Introduction
Canada is a developed country with many progressive ideas, a strong government and an economy. However, numerous social issues are associated with inequalities, such as continuous unemployment and poverty in vulnerable communities. Especially this can be seen among indigenous communities that experience disparities in numerous areas such as healthcare, education, and employment opportunities. Therefore, the government and non-profit organizations seek ways to improve vulnerable communities’ overall quality of life by developing various strategies. As such, many microfinancing initiatives are aimed at providing financial aid to the impoverished. However, implementing such policies and initiatives can have mixed results and long-term repercussions. Therefore, there is a need for a thorough literature review of the topic to identify the benefits and shortcomings of these strategies.
Research Questions
In order to conduct an effective literature review within the limited scope of pages, it is important to identify the research questions. The following literature review will focus on three research questions. First, what is the main target of microfinancing initiatives in Canada? Secondly, what are the impacts of these initiatives? Finally, the third question will identify the key disadvantages and shortcomings of microfinancing initiatives in Canada.
Economic Development of Canada
According to the 2018 statistics on household income, the average Per Capita Income in Canada is about 26.83 dollars per hour, totalling an average of 55,806.4 dollars in a year. However, the highest-paid individuals in the country obtain up to about three times the national average. Income inequality is a major problem in Canada based on a Gini coefficient of 0.315, which is very close to the OECD coefficient of 0.317. On average, 10% of the top earners in the country earn about 8.6 times more than the 10% of bottom earners in the country (Statistics Canada, 2018). The Canadian economy currently ranks 10th worldwide with a GDP of about 1.8 trillion but has maintained the leading position as the largest economically growing country in the G7. However, the growth in 2019 is expected to slow down to 2.3% from 3% in 2018 (Statistics Canada, 2018). The country’s economy is market-oriented, and international trade forms the largest contributor to the Canadian economy. These economic aspects are significant for marketing in Canada through segmentation of the market and targeting the right population, especially the target on the international market, which is an important aspect for companies to capture.
Investment decisions by corporations that later lead to increased employment opportunities heavily rely on both Non-tax and tax factors within an economy. For instance, some key non-tax factors involve natural resources, skills, house prices, energy, urban amenities, and other associated locational advantages. For corporations to effectively operate to expand and absorb more employees, the associated demand for its products has to be unlimited despite the fact that the after-tax cost of capital is low. This implies that despite more efforts being placed on the reformation of the taxations system, other factors have to be addressed first to eliminate any risks that may prevent the attainment of the objective (Vaillancourt & Kerkhoff, 2018). In addition to that, job creation majorly relies on the labour market as well as the overall economy, as postulated by Kevin Milligan and Dahlby Bev (2017) as economists. Therefore, being a comprehensive and complicated aspect of the economy affecting all economies, unemployment demands a multi-varied strategy and other corporate tax cuts that eventually end up distorting the economy as well as continuously hurting its taxpayers.
Main Targets of Microfinancing Initiatives in Canada
Hence, the demand for microfinance in Canada is different from that of most developing countries. The Canadian government, credit unions, and community groups have researched the specific market for microcredit and included the experience of other countries. The initial aim of microfinancing is to provide people that do not have a stable income or encounter other financial struggles the opportunity to invest in themselves and break the vicious cycle. However, most microcredit borrowers do not have enough education and awareness of their possibilities, so the money is spent on consumer expenditure (Ranabahu & Wickramasinghe, 2022). Hence, microfinancing initiatives in Canada aim at supporting small businesses and encouraging entrepreneurship in impoverished populations.
Such a strategy is aimed at ending the cycle of poverty and providing people with an opportunity to become financially self-sufficient and independent. Therefore, the studies conducted by the Canadian government identified that most small businesses had a starting capital of less than $5000 (Ranabahu & Wickramasinghe, 2022). Yet, traditional business loans or savings are not available to everyone, which is resolved by the utilization of microfinancing. There are numerous organizations Community Microlanding that provide various initiatives such as 3+ Economic Development Corporation, Access Community Capital Fund, Alterna Savings Community Micro-Finance Program, Centre for Entrepreneurship Education and Development, and others (Ranabahu & Wickramasinghe, 2022). Each of the organizations offers microfinancing if the certain conditions of the borrower are met. As a result, via microfinancing, the government is able to target certain populations or geographical areas to encourage entrepreneurship and increase the quality of life.
The Impacts of These Initiatives
However, the specific requirements set by microfinancing organizations often limit the accessibility of such opportunities. Therefore, in terms of small business, factors associated with the location of the business or the entrepreneur’s background can contribute to the failure of the venture. This is because conducting business can be risky and challenging, which requires strong motivation to overcome the struggles and obstacles and reach profitability. Some of the companies provide loans only for borrowers who open a business in a specific area. While such a strategy benefits local entrepreneurs, the unknown location can cause additional risk for businessmen from different areas.
The Key Disadvantages and Shortcomings of Microfinancing Initiatives in Canada
There is a lack of research on the rate of success among the loaners who opened small businesses using the initiative. Hence, the gap in research is identified as the second question of the literature review lacks sources on the subject. The data on the impact of microfinancing initiatives that support small businesses in Canada can be obtained through conducting additional research. The research should use the data on the enterprises that were launched by using borrowed starting capital and track the financial performance of these ventures during the two-year span. The rate of the small businesses that had managed to survive and prosper would represent the impact of the small business microfinancing.
Conclusion
In conclusion, tackling poverty is a challenging task imposed by both developing and developed nations. Governments implement different strategies to end the vicious cycle of impoverishment. In Canada, one of the strategies is providing microfinance for small business owners. However, the strategy comes with several limitations caused by the specific requirements of microloan organizations. The literature review identified the gap in research, which is the lack of data on the impact of small business microfinancing.
References
Dahlby, B., & Milligan, K. (2017). From theory to practice: Canadian economists’ contributions to public finance.Canadian Journal of Economics/Revue canadienne d’économique, 50(5), 1324-1347. Web.
Ranabahu, N., & Wickramasinghe, A. (2022). Sustainable leadership in microfinance: A pathway for sustainable initiatives in micro and small businesses?. Sustainability, 14(9), 5167. Web.
Statistics Canada (2018). Gross domestic product, income and expenditure, second quarter 2018. Web.
Vaillancourt, F. & Kerkhoff, A. (2018). Capital gains taxation in Canada, 1972-2017: Evolution in a federal setting. eJTR 16, 340.