Credit union offers exposure to local microfinance

Microfinance lending came to prominence in 2006, when one of its pioneers, Muhammad Yunus, won the Nobel Peace Prize. Responding to its growing popularity, Vancity, Canada’s largest credit union, is now allocating some of the assets in one its SRI pooled products to microfinance.

A portion of the assets in its Shared Growth term deposit program will help micro-entrepreneurs — including new immigrants and refugees, people with disabilities, aboriginal people and residents of Vancouver’s downtown east side — take out small loans. Due to a lack of collateral, personal credit history and full-time employment, these individuals often have trouble qualifying to borrow money from traditional lenders.

Bill Sherritt, director of community business banking with Vancity, says the credit union will lend these people $1,000 to $5,000 to purchase materials or goods to help them run a small business.

“The program will help individuals to create a home-based micro-business. For example, they can use the loan to buy a toolkit, or maybe they need to buy materials if they are making purses,” he says.

It should be noted the program is considered a socially responsible investment — not philanthropy — with a goal of lifting people out of poverty. The lending remains a business, and borrowers are required to pay the money back with interest. These programs don’t lend to the destitute who have no means of paying back.

Vancity has had a peer-lending operation since 1998 that has given loans to more than 1,000 entrepreneurs. By adding the new microfinance feature to its Shared Growth program, it is allowing clients access to a similar program with less direct exposure to the lending.

“The Shared Growth program has many of the same characteristics of a normal term deposit. It’s a minimum $100, and because we are a credit union, it’s CUDIC insured and the interest rate we pay [the investor] is guaranteed,” Sherritt says. “It’s not going to be the best rate out in the market because of what the funds are being used for, but it’s a competitive rate. Investor comes in and we pool their money together with other investors’. We’ve got about $4.5 million, and we invest in programs with high social or environmental values. Part of that we can now offer to the micro-lending program.”

Sherritt says from a marketing perspective, the program is not huge for the credit union, but it is an appealing value-added service for investors willing to sacrifice a little of their potential return for a good cause.

“The way I would sell this to my client is if they had a $100,000 investment, they would take $95,000 of that and invest in stocks and bonds to meet their investment profile,” he says. “They may want to take $5,000 and invest it for a competitive rate of return in the Shared Growth product, knowing it’s doing something good in the community.”

Sherritt notes some clients put a lot of money into the program. “You will have people come in with a million dollars, and they want to put it all in,” he says.

For now, investors looking to invest in local microfinance are able to do so only through Vancity. The credit union offers a microfinance program through its Shared World term deposit, which invests in international community loan funds. Shared World is available nationally through Citizens Bank of Canada.

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com