Microfinance: Ensuring an ethical basis for Canada's international development agenda

(Originally posted at www.socialfinance.ca)

With its focus on small, often tiny enterprises, microfinance operates outside the realm of multinational corporations and globalized markets. So one of the big questions in Ottawa’s recent decision to merge the Canadian International Development Agency (CIDA) with the Department of Foreign Affairs and Trade surrounds the future of CIDA’s microfinance programs. Will the mandate of Canadian commercial interests spell the end of Canada’s publicly-funded microfinance initiatives?

Microfinance has been a part of CIDA’s mandate ever since it was established in 1968. Working in partnership with Canadian church and co-operative organizations, as well as international NGOs and multilateral institutions, CIDA has developed expertise in microfinance and microenterprise development.

The CIDA program has shown particular strengths in retail microfinance services, large microfinance networks in West Africa and the global development of cooperatives and credit unions.

In keeping with the clear link between international development and womens’ empowerment, CIDA has funded many microfinance programs aimed specifically at women, often supporting womens’ credit unions to encourage local saving and asset accumulation.

In the March 2013 budget, the government announced that CIDA would be folded into the Department of Foreign Affairs to advance “Canadian interests and values on the international stage.” This is where the problem with CIDA’s microfinance programs could arise. If Ottawa seeks to create a commercial benefit for Canadian companies through its CIDA programs, nonprofit microfinance initiatives – with their emphasis on local development – could be cut.

There’s nothing wrong with the promotion of Canadian economic interests abroad. But this shouldn’t be confused with international development, which should be an explicit goal of Canada’s microfinance activities.

Support for microfinance comes from two sources: investors who look to make a return on their investment, and NGOs and governments who want to support small-scale or non-profit microfinance. Microfinance investment funds such as Triodos or Oikocredit invest hundreds of millions of dollars in small enterprises and microfinance institutions around the world. But there is still a huge role for government aid to support microfinance in unbanked communities in developing countries. In addition, foreign governments can help to fund promising new sectors, such as savings and agricultural co-operatives and renewable energy.

With funding by governments and NGOs, enterprises in these sectors can get the start they need, and then investment funds like Oikocredit can take over, financing them in their growth stage.

Projects such as the Cooperation Canada–Mozambique initiative to create women-owned credit unions, or programs by Desjardins International Development are examples of worthy CIDA-funded microfinance initiatives.

Canadians believe strongly that foreign aid should be used explicitly for international development. It’s the right thing to do, and it’s in Canada’s long-term national interest.

The government’s first steps on this are encouraging. Legislation introduced on April 28 mandates that Canada’s international development role should focus on sustainable international development, poverty reduction and humanitarian assistance.

Let’s make sure that microfinance has a place in this new agenda. Canadians want our ethical and long-term national interests to win out over short-term commercial motivations. Preserving a strong place for microfinance in our international development agenda is one of the first steps in making this happen.

Disclosure: Eugene Ellmen is National Director for Oikocredit Canada