When Développement international Desjardins (DID) was spreading cooperatives in some of the least developed communities in the world, in the early ’70s, its staff literally recruited “people sitting under a tree.”
That’s how DID president and CEO Anne Gaboury captures DID’s pioneering spirit and determination to share the Desjardins Group’s vast experience helping people on society’s fringes gain financial autonomy, by applying its successful “caisses populaires” (credit union) model. (See also Desjardins Q&A).
Now these credit unions have branched out like the trees themselves – into 2,700 service outlets affiliated to 30 partner institutions, more than eight million client-members, and 25 developing or emerging countries in Africa, Latin America, Asia and Europe. Most of these institutions are today operating on their own steam, providing direct employment for some 14,000 people and recruiting new members on their own.
Most important, they are giving their citizens the means to plant those trees and start local agricultural or commercial businesses, save up for their children’s schooling or realize a dream common to people everywhere – acquiring their own home.
Bank of success stories
Consider Margret Mseteka, entrepreneur and a client of the Entrepreneurs Financial Centre (EFC) in Zambia, launched in 2008 by DID and financial partners, and helped by a line of credit from EDC.
“Thanks to the financial services I got, I could build a home from the profits of my small business and could also send all my children to school,” Mseteka told DID.
In Burkina Faso, only 3.5 per cent of loans from local financial institutions are available for the agricultural sector, which, by contrast, contributes 10 times that amount to the nation’s economy.
“If the EFC didn’t exist here, it would simply be impossible for me to build up my business, because I wouldn’t have any other loan option,” said Ouedraogo Boureima, who raises cattle in the town of Ouahigouya. He is the main provider for his family of 20 and his children all go to school thanks to his business.
It is countless stories like these in DID’s repertoire that inspires Gaboury to say: “Savings and loans represent freedom – they lead to autonomy, growth and a heritage for the individual, the family and the community.
“Our services get the institution launched; then the nature of each institution evolves depending on each different country partner, and the impact can be felt both in the present and well into the future.”
Besides being social enterprises, these microfinance institutions are operating thriving businesses. Overall assets have grown to some $3.5 billion – all the more impressive considering that loans to entrepreneurs average from $3,000 to $10,000 in markets like Zambia, or starting at about $6,000 in faster growing emerging markets such as Panama.
This range of credit underscores a distinction between traditional credit unions set up or supported by DID and the business-focused EFCs. The enterprise centres operate mainly in the small business space in emerging markets rather than in what is considered classic microfinance, explains Gaboury. “This is where we see the biggest gap in developing markets.”
In Burkina Faso, one woman tells of a $300 business loan from the DID partner credit union 15 years ago; now she is a successful merchant and can command a loan of $40,000.
Filling the small business gap
Over the past five years, DID launched an additional seven EFCs – in Zambia, Tanzania, Uganda, Panama and Burkina Faso (3) – adding to those in Rwanda, Burkina Faso (1), Mali (2) and Senegal.
“It used to take about three to five years and $3-to-$5-million to get them launched – now it’s more like $40-to-$50-million (to meet growing loan demand), so we need to work with more partners and more capital to complete our plan of adding four more institutions over the next three to five years,” says Gaboury.
“Over the years we have seen our average loan amounts grow and more recurring loans – these are both good signs that our clients are loyal, they’re paying back their loans and their businesses are growing.”
Before choosing new locations and projects, DID identifies and analyses markets where they see opportunities for community and small business growth, but which are not yet well served, and where there is similar interest from global investors and development banks. “We seek markets where we see long-term potential for the credit union or EFC, and where they can have a big impact on the development of the community and the heritage of the people,” adds Gaboury.
Below the radar in crisis
Given the financial crisis, which is still ongoing in some markets and where no bank is “too big to fail,” how are the smallest ones faring? One advantage is that they are not really plugged into the big investment markets – the credit unions are funded by local members, notes Gaboury — so they did not suffer from that perspective.
An interesting case is the DID partner in Lithuania, the only locally owned financial institution in that market. In 2008, all the country’s banks virtually stopped lending – the only one that didn’t was the co-op. Today the Lithuanian network of credit unions has some 125,000 members and $550 million in assets. It also has 63 member institutions (affiliated credit unions) in its network, with more than 120 service centres.
“Right from their launch, our partner credit unions are all part of a network in their country, rather than one-off institutions. Ideally, they all have the same image, the same systems, the same standards and practices (in each market). We believe this Desjardins model promotes better service, supervision and interconnectedness of the credit unions,” says Gaboury.
Adapting to a country’s culture
This doesn’t mean the system is rigid. Each network adapts to the culture of the country and needs of its members, she adds. “In Zambia, for example, our partner EFC recently started a home-business improvement loan unique to its environment.” These loans are longer term – three to five years as opposed to the average of 12 to 18 months – and specifically targeted to house extensions or renovations for business purposes – such as, creating an office, sewing room, school room or a garage to run a mechanic shop.
“Our Zambian partner identified and assessed the needs itself, and then set up the program with DID’s help; now it represents a third of its portfolio and we are looking into other markets where such a program could also work well,” says Gaboury
Money begets money
Being in such far flung and often risky countries, DID started protecting some of its assets in these markets in 2007, using EDC’s Political Risk Insurance (PRI). “More recently, we have been working together at multiple — and more interesting – levels. For example, EDC provides a line of credit that allows us to draw on more funds to expand our partner institutions. And money attracts money. These funds and our relationship with EDC help us increase our credibility and attract more investors,” adds Gaboury.
“DID is unique in Canada and one of the world leaders in its field,” says EDC’s Nathalie Lambert, who manages the DID relationship. “In addition to our political risk insurance, we have provided various types of financing, since 2008, to some of DID’s diverse foreign projects to help them support their partners’ expansion.”
Some things stay the same
In spite of the miles of physical and cultural separation, Gaboury observes that human psychology is much the same around the world. “People want to feel welcome and well treated where they do business; they want to have homes, jobs, schooling for their children — they want to feel self-sufficient.” That’s a big part of what Desjardins, now in its 112th year, has taught DID and what DID shares with its growing network of partners.
At the same time, DID itself keeps evolving: creating a global association for its diverse foreign partners to share best practices; growing its insurance offerings abroad; investing in more entrepreneur centres; and using different partners to test new products.
“There is no easy recipe for success; it takes about 10 years to launch an autonomous credit union network, one that is up and running profitably,” says Gaboury. “You have to have finance expertise in your blood, be dedicated to the development of people and communities, and be committed for the long term.”
What’s the biggest risk?
As in any banking business, the biggest challenge is the risk of default on loans. In emerging markets, this risk is often compounded by a legal environment that is fluctuating, inadequate or absent, says Gaboury. Another constraint is lack of long-term access to funding. “Credit union membership mainly provides short-term savings, so there are constant cash flow issues to manage.” And things we take for granted in Canada, like uninterrupted technology and power, can be challenges too – as when an Internet link cuts out just as you are trying to complete a transaction.
As for loan default rates, Gaboury says that while they are generally less than one per cent in Canada, there is more leeway in emerging markets: “two to three per cent is considered good and we aim for less than five per cent.” Of course, an external catastrophe – such as a major flood or drought in countries that have no state protection for farmers — can change the whole dynamics and throw due diligence to the wind.
Otherwise, says Gaboury, our institutions have good control systems. “As well, DID and our partner institutions have played an important educational role in promoting the value of loan repayment. The nature of the co-op itself provides a sense that the money belongs to everyone in the community, which inspires more loyalty and responsibility.”
Counting DID’s Successes
- 30 partner institutions (2,700 service outlets) in 25 emerging countries on 5 continents
- 8 million client-members
- $3.5 billion in assets
- 14,000 direct employees
- 500,000 jobs created or sustained since opening first EFC in 2004
- 75,000 entrepreneurs using EFCs services
- 570 home loans (2010) granted by DID partners in Burkina Faso, India and Zambia
- 12 investment partners and strategic alliances, including EDC and Canadian International Development Agency (CIDA), a DID partner since 1970