechanisms or services are needed to ensure access to credit and to financial services for people on low incomes and people in small businesses? After four brief opening statements, senators will have an opportunity to enter into dialogue with our witnesses.
Mr. Russ Rothney, Manager, Community and Economic Development, Assiniboine Credit Union: Honourable senators, good morning. I wish to say at the outset that Assiniboine Credit Union is in Winnipeg. We have been involved for quite a few years in trying to develop innovative financial services that are particularly geared to sectors of the population that have been underserved by traditional financial services.
What we are doing has a very specific and local focus but is very much in the context and understanding of difficulties that are by-products of some of the export-driven globalization strategies that our economy has been following. Although I am speaking about very concrete and specific responses that try to ameliorate some of the disparities and provide greater opportunities, we are not acting with our nose on the local soil. We understand that we are acting locally but thinking globally. I mention that in the context in which this committee is considering issues.
The credit union movement provides an opportunity to use innovative financial services that are considerably more flexible than traditional banks. Credit unions are democratically controlled institutions -- one member, one vote -- as opposed to shareholder controlled. That means that local citizens can have a real influence, through annual general meetings or other types of membership participation committees, on what their credit union is doing.
I do not pretend for a minute that the average credit union person is simply thinking about community development and social cohesion issues, but there is no doubt in my mind that the vast majority have strong concerns in those areas. Therefore, when members come up with ideas and approaches that do address those types of social issues, there is a possibility, and in fact it happens, that practical outlets develop to give expression to those concerns.
Historically, not just in the last several years but over the last 180 years, credit unions, like co-ops generally, have been a response to waves of globalization. Globalization is not new. If you have any doubts about how old global restructuring is, just visit some aboriginal communities. They have experienced the most massive and devastating global restructuring that anyone has seen in the world, which transformed what were balanced, local economies into externally dependent economies and led, ultimately, to the collapse of social, cultural and political independence.
I will now mention a few of the main areas in which we are working in terms of new services and products. I have provided a background paper which some of you may wish to look over. It gives a national scan of some of the community development issues that credit unions are involved in, not only in Winnipeg but across the country.
We have been involved in the microenterprise business for six and a half years. Microenterprise loans are loans of a small size, although the definition varies. Originally our range was up to $10,000, typically starting at $1,000 or less. Those are loans to people who are developing a self-employed business of their own.
We at the Assiniboine Credit Union work in Winnipeg with community partners on almost everything we do. Rather than simply developing a product and launching it at the community, we watch for community groups and neighbourhood groups that are doing things, and then we try to ally ourselves with them. In the case of microenterprise loans, we work with a non-profit community development group called SEED Winnipeg.
Recently, Western Economic Diversification also partnered with us to greatly increase the capacity of the microenterprise lending that we can do. Basically, they now take some of the risk off the shoulders of the credit union. Up to now, for six years, we had to use an annual budget allocation, which our deposit insurance corporation carefully scrutinized every year. With backing from Western Economic Diversification, they will be breathing more easily than they used to. It is not that microenterprises are difficult: there are successful examples and pretty good repayment records. The point is that the loans are very small. Traditional financial institutions stay away from them because the cost in terms of time of servicing a $1,000 loan may be the same as for a $100,000 loan, and thus they are not seen as helping the bottom line. That is why we always had to make a specific budget allocation until we got Western Economic Diversification on side. We recognized that we were not doing that in a profit-making capacity but rather were reaching out to underserved segments.
We also work with the Independent Living Resource Centre, which is a nationally and internationally pioneering consumer advocacy group for people with disabilities. Recently, again with Western Economic Diversification's cooperation, we started a special loans fund for urban entrepreneurs with disabilities. SEED Winnipeg is also involved, providing training that goes with the program.
These models allow us to provide loans that we would not otherwise be able to get away with because they lack the more conventional types of physical collateral, such as building equipment and land, or because there is no steady income stream to provide personal guarantees.
We go by the motto that we give credit where credit is due. In other words, we do not ignore the normal business responsibility issues. We do expect accountability. We look for people who have a passion for what they are doing and enough experience to demonstrate that they can accomplish what they are trying to do, but we do not stop them because they do not have wealth at this point.
Switching from the microenterprise to a more general community development fund, we have been working now for quite a few months with an ecumenical interchurch coalition known as the Jubilee Fund. It will be operative in the fall. The church members of the organization will control it. In other words, it will be independently community-based. It is unique because the actual loan investment certificates that will be sold to the church members and to the general public as a way of raising capital for the loan fund will all be administered through Assiniboine Credit Union. That has the advantage of the credit union's historical track record and professional image as well as access to a fairly sophisticated computerized system of reporting and tracking.
We will be doing the lending and taking equity positions. Those equity positions go outside of what a regulated deposit-taking institution normally does. Again, the idea for those funds is to have flexible financing to allow us to make loans, or in this case to take an equity position, that we would not otherwise do. We then match it with conventional financing, thus maximizing the leverage power of those specialized funds.
On the housing front, Winnipeg unfortunately has one of the toughest inner-city housing situations in the country, with high absentee landlord ratios and bad problems with housing that has been allowed to get rundown. However, there is still a fairly large stock of single housing units that, if they are not allowed to deteriorate, could be restored. With the market values so low, it has been a challenge to know what to do other than just watch the houses burning, as you have probably seen in some recent news stories. However, on the positive side, in all sections of the inner city, resident-based neighbourhood revitalization groups have emerged over the last two and-a-half years and we have been partnering with them and helping to financing the acquisition and renovation of those homes. We usually do this in partnership with local vocational training programs, particularly using local residents or local young people, so that there are training and employment spin-offs from the housing initiatives.
We also, in the course of our practical experience, have come across many unintentional but real barriers in the form of federal policy, particularly from the Canada Mortgage and Housing Corporation. I will offer a few examples. There has, in effect, been an automatic barrier to social service recipients receiving underwriting or insurance from CMHC. There have been barriers to the working poor having access to that home ownership underwriting as well, because of a lack of consistency of employers. There have been barriers like the narrow concepts of sweat equity as part of down payment. There have been requirements that non-profit housing organizations come up with a 25 per cent down payment for non-profit housing ventures rather than the conventional private 15 per cent down payment. The practical experience of working with those groups and seeing those barriers has led us to be involved in the policy advocacy realm.
We have been involved with individual development accounts, or IDAs. We were attracted by models in other credit unions that we are involved with in the United States. Mr. Peter Nares will speak more about that later. We are committed to this. We have already met with senior provincial officials and have cooperation with the province.
In terms of enterprise development, we have taken the initiative to help organize and we belong to the Community Development Business Association in the city. The CDBA is made up of businesses that tie two objectives together: commercial profitability and community development. They are thinking about social and environmental issues when they are operating their business. That association has been spreading from a group of four or five a year ago to approximately 20 now. We are also working with an inner-city alternative financial service group that originated from a north end United Church committee in Winnipeg. In that regard, we are looking at introducing an alternative to the expensive payday loan system that has become the practise in the United States recently. We are looking at providing special cheque cashing services as well as an individual development account program.
Other than that, we are involved in some unique cooperation with public volunteerism, donation and solicitation, particularly through the Christmas L.I.T.E. campaign. We have been a partner in the Christmas L.I.T.E. campaign from the beginning. Basically, people make donations for Christmas hampers to the Christmas L.I.T.E. campaign. I believe we raised $735,000 last Christmas. That money is then spent to purchase goods for the hampers from community-based inner-city enterprises. Instead of just putting a dinner on the table at Christmas, we are also generating job opportunities in those neighbourhoods where the hampers are used. We consider that a major breakthrough as a step up from the traditional charity approach.
Finally, I wish to mention other areas of policy that may interest you. After one year of deliberation, Revenue Canada's charity branch has a draft position on community and economic development. It has made it easier for us to work with charitable tax status situations. However, there are still limitations to that.
The Chairman: I believe we will have to explore that area later. I wish to hear from the other three panellists.
Mr. Rothney: That is all that I had to say.
Mr. Peter Nares, Executive Director, Self-Employment Development Initiatives: I wish to talk about savings and assets as a poverty alleviation strategy, but first I will give you some background on Self Employment Development Issues.
SEDI has been around since 1986. We are a charitable organization that works nationally, although most of our work has been done in the Province of Ontario. We have worked directly with over 6,000 low income Canadians to help them start their own businesses. We have been involved as an architect in designing community loan funds programs at both the provincial and local levels. Later, if we get into a dialogue about microfinancing and so on, I will be comfortable participating.
I wish to talk about savings and assets and how they provide a new opportunity to alleviate poverty. This concept relates to what your committee is about in two particular ways. First, we believe that lack of access to savings and assets for low-income people in Canada is a significant social issue. We think that the concept actually provides an opportunity for the poor to believe that they have a future. It deals with the issue of hope, which is important to you.
Our work has taught us one important thing: that the poor are entrepreneurial and have the capacity to produce. Everything I say will link back to that fundamental principle. I will now refer to the document that I gave to the clerk.
I wish to talk about a methodology that we call "individual development accounts," or IDAs. The idea is that providing the poor with access to savings and assets will alleviate their poverty and their children's poverty and will contribute to long-term economic self-sufficiency. The rationale behind this idea is based on our belief that poverty is an issue of not only cash and consumption but also savings. We believe that behaviour associated with savings and asset investing supports long-term, positive changes in individual and family social and economic circumstances. Savings are a vehicle that provides access to assets such as education, post-secondary education, business start-ups, job development and housing.
Public policy in Canada has followed this particular approach for the middle and upper middle classes for some time. I refer to RRSPs and, in particular, to the Canada Education Savings Grant. That mechanism was announced in last year's federal budget and provided a top-up match, up to a 20 per cent ceiling of $2,000, for people who save for post-secondary education. In many respects, this is an IDA. I believe you will see that as I begin to describe it.
The concept of IDAs comes from the United States. In the State of the Union address a couple of weeks ago, President Clinton made reference to universal savings accounts. Those are IDAs as well. That concept is very popular in the United States. I can give you more examples of what it means, but in terms of American public policy it will be a significant plank in the Democratic platform in the future. It was developed by an academic out of Washington University in St. Louis. Research was done looking at the impact of lack of savings on the poor in the United States. The concept of individual development accounts was the end result of that research.
The accounts themselves are basically accelerated savings where every dollar that someone on low income saves is matched on a ratio basis -- that is, either two to one, three to one, four to one, or whatever -- so that the savings that could be allotted for post-secondary education are accrued in a shorter period of time than would otherwise be possible. That is where the hope factor comes in. Most poor people do not even think about their kids going to university because they cannot afford it. This program makes university education affordable for those people.
The accelerated side is one piece and the other piece is economic literacy. In order to be eligible for an individual development account, you must participate in a compulsory economic literacy program that is about money. That program covers what money can do for you and not do for you. You come out of that process with two things: first, a savings goal -- what you wish to save for; and, second, a savings plan that would involve asking yourself how much you can contribute to your account in order to reach that long-term goal.
We have spent the last year and a half looking at the efficacy of that method in Canada. That has taken us across the country in cooperation with local groups. We have held consumer focus sessions where we have asked low-income people whether or not they like the idea and under what circumstances they would use it. We travelled from Sydney Mines, in Cape Breton, to the downtown east side in Vancouver. We have a good understanding about how people feel about this idea.
The working poor were hot on this issue. They have a larger capacity to save than do the welfare poor. The welfare poor tended to like the notion but did not trust the fact that government would do this for them, simply because they do not trust government. On the whole, the concept was well responded to by the poor.
We have also been working with provincial governments, directly in some cases and indirectly in others, to see whether or not they would support testing this idea. The response has been excellent with both New Brunswick and Nova Scotia saying they would commit resources. There has also been a positive response from Manitoba and British Columbia.
Our next step is to try to obtain funding from the federal government to run a national pilot. The United States Senate recently passed an appropriations bill allowing $12 million per year to be invested in the ADD project, the American Dream Demonstration. That will provide an opportunity for thousands of IDA holders to actively participate. That project will be rigorously evaluated.
I am prepared to answer any questions you may have.
[Translation]
Mr. Jean Vincent, President and Chief Executive Officer, Native Commercial Credit Corporation: Mr. Chairman, I would like to address the committee today in conjunction with its study on Canada's aboriginal peoples. The Royal Commission on Aboriginal Peoples notes that aboriginal peoples face the same challenges as other entrepreneurs. They need to plan, raise money, produce a good product and market it effectively. However, aboriginal entrepreneurs face other challenges: limited capital for investment, distrust from banks and other financial institutions, the absence of local business services and advisers, tiny local markets and sometimes even hostility from nearby communities.
This is a fairly accurate picture of the prevailing situation in aboriginal communities and of the challenges entrepreneurs face when they try to obtain financial and banking services. Much remains to be done to resolve all of these problems.
Our Corporation's brief consists of three parts. Part I briefly reviews the history of relations between First Nations and the European peoples. This historic relationship is important to understand. Knowledge of our history sometimes makes it easier to understand the problems that we face today. I have tried to highlight some of the major events that have occurred and that account for the socioeconomic context in which aboriginal peoples exist today.
The first contacts centuries ago between aboriginal and non-aboriginal peoples were in the nature of contacts between nations. This period was marked by treaties which were not always interpreted the same way by the signatories. In signing the treaties, aboriginal peoples did not believe that they were turning over their lands because this was not part of their culture. Non-aboriginal peoples, on the other hand, took for granted this transfer of lands as part of the treaty process.
The Royal Proclamation of 1763 occurred during this initial contact phase. There were no wars and the new economy took hold. The fur trade ended. The new economy referred specifically to the exploitation of forest and mineral resources. Aboriginal peoples were no longer indispensable to the Europeans.
At the time of Confederation in 1867, responsibility for aboriginal issues rested with the federal government whereas natural resources were more of a provincial matter. Historically, treaties had proclaimed the opposite. This led to the passage in 1876 of the Indian Act which created, among other things, native reserves in Canada.
This brief historical review recounts the origins of the Indian Act and the creation of native reserves. This brings me to Part II of our brief which focuses on the current social and economic context within aboriginal communities.
Available data and the characteristics of aboriginal communities in Canada reveal that currently, aboriginals are not seen by the large financial institutions as an interesting market.
Statistics show that Canada's aboriginal population stands at approximately one million. Compared to the average Canadian, aboriginals experience more unemployment, poverty, and health, drug and alcohol problems. Compared to the average Canadian, they are also less educated. As a rule, aboriginal communities are isolated. There are approximately 650 such communities scattered across Canada. Given the history of aboriginal peoples who have evolved within the closed context of their own communities, little in the way of an entrepreneurial culture has developed and few viable commercial enterprises have emerged. Given their current socioeconomic context, aboriginal communities are not perceived as a truly interesting market by the large financial institutions who are more concerned about generating profits for their shareholders. Consequently, the financial infrastructure of aboriginal communities is not highly developed. Most aboriginal communities do not even have a credit union or bank branch. Recently, I travelled to Winneway, an aboriginal community in Quebec. Residents told me that in order to cash a cheque, they had to make a 40 km round-trip to a small grocery store willing to accommodate them. However, for that privilege, they were charged 10 per cent of the cheque's amount. That is rather incredible. For most Canadians, access to essential banking services means going across street or a short distance, whereas for some aboriginal communities, this entails tremendous difficulties or costs.
Currently, the isolation of the communities, the cultural differences not always clearly understood by the large financial institutions, as well as the Indian Act have combined to create enormous constraints in terms of access to banking and other financial services.
Part III of our brief touches on the future and presents a number of recommendations, many of which are taken from the report of the Royal Commission on Aboriginal Peoples.
We can expect the situation to change for aboriginal communities in the future, given the political talks currently underway on land claims and other financial compensation issues between aboriginals and various levels of government. The signing of agreements and the awarding of financial compensation or new land grants to aboriginal peoples will give aboriginals new business opportunities for the future, opportunities which will likely translate into new jobs and more personal and collective wealth.
I believe that over the course of the next few years, the aboriginal market will become increasingly attractive to financial institutions. Aboriginals have the potential to become attractive customers. Currently, some, if not virtually all banks, have appointed aboriginal vice-presidents. Representatives are starting to study the aboriginal market and to come up with different initiatives to better serve this market.
For example, the Toronto Dominion Bank has established with the help of the Federation of Saskatchewan Indian Nations the First Nations Bank of Canada. Will this initiative give the much-anticipated results? Only time will tell.
Initiatives that are likely to prove successful in the future are those involving partnerships between the large financial institutions and aboriginal organizations. On the one hand, financial institutions have the technical means, the knowledge and the ability to serve the market. On the other hand, by joining forces with aboriginal organizations which have a sound knowledge of the market, needs and expectations of aboriginal peoples, they are forging a partnership which will become indispensable in the future.
The Chairman: We only have 45 minutes left and we have yet to hear from the fourth witness. There will be an opportunity for us to discuss your brief later. I would like to draw my colleagues' attention to the recommendations listed at the end of your submission.
[English]
Mr. David Driscoll, Executive Director, VanCity Community Foundation: Honourable senators, it is a pleasure to be here. I appreciate the perspective being brought to bear by this committee in regard to the connection between the financial services sector and the community.
The financial service sector has an extraordinary role to play in part because of its size and its spread across the country and in part because it is in the unique position of controlling one of the key engines of economic growth and well-being in our communities: the institution of credit.
The community is in the process of reinventing its own institutions. The government and financial sectors are derivative of the community and precede and follow them. I have stated a dozen reasons why the financial sector must be in play in developing its relationship with the community. The last two are critical in business terms: "smart business" and "big."
I wish to give you two examples of community organizations with which we have worked that deal with the role of financial institutions. The first is an organization called Planned Lifetime Advocacy Network. That is a group of individuals and families who came together eight years ago. I started working with them before I went to the foundation. They are people in their retirement years who have adult mentally handicapped children still living at home.
Those parents see their own deaths as fairly imminent and are asking how their children can live in the community in a safe and secure way. This is a situation where I wish to describe how communities organize markets that are later available for commercial and other partnerships.
The Planned Lifetime Advocacy Network now has 3,700 families. Those families have enjoyed the wealth of this nation for 50 years with uninterrupted equity appreciation. Therefore, their homes and businesses are worth a substantial amount. In their deaths, they need to set up trusts for their surviving children. It is estimated that those trusts would each be in the $300,000 to $500,000 range. That trust value comes to between $900,000 and $1.5 billion.
That generates trust fees in excess of $10 million each year, and this is in not much more than the greater Vancouver market. Multiply that across the country and you have a significant market. This is an example of a community organizing a marketplace relating to its own needs.
There are a variety of bottom lines attached to that. In terms of benefits to our communities, we get safe and secure futures for vulnerable people, a greater increase in community participation in the networks, family and community assets being brought into play, millions of dollars in trust fees and millions of deposits in other retail products that the family members bring to the credit unions and other financial institutions.
I was asked to focus specifically on new models. With the dismantling of our old models, whether institutions for the mentally handicapped or other models, we have an opportunity to build new models on a different base. The different base I would encourage you to start with is this: Communities are bundles of assets that have tremendous potential for realizing their own vision. They are not bundles of disabilities that need to be professionally catered to. I wish you to start with a notion that communities are bundles of assets.
The second group we have worked with is called United We Can. They are the dumpster divers who go in and out of the garbage containers at night collecting recoverable bottles and cans. Four individuals from that group came to us five years ago and said that they needed $25,000 in unsecured credit. They said, "We are drunks and we are sober. We think we can make four jobs. We think we can produce about half a million containers recovered from the waste stream and we think we can put $600,000 back into the community. "The first year they missed their business plan; they collected only 4.75 million containers. The next year they collected 7 million containers. They put in excess of $500,000 back into their community.
I had a hard time writing a story for our staff newsletter about the efforts of United We Can at Christmas time. By and large, the guys were coming in from the wet and rain and sometimes snow on the West Coast, bringing their bottles and cans to the downtown east side, to Cordova Street, which is arguably the poorest postal code in the country. There is a daycare centre in that area. They said, "There is an empty box there and we want you to put some of your empties in there so that we can cash them out and take them across the street to the kids at Christmas."
We said, "We are making an investment in the community; the community is making an investment in itself." United We Can stayed open on Christmas day, because there was nowhere else for people to go. Many people showed up and they showed up sober. This is the first time in 10 years that someone has asked me to behave like an adult at Christmas. I am helping children.
Those people are in and out of dumpsters all night, and that is literally their sole source of income. That comes into play when we ask people to exhibit their assets and contribute to the community. This is a very moving story and the story continues. They are doing lane clearing. It is likely that we will connect with that group on the IDA accounts.
Thus, in the category of new models and characteristics, the first one I have listed is to start with the assets. Our communities are bundles of assets and we are making new ways of relating.
My next topic is emerging trends. There was some talk earlier about Revenue Canada. I was very pleased with our reception at Revenue Canada. We had three days behind closed doors and they are now considering three initiatives on which they want comments by the end of June. They are considering a greater emphasis on microenterprise lending, allowing foundations to do lending. We are the only community foundation in the country doing lending. If we can put money out in the community at 0 per cent, the community can make its own institution and use credit. Government has access to credit, the private sector has access to credit, and the community must now have access to credit as well. We are pleased with Revenue Canada's reaction to that.
The last thing I did was try to focus on specific recommendations similar to our business plans in the private sector. We ask: "What will you accomplish in the next quarter and how will we know you are achieving it?"
I would advocate that some portion of the financial capacity and technical ability of mainstream financial institutions be used to move the microenterprise activity from ongoing marginal activity for marginal communities to mainstream activity. We give major financial institutions the right to extend credit in this country, and with that right goes the obligation to make sure it is extended where people are able to access credit for the purposes of developing their own employment and being generators of the economy. The financial services sector have their hands on the lever of economic development in this nation, and with that comes an obligation to make sure that opportunities for people to develop their own well-being are not choked off by preventing that from being spread to the most critical level.
Here are some suggestions for financial institutions. You can decide what you want in legislation, what you want in regulation, and what you want to encourage them to adopt simply because they are good corporate citizens.
Financial institutions should look like the communities of which they are a part. At VanCity we are particularly proud of that. When you go into any of the branches, we should look like the communities of which we are a part with respect to gender, ethnicity, race, colour and so on. The financial institution's board of directors, their executive and their line staff should look like the communities of which they are a part. That applies not only to the visible members, but to the executive in a structured integration of all parts of our community, as access and equity should also.
Financial services institutions have made huge gains in the technology field. How is that technological benefit being shared by the community? I am suggesting that there are a variety of mechanisms. Some may require modest suggestions while others will require a greater degree of advocacy and persuasion.
Financial institutions should commit to job creation with their community so that every job lost through technological efficiency is replaced by a new economic initiative.
As to restructuring, financial institutions should commit that where there are branch closures there will be no job losses without compensatory job creation in that community. We have heard of people driving 40 kilometres in many of the interior communities. A single branch goes down and the payroll from a small shop travels on highways and creates an unsafe situation.
Financial institutions should commit to increasing their transparency and accountability to community by undertaking social audits. For example, this is a social audit that discloses, for good and ill, all the blessings and all the warts that apply to VanCity.
Financial institutions should commit to lending in every community so that disinvested communities have access to credit. In the downtown east side of Vancouver, there are no banks.
Financial institutions should capitalize lending pools from which community groups can do microenterprise lending. Financial institutions should lend directly in every community in the country or provide funds for other financial institutions that will invest in those disinvested communities. You will recognize that as an echo from the American Community Reinvestment Act, which says that if a bank has red-lined an area and will not lend in that area, then that community will get access to credit because the bank will have to fund it. You cannot take a fundamental lever of economic development and social inclusion from the community without finding a way of compensating it. A similar mechanism can be found here.
Financial institutions should commit to working with the charitable and community sector to provide technical assistance for employment development for people who characteristically have difficulty accessing credit. As an example, I can cite the Imagine campaign of the Canadian Centre for Philanthropy, which has a modest target of 1 per cent of pre-tax profits. The financial services sector should commit to twice that. There are 200 participants in the Imagine program, an easy target for any financial services sector to meet.
Financial institutions should commit to developing products that facilitate the growth and development of the voluntary community sector. Just imagine if financial institutions were to commit to an objective of having every member of their executive celebrated by their community for their role in building and strengthening the social fabric of our communities.
This is a very important issue and I am pleased to have the opportunity to address you.
Senator Cohen: Thank you for your presentations. They are proving to me that there is light at the end of the tunnel. For years, CIDA has had microcredit programs in third world countries and we have all seen how effective they have been. It has amazed me that Canada did not grab the concept. They were doing it in other places, so why not here? I did not realize that there is such a trend to microlending programs in Canada, and I am excited by that trend. I am involved at the moment in a community loan fund in Saint John, New Brunswick, and SEED Winnipeg is one of the models that we have used to get us off the ground.
I have a question for Mr. Rothney regarding the small microlending programs, the small loans you give to, for example, single women starting out in a small project. What is the payback rate? Does it compare to the wonderful payback rate in third world countries?
Mr. Rothney: In lending circles there are two categories of microenterprise. One is individuals and the other is where you have a group of four to seven people mutually guaranteeing payments. The payback is excellent, in our experience. We have been doing that for two years now. Overall, the default rate for the whole program has at times been higher than we should like to see. It has gone up to 10 per cent, and it is down to about 8.5 per cent now. I think that is because of the strain on SEED Winnipeg's support staff. We cannot kid ourselves: Anything less than a two-to-one ratio in terms of staff support costs to loans advanced will not go anywhere.
CIDA has secured provincial and federal funding now that allows great capacity. Our own loans officers are getting more experience, so I think we will move to what I understand to be the North America average, which keeps the default down to 5 per cent or under.
Senator Cohen: Do you have any figures on how it has affected people in poverty? Has it lifted them out of poverty or is it too soon to give an answer to that?
Mr. Rothney: We have about 140 enterprises that are still going, that have come on tap over the last half dozen years. I would give one caution with respect to third world comparison. While things are pretty tough for the people who are perhaps at the lowest end of the income ladder in Canada, in the third world there is often no social assistance payment system. Once you get into microenterprise lending and you have formal contracts with credit unions or whomever, you are reporting that income. There is no question from our experience that, although we do have some very low-income people coming in who are on social assistance, and while that percentage is growing, many people I know personally who are producing small goods and so on will not go to the microlending program for fear that their welfare payments would be cut back. There is a small problem there, although in Manitoba provincial legislation will allow up to 4 weeks of exemption for income being reinvested in the business but not for personal use.
Senator Cohen: I wish to know about your program, Self- Employment Development Initiatives. I do not know if you have time to explain it to me but I should like to know how it would work. For example, say I am in poverty in New Brunswick. After I pay my rent and all the other obligations that go with raising a family, I am left with $200 a month on which to live. How do I save?
Mr. Nares: As with self-employment or microlending, this is not for everyone. I have learned that I need to say that at the beginning of my presentation.
We do not actually know how the welfare poor in Canada would respond if this product were introduced to them. That is why we wish to do some testing. The experience in the United States, where several hundred IDA-type initiatives are happening, is that a small percentage of the welfare poor will make the sacrifices that they must in order to match the accelerated contributions to meet their goals. In some cases, we probably do not want to know how they do it, but they do it.
Senator Cohen: In discussing all these programs, we must let the welfare poor know that we really care and that the government wishes to listen to them. I have never seen a politician run on a platform for poverty. We must start there and create that hope and then incorporate some of those wonderfully exciting ideas.
Senator Butts: I wish to address my first question to Mr. Driscoll, simply because he comes from B.C. What is your reaction to the proposed takeover by Canada Trust of your second largest credit union group in B.C.?
Mr. Driscoll: The credit union movement is going through much stress. I am speaking not as a foundation member but as a member of at least two credit unions. They are undergoing a lot of change as there is an attempt to develop a tier two banking structure to create competition at a national level. That is creating a lot of stress. The Surrey Credit Union is the one in question. Surrey made a decision approximately five years ago to go public and be listed on the stock exchange. This has caused much stress within the credit union movement because in many senses it is considered to be inconsistent with the principle of "one vote no matter what your wealth."
The Surrey Credit Union has always been difficult in terms of seeing how it fits within the movement. One of the obvious consequences of going public is that it can be taken out and it has been taken out. We would prefer it to be part of the family of credit unions but as it becomes part of the major financial institutions, we expect that it will progressively look like a major financial institution and be lost to the credit union movement.
Senator Butts: You are giving us a caution on going that route, then?
Mr. Driscoll: I believe it is inappropriate for credit unions to do that, yes.
Senator Butts: Mr. Rothney, you also have something to do with credit unions. I am interested in the structure that you talked about because that is the new plan for credit unions and I have been part of that work.
You said that your credit union has eight branches. Do you have separate boards for those branches?
Mr. Rothney: No, we do not.
Senator Butts: They are in a certain geographical area but there is no control in that area; is that correct?
Mr. Rothney: That is right.
Senator Butts: I wanted to make the point that therein lies the problem in keeping it part of the community. Where I come from, in Nova Scotia, we have thousands of credit unions but they are all located in communities, and we are the opposite extreme, because we cannot bring them together to do a big job. However, the advantage is that people in that local community can make a deposit that will go into a special fund that is interest free. I have worked on a couple of them. We can then use that money to give out loans without interest to people in special need. If the power of that local board is moved, then all those branches will not be able to do that.
Mr. Rothney: I will reverse the process and take your recommendation back to the credit union movement. We are part of looking at the national scope of the organization.
Senator Butts: The question is how to do it on the local level and still make it big. We want it big because many of the smaller ones do not have enough finances or security or ambition to do the bigger things that we want them to do. We must find a compromise in this somewhere. I wish you could help us out.
Mr. Driscoll: That is achievable, even within VanCity. VanCity is the largest credit union outside the Caisse populaire movement. It has $6.5 billion in assets and a membership of approximately 300,000 people. We created a similar product called the community investment deposit. We asked if the credit unions and the banks could make products that help and make sense with the non-profit sector. With the community investment deposit, you choose whatever deposit product you want -- that is, a five-year term or whatever. As a credit union, we guarantee that we will pay you 1 per cent less than the posted rate. That 1 per cent is pooled and is then available for lending, for affordable housing, and for other initiatives. That does not cost the financial service sector anything except the cost to administer it and, technologically, it is simple. It allows the community to express its relationship to itself using the institutions of the credit unions and banks. Those things are easily done and are good to do. They can be allocated back to the host community that made the contribution. That is to say, they can go back to the source.
Senator Butts: What do you think about the plan that we heard presented here whereby the provincial level will disappear and we will have local credit unions and the central ones for all of Canada? How does that strike you? Any of you may answer that question.
Mr. Driscoll: All of those situations will prevail. There will be a national institution that will have one or two or three characteristics. It will be a kind of utility function that will provide back office support, cheque clearing, receivables and all those sorts of functions. It may have a retail function as well. The co-op act is currently a provincial act. It is like asking, "Which elephant is it, provincial or federal?" The provinces will be reluctant to give up jurisdiction. There must be a bank charter nationally, a co-op charter provincially, and local institutions that access all of the services and back room functions. That is how we see it.
Mr. Rothney: Over the last year, the focus on the benefits of interprovincial coordination has been pushed hard in the credit union movement. In part as a direct response to individual credit unions asking to put on the brakes and questioning what will happen to the autonomy of local groups, the movement is beginning to get serious about how to stay decentralized effectively while picking up the advantages of interprovincial coordination. We are getting back into balance again.
Senator Poy: I have a question regarding the Planned Lifetime Advocacy Network for adult children with disabilities. You said that there is $300,000 to $350,000 in individual trusts. Who is set up those trusts?
Mr. Driscoll: They were set up by families. It is in the asset base where family resources come into play. Currently, many of our dependent children end up in a relationship with the state that does not allow parent participation, community participation, or other kinds of family member participation. The planned model is based on the maximum community-living independence. Obviously, there are roles for the state to play in terms of safeguards, securities and safety nets.
The plan has looked at the role the private sector can play. The private sector can be a trust agent for the family trust. If I had a mentally handicapped adult child at home, I could set up a trust that would allow him to live in the community and to have a circle of assistant decision-makers who could help understand and reflect his will. That trust could help support that individual living in the community.
There are adult guardianship, trust and community-living issues. There are family resources that are currently excluded from being in play. This community said if that we are a family and we are in play, then we need to find mechanisms to make that three-part partnership. It is an example of a community making new relationships between the government and the private sector.
Senator Poy: Those are not pooled funds, they are all individuals; is that correct?
Mr. Driscoll: They are individual trusts. A director of one of the major investment houses in the country took a look at our situation to determine if we could pool those investments to optimize the returns for those trusts. We have done the usual thing of asking about levels of risk in comparison to the tax implications. Further, given that the nature of the funds is charitable, even if I did not have a child, I could make a contribution to that pool that could qualify for a tax receipt as a charitable benefit. Then those funds could be used for children who were not clever enough to be born to rich parents and who did not have a $500,000 trust.
Senator Poy: That is not in place yet but has been suggested; is that correct?
Mr. Driscoll: The next part is the pooled investment. That is not yet in place.
Senator Poy: Are there any matching funds from the state?
Mr. Driscoll: No.
Senator Poy: I do not believe that we have the accelerated savings plans in Canada yet. You were talking about what is happening in the United States. What do you think should be the income ceiling for families that would be eligible for that?
Mr. Nares: I was referring to the Canada Education Savings Grant where the federal government contributes up to 20 per cent of $2,000 a year. That accelerates the savings for someone who wishes to send their child to post-secondary education.
Senator Poy: Is everyone eligible for that?
Mr. Nares: Yes. However, I would argue that it is another program for the middle class. The poor, because of their economic circumstances, cannot use it. In effect, we are talking about RRSPs for the poor.
Regarding your first question, in the U.S. they define the working poor as a percentage above the low-income cut-off. In Canada, for purposes of our pilot projects we would negotiate with our local site partners what that actually means. The median line would be the low-income cut-off, which is put forward by Statistics Canada. However, because poverty has regional dimensions in Canada, you would want to have some flexibility so that it responds to local needs.
For example, in Toronto the cut-off for a family of four is approximately $33,000. That would not be possible for the welfare poor. However, the working poor could be a family of four earning up to $7,000 more than that.
Senator Poy: Would welfare be eligible?
Mr. Nares: It is not a huge percentage of the welfare poor who would avail themselves of this. It is difficult to know, because many people say they would never use self-employment and microenterprise services but they do. It is difficult to know what an accurate projection would be.
The key issue with respect to the welfare side is regulations at the provincial level. There is no point in marketing this concept to the welfare poor if the province that they reside in has not amended their treatment of income and assets because they would be thrown off welfare as soon as they opened one of those accounts. That is why we have been talking to our respective provincial governments.
Even in Ontario we have had a fairly receptive response to the notion.
Senator Poy: Do the poor wish to be recognized as "the poor?"
Mr. Nares: That is an issue for some people. The marketing of the concept is not, "Are you poor and would you like this?" It is interesting that in the U.S. experience, they have found that they have had to go door to door because of the mistrust people have for these kinds of interventions. When you go door to door, you are into a personal sales process. That is the most effective way. You then avoid the blanket issues that stigmatize people.
Senator Gill: We must face the reality of life in Canada that poverty does not seem to decrease. It seems to increase all the time. In spite of all of the organizations and co-operations, the unemployment rate is still high. It may be higher in Quebec than in other provinces. We have a significant amount of poverty. I do not know for sure, but I feel it is increasing all the time. Do you have an answer for that? We are investing more and more money all the time in social programs and help for small businesses. What are you doing to address those situations?
Mr. Nares: One of the challenges we have on the policy side is that historically we tend to look for magic bullets. We tend to look for one way to solve the problems when I feel it is now clear, after 30 years or so of experimentation since the mid-1960s when we became a welfare state, that there is no one magic way to solve the issue of poverty. Poverty is a complex problem that is intimately tied into the performance of the economy.
For us it has been important to look at some small things. There is probably a whole range of different kinds of strategies to use, such as microfinancing. Some of the issues my colleagues have spoken about might together make a larger impact. By themselves none of them will solve poverty. Much of what Mr. Driscoll was talking about involves rethinking what we mean by "community" and having the assets-philosophy as opposed to the deficit-philosophy towards communities. It will take time. None of those things will create solutions overnight. It is a very complex question you are asking.
[Translation]
Mr. Vincent: Canada is a vast geographically and culturally diverse nation. One important key to the solution would be to decentralize powers and allow regions and communities to organize themselves.
In Canada, virtually every program involves a great number of policies, procedures or regulations. We should be promoting entrepreneurial culture and to some extent deregulating instead.
[English]
Mr. Driscoll: First of all, I offer some words of comfort as an anthropologist. Every society has had a problem with wealth concentrating. The problem of the best societies is how to find opportunities for people to grow their way out of a situation that is destructive. We even invented a silly game in the 1920s or 1930s that deals with that, called Monopoly. When all of the assets end up in one place the game is over. The financial institutions have a key role to play because they regulate some of the instruments of opportunity, the instruments of credit.
We also support an education system that is an opportunity for people to become professionals and, therefore, to grow and to create equality. Every society has had to find mechanisms of redistribution. The community is striving to find ways around that. We say that we start with an asset-based development model. We say that the community is a bundle of assets, not a bundle of disabilities that we need minister to.
The second thing we say is that we work on a developmental model. Here I quickly describe it by using the example of Mother Teresa, who is classically considered the leader of an aid-based model. She looks after the beginning of the line and ministers to the suffering of the poor. God looks after the end of the line. If the line is longer tomorrow that is God's problem.
We take a development model. Although I honour Mother Teresa's work, we say that we must look after trying to make conditions that do not generate a longer line. We must look at how the assets can be engaged in a developmental process so that people can find ways of making their own way out. We look at an asset-based, developmental model, one that has a multi-sector partnership.
Another example involves risk sharing so that people are engaged: some of their assets are at risk and they are in play as well. It is locally grounded, accountable, inclusive and takes into account the rich diversity of this nation. It is driven by vision.
I believe that this nation takes those assets to the world stage. We are among the few nations who try to live those values. If any nation has the capacity to say that we will do it differently, I believe this one has. The work of this committee is important in trying to realize that.
Mr. Rothney: I certainly concur with the suggestions just made about the de-centralized focus. However, I should like to say that poverty is intensifying and we as a credit union are very much up against a tough situation where every piece of progress that we make trying to revitalize the inner city neighbourhoods is undercut almost immediately by other circumstances.
I wish to make one comment regarding the broad policy framework, which gets back to the beginnings of this committee. We have had almost a manic worshipping of export-driven global competitiveness. That involves an accumulation of wealth and cost-cutting and invariably has a big price that is paid by people at the bottom. We can get back in balance so that public policy is not simply driven by international competitiveness, which right now is prospering largely by credit in North America and internationally, and start refocusing on internal balance.
As a method of doing this, government agencies may look at actively doing business with institutions such as Assiniboine Credit Union, which is putting itself on the line in order to bring about changes. In all areas of the economy, that deliberate support for institutions that are adding to the balance of the local economies and the well-being of local citizens should be actively encouraged. There should not be just a focus on exports.
Senator Gill: I wish to mention that I have known Jean Vincent for some years. He is a young leader with years of experience and I wish to congratulate him today for the work he has been doing with small business within the aboriginal world.
I have one question for Mr. Vincent. Would you tell us, in Quebec, for example in your area, are you working with the banks and the caisses populaires in order to convince them to invest more money on the reserve or off reserve for the aboriginal people?
[Translation]
Mr. Vincent: Our brief attempts to highlight the problems aboriginal peoples face in terms of accessing financial and banking services, albeit within the context of Canada's aboriginal communities.
We work very closely on a daily basis with aboriginal entrepreneurs and our Corporation is currently developing a new project which we have dubbed "Mission capital."
Rather than attempt to reinvent the wheel and set up aboriginal funds and aboriginal financial institutions, we are trying to work in partnership with existing large financial institutions.
We know that in Canada and in Quebec, in terms of venture capital, billions of dollars are available in funds such as the Fonds de solidarité des travailleurs du Québec, the Quebec workers solidarity fund.
We have established a partnership, among others, with this particular fund. Another of our partners is the Desjardins movement. We are attempting to dismantle the barriers between aboriginal entrepreneurs and existing financial institutions.
On the one hand, we educate entrepreneurs about the requirements and expectations of financial institutions and the kind of information they need, while on the other hand, we work with financial institutions to make them aware of the needs, expectations and unique culture of aboriginals. We try to match the capital or financial services offered with the needs and demands of aboriginals. The idea is to promote partnership and exchanges, and to encourage aboriginal entrepreneurs to work with the existing structures available to them.
The Chairman: Colleagues should take note that our committee will meet tomorrow afternoon when the Senate rises, but not before 3:30 p.m.
[English]
Tomorrow afternoon, at the adjournment of the Senate but not before 3:30, we will be discussing access to post-secondary education.
Until tomorrow afternoon, the committee stands adjourned.
The committee adjourned.