economic inclusion

Economic inclusion is about ensuring that countries and communities have the economic resources needed to help their populations thrive. Currently, the global financial system is set up to penalize low-income countries who cannot access the finance needed to invest in things like healthcare and education without incurring massive debt. At the community level, the lowest income families have similar struggles in accessing the finance needed to lift themselves out of poverty. By advocating for more equitable financial systems at the global level and for investments in proven solutions like graduation programs at the community level we believe that we can foster sustainable development and break the cycle of inter-generational poverty.

debt distress and financing reforms

“Record debt levels and high interest rates have set many countries on a path to crisis,”
– Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President.

During the COVID-19 pandemic, many governments saw their resources plummet, as economic activity and tax revenue dropped, and they were forced to borrow money on international markets. In recent years, large increases in interest rates have made those loans difficult to repay. In 2022, the 75 lowest income countries paid an astonishing $23.6 billion in interest payments alone. That’s about 5 times Canada’s entire aid budget!  

With such high amounts of debt and interest payments it means that many low-income countries have even less funding available to spend on critical needs of their populations like health and education or to invest in much needed climate change adaptation measures.  

This is why the international community has been scrambling to find additional sources of financing for low-income countries.  Already, many high-income countries have rechanneled tens of billions of dollars in Special Drawing Rights, a type of international currency which high-income nations, already well-endowed in international currency, did not need. 

The International Development Association (IDA) is the special fund of the World Bank which provides concessional financing (little or no-interest) to low-income countries. IDA relies on contributions from donors, like Canada, for funding which it is then able to increase by investing in capital markets. This innovative funding model has made IDA into the largest source of concessional finance for low-income countries in the world. Results Canada is working to ensure that IDA continues to receive support from donors, but also that the funds are going to important and underfunded areas such as health, nutrition, education, and social protection.

microfinance and graduation programs

Results Canada has a long history of advocating for the use of micro-finance as a poverty alleviation tool. Micro-finance programs provide small loans to entrepreneurs who are keen to start small businesses but can’t get access to start up loans from traditional sources due to their very low income. The loans are often accompanied by training and/or coaching and can be done in a group format as well.

Graduation programs offer a more elaborate approach than micro-finance programs. In addition to funding in the form of loans or grants, they provide time-limited consumption support (i.e., cash for basic household needs) often as part of a social assistance scheme as well as business coaching and technical training, which allows families to become self-reliant and graduate out of extreme poverty over time. The graduation approach has been rigorously tested and has proven in three continents to yield sustained positive results over time. The International Development Research Centre, a partner organization of Global Affairs Canada, recognizes that the graduation approach “is proving to be a cost-effective way for governments to reach people who have yet to benefit from poverty reduction efforts.” 

It is estimated that economic inclusion interventions currently reach over 90 million individuals, half of whom live in extreme poverty.

 

Canada’s leadership

Canada has had a long history of supporting the microfinance movement. In the late 1990s and 2000s, Canada sat on the Executive Council of the Microcredit Summit Campaign, which reached hundreds of millions of families living in extreme poverty to provide credit for self-employment and other financial and business services. Canada also co-financed and hosted the Halifax Global Microcredit Summit with monarchs, heads of state and government, and ministers representing over 100 countries in 2006.

Over the last decade however, Canada’s role in the microfinance movement has dwindled and funding has halved since 2014.  Yet with the implementation of a Feminist International Assistance Policy (FIAP) that indicates support for economic inclusion, Canada should be poised to expand its leadership in microfinance and economic opportunity. In 2021, Canada announced that it was joining a strategic partnership with BRAC, the leading organization for graduation programs

Canada was also an early supporter of World Bank balance sheet optimization, an approach by which the Bank makes more effective use of its capital to extend more loans to cash-strapped countriesThis process is now part of the so-called World Bank Evolution Roadmap and could free tens, if not hundreds of billions of dollars in additional lending. But its painfully slow pace of implementation must be accelerated.

how Canada’s Feminist International Assistance Policy supports economic inclusion

Canada’s Feminist International Assistance Policy recognizes that “for women to participate equally in contributing to economic growth, they must also have greater access to and control over assets such as land, housing, and capital. Limited access to financial services, such as banking, credit, and insurance, makes it difficult for low-income households to recover from events such as a poor harvest or a health crisis. This limited access to vital financial services also results in lost economic opportunities, particularly for small- and medium-sized enterprises owned by women”.   

The Policy further commits to supporting the empowerment of women and girls as key economic actors, as well as exploring innovative ways to ensure that growth reaches the people living in extreme poverty. 

Results Canada wins

In 2023, we successfully campaigned for Canada to reaffirm its commitment to supporting an inclusive global economic recovery post COVID-19 by further increasing the rechanneling of its Special Drawing Rights (SDRs). Prime Minister Justin Trudeau announced that Canada is increasing its contribution on SDRs to low- and middle-income countries to 25%. While it’s not the 40% we asked for, this makes available more than $1 billion in additional loans.  Canada's contribution of total shared SDRs is larger than any other government, when  adding its special SDR contribution to Ukraine.  

In 2022, as part of the IDA20 negotiations, Results Canada successfully advocated to the World Bank to deliver a new type of programming for low-income and fragile countries focused on adaptive social protection initiatives and economic inclusion programs for women. We also worked to ensure that these programs targeted the poorest people first, which are often women. This approach is now explicitly adopted by the World Bank in its strategy to deal with the current overlapping crises.  

In January 2021, we launched an economic opportunity campaign asking Canada to demonstrate a sustained commitment to addressing this issue by joining the Partnership for Economic Inclusion (PEI), a global partnership for economic opportunity programs.  Volunteers leapt into action and campaigned hard for this. We are proud of the awareness we all brought to the PEI, and hope Canada will join the Partnership. 

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