INDY Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, May 25, 1999

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[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I'll bring this meeting to order pursuant to Standing Order 108(2), a study of the Business Development Bank of Canada.

This afternoon we're very pleased to welcome, from the Business Development Bank of Canada, Mr. Luc Provencher, the deputy chief executive officer and executive vice-president, corporate finance and risk management, and Madame Simone Desjardins, senior vice-president and area manager from Toronto.

We're going to invite you to proceed with your opening statements and then we'll move to questions.

Mr. Luc Provencher (Deputy Chief Executive Officer and Executive Vice-president, Corporate Finance and Risk Management, Business Development Bank of Canada): Mrs. Chairperson and committee members, first let me thank you very much for your invitation. Simone Desjardins and I are very pleased to have this unique opportunity to talk about the innovative ways in which BDC supports small business in this country. It is our passion.

We have provided you with a copy of our presentation. We would like to review this presentation briefly with you and answer your questions, if you have any. We would also like to remind you that this committee has played a very important role in support of small business. Your 1994 hearings into the financing needs of small business set the stage for the new BDC act in 1995. Your continuing interest and support are very much appreciated by small business and by BDC.

Governments, academics, press, and people from all walks of life have paid and are paying a lot of attention to small businesses, because small businesses are important. They number almost 900,000 in this country and they are the big businesses of tomorrow.

BDC is in business only to support small businesses. BDC fills financing gaps left in the marketplace by different lenders, gaps that Minister Manley identified before this committee when he presented the draft BDC bill in 1995. There are many gaps, but they can be put into into four main categories. The risk gap, the size gap, the knowledge gap, and the flexibility gap are among the biggest gaps that affect financing for small businesses.

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[Translation]

SMEs are in the forefront of innovation and increased productivity. Their focus in on exports and they are an integral component of the globalization movement. They are a dynamic sector that plays a vital role in the country's prosperity.

BDC supports knowledge-based, export-oriented and high-growth SMEs. These account for virtually half of our overall business volume.

BDC is Canada's small business bank. We are passionate about ensuring the success of SMEs. Last year, we awarded SMEs over $1.4 billion in new loans, without any federal government subsidy. Our profitability is such that we are now able to pay handsome yearly dividends to our shareholder, the Government of Canada.

We also provide management support to SMEs through consulting services aimed at improving management skills and abilities.

Ms. Simone Desjardins (Senior Vice President and Regional Director, Toronto, Business Development Bank of Canada): BDC provides entrepreneurs with overall financing solutions and management support. Financing can range from conventional financial products to venture capital, including quasi-equity financing. BDC is uniquely positioned on Canadian financial markets. Quasi-equity financing provides an unsecured form of financing geared to the special needs of clients.

BDC operates 84 branches in Canada as well as a virtual bank to serve its clients wherever they may be. Approximately 40 per cent of our branches are located in rural areas. We are proud of the support we provide to our regional clients because these are the people who are often overlooked by other institutions. Our virtual bank is accessible 24 hours a day, 7 days a week, 365 days a year. BDC was the first financial institution to offer its clients a complete range of financial products.

SMEs present a higher risk, given their size. BDC meets the needs of SMEs through new approaches and innovative financing options, flexible repayment terms and by working closely with companies at every stage of the business cycle. We know are target clientele well and our knowledge of new technologies is sound. We meet with our clients, become familiar with their business plans and organize client appreciation evenings. We join associations to keep abreast of client needs.

Partnerships like this are extremely important to us because they allow us to offer overall solutions to address client problems and needs.

[English]

These are the innovative solutions to provide development capital to help small businesses grow. As you can see, this includes a variety of specialized financing instruments, from the micro-business program to working capital for exporters to the TechnoNet loan. It is a unique approach in the Canadian market and, most probably, worldwide. At the BDC, we believe in tailoring our financing to each and every small business.

Most surveys of small business identified the lack of management skills as a critical constraint limiting business growth. BDC continues to be committed to helping entrepreneurs expand their ability to manage. Our BDC consulting group has been completely revamped to focus on fast-growing, knowledge-based, exporting businesses.

A good example of our innovative approach to banking is the BDC Connex launch by the Minister of Industry just about a year ago. This is our virtual bank, which provides a full range of our BDC services 24 hours a day, 7 days a week, 365 days a year, whereby clients can access BDC by telephone, fax, Internet, or in person.

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Mr. Luc Provencher: We do our very best to support small business, but BDC can do more to meet the expanding needs of small business. A key strategic issue is to obtain the necessary capital in order to raise funds on the public market. BDC's own profits will help but cannot be the sole source of financing. Under the BDC act, BDC can issue shares to the government. We wish to do so to raise capital. We are currently discussing these options with government officials. We hope to have the issue resolved in the near future.

Mrs. Chairperson, we thank you very much for your invitation. We are looking forward to appearing before this committee again. We will be pleased to answer your questions.

The Chair: Thank you very much, Mr. Provencher. We're now going to begin with questions.

Mr. Pankiw, do you have questions?

Mr. Jim Pankiw (Saskatoon—Humboldt, Ref.): Let me ask you this: how much money does the BDC have outstanding, lent out?

Mr. Luc Provencher: About $5 billion to small businesses across the country.

Mr. Jim Pankiw: Where did that money come from?

Mr. Luc Provencher: The capital invested by the Canadian government is slightly more than $500 million. The balance is borrowed on the open market, the financial market. We borrow the money and we lend to small businesses. In fact, we are an agent on behalf of small business in the marketplace.

Mr. Jim Pankiw: If I understood you correctly, you said that you want to issue shares in the corporation to the government.

Mr. Luc Provencher: Yes. All the shares that the BDC has issued have already been issued to the government. For us to be able to borrow more money, we must have more money invested by the government in order to give us a ratio so that we can borrow on the marketplace.

Mr. Jim Pankiw: So that's just a fancy way of saying that you want the government to invest more money in the corporation.

Mr. Luc Provencher: Yes, and it's not an appropriation; we provide government with profits and dividends on a yearly basis.

Mr. Jim Pankiw: But net, overall, the government still has $500 million owing to it.

Mr. Luc Provencher: Yes.

Mr. Jim Pankiw: Does the BDC pay taxes?

Mr. Luc Provencher: No, we don't.

Mr. Jim Pankiw: So wouldn't it seem to you that you're competing with private firms, with venture capital firms and with other banks?

Mr. Luc Provencher: No, we don't. We act in relation to our law, which is that we have to be complementary to them and we have to support small businesses, to fill the gaps that I enunciated earlier in my presentation. We work in conjunction with them to make more money available to small businesses when these people feel that the risks—or the size or so forth—are too big for them to handle.

Mr. Jim Pankiw: So you're saying you're confident that none of the businesses that have taken loans from the BDC would have got that capital anywhere else. Had it not been for the existence of the BDC...?

Mr. Luc Provencher: We are working in complementarity with the credit unions, the chartered banks, and the venture capital firms to make sure that a total package of financing is available to them, and in regard to the money that we lend to or invest in small businesses, there are always others from the private businesses that are investing with us, sir.

Mr. Jim Pankiw: When you do your calculations and say, well, we made a profit and we're able to pay the government a dividend, are you factoring in all the costs—like your salaries—all the overhead?

Mr. Luc Provencher: Yes, we are run as a private organization. We generate our income and we generate profits and dividends to the government.

Mr. Jim Pankiw: How much of a dividend is the government receiving annually?

Mr. Luc Provencher: Last year, the government received $6 million. This year the government will receive $9 million—plus the profits that we have generated. Last year, we generated over $40 million in profits, sir.

Mr. Jim Pankiw: That seems like a rather poor return on investment: $500 million to get back $6 million or $9 million.

Mr. Luc Provencher: Plus you have to add that this is a dividend on preferred shares. Preferred shares were $100 million last year and the preferred shares dividend was 6%. The total profit is $45 million.

Mr. Jim Pankiw: Are you saying that money is re-lent? Or is it used to pay down the other money borrowed or what?

Mr. Luc Provencher: It is reinvested in the capital of the bank, sir.

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The Chair: This is your last question, Mr. Pankiw.

Mr. Jim Pankiw: Do you think that operating a bank is a legitimate role for government?

Mr. Luc Provencher: The bank was created to act as a complementary lender and investor to the private banks and credit unions, to complement what they do. Our role is to help support small businesses, to make sure that they are provided with sufficient financial support for their growth, for them to flourish. That's basically our role, sir.

The Chair: Thank you, Mr. Pankiw.

Mr. Murray, please.

Mr. Ian Murray (Lanark—Carleton, Lib.): Thank you, Madam Chairman.

Monsieur Provencher, did I hear you correctly? I think I heard you say that half of your accounts are exporters. Is that true?

Mr. Luc Provencher: Yes.

Mr. Ian Murray: So do you have a close working relationship with the Export Development Corporation?

Mr. Luc Provencher: Yes.

Mr. Ian Murray: This is interesting. I look at the mix of your urban versus rural clients, for example, and for a number of those people it would probably be difficult to access EDC and do all the running around that's required. I'm just wondering if you have a one-stop shopping facility for exporters who want to work with both BDC and EDC.

Mr. Luc Provencher: We have joint agreements with all crowns to co-operate. If you phone our bank or EDC, automatically you will be put in contact with one or the other, depending on who can fit you best. We have call centres that are communicating with one another to make sure that we properly answer the needs of customers.

Mr. Ian Murray: That's interesting.

I was also interested in your consulting operation. What would be a typical request from a client for consulting services? You generate income from that, but I assume a lot of them are also clients of the bank who are using you as a banker as well. What would they normally be looking for when they're consulting?

Ms. Simone Desjardins: I can talk about the GTA. One of the programs that's very popular in the GTA is our strategic planning program. A business comes to us and they're not too sure whether they should go ahead, let's say, with a strategy for exporting, a strategy for growth, whether they're ready by way of their human resources, their business plan, their marketing plan, and the product they have to offer. We have a roster of consultants that we call upon who are experts in the area, and they spend the time with the business to do the strategic plan. That's an example of the program we offer.

Mr. Ian Murray: Would that also be for a client who is looking to obtain financing? If they go through the consulting process first, is that an advantage?

Ms. Simone Desjardins: They can do it in conjunction with an application for financing, but they can do it alone too. You don't have to be a customer on the financial services side to be a consulting services customer—and vice versa.

Mr. Ian Murray: It's interesting that you just do small and medium-sized enterprises. We've spent an awful lot of time talking to bankers in this committee over the years and I, at least, came to the conclusion—and now this is changing, in fairness to the banks—that they didn't really want small business accounts because it wasn't worth the trouble of doing all the work involved in doing those loans. But you're able to do this and be profitable. Is there a different process that you use? I'm sure you have a lot of people working for you who have worked for other banks before they came to BDC, so you might be familiar with banking practices elsewhere. What's the secret to being successful just by doing small business financing?

Mr. Luc Provencher: First, small business is our passion. It is our only focus. The reason our bank was created was to help small businesses to be created, to expand, and to develop, and to help us as a country to generate more growth. We try to do our best to stimulate that while at the same time taking additional risks that the private sector doesn't want to take. But we don't take those risks alone; we do it with them and we try to bring in as much as we can.

For instance, in venture capital, for each dollar we put in, the other people are putting in four. We are like a catalyst to bring others in. Our people working for us are very well focused. We call them “intrapreneurs”. They work closely with entrepreneurs. They have a portfolio of accounts and follow them closely. They visit them within their businesses. They understand, and they want to help these people to flourish. That's our only focus. Maybe that's why we're different from others.

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Mr. Ian Murray: Finally, on this urban-rural split, is it a decision you made as a bank to go out and actively court the small businesses in the rural areas, or is it just something that happened, something that you noticed happening over time, and you've become more specialized in that now?

Ms. Simone Desjardins: Our approach is that there's good business everywhere, and if it is rural, we'll do the rural as well as the urban; basically, it's reaching business wherever business is.

Mr. Ian Murray: Thanks.

The Chair: Thank you very much, Mr. Murray.

[Translation]

Ms. Lalonde.

Ms. Francine Lalonde (Mercier, BQ): Good afternoon, Mr. Provencher, Ms. Desjardins. Our research officer has prepared some questions for committee members, and I have one that I would like to put to you, because the subject intrigues me. Perhaps you have seen the question. It seems BDC holds some non-voting shares in Cominco Ltd. Could you give us more background details about this holding? As someone who is especially fond of SMEs, I find this a little surprising.

Mr. Luc Provencher: This particular investment was made in 1984 or 1985, on orders from the government. However, it is no longer part of BDC's holdings, having been erased from the books, as I recall, in the early 1990s.

Ms. Francine Lalonde: Are we to conclude then that you lost money on this investment?

Mr. Luc Provencher: That's correct.

Ms. Francine Lalonde: How interesting.

Tomorrow we are meeting with representatives of the CBA. They have already made several appearances before this committee which is especially interested in SME financing. This is part of our mandate. You appear to be a different type of industry player. You say that you are prepared to take risks, something that private banks are not prepared to do. Could you be more specific about this? I have been involved in a number of cases and frankly, I must say that I never got the impression BDC took risks that other financial institutions weren't prepared to take.

Ms. Simone Desjardins: I'll begin with conventional financing, which people are more familiar with because it has been around longer. Conventional lending institutions allow businesses to borrow up to 60 per cent of the value of the asset, against which the loan is secured, whereas BDC is prepared to offer loans of up to 75 per cent or 80 per cent of the value of the asset. Therefore, we are prepared to assume much more risk that conventional lending institutions.

We have also launched a number of innovative loan programs, including the venture loans program where the level of risk is assessed on the basis of the management team, the product and the market, but where generally no guarantee is required. We assume a much higher degree of risk than other lending institutions. That's what sets us clearly apart from other banks.

As part of our innovation loan program, we provide financing to businesses wishing to undertake R & D activities involving a product that has already proven to be somewhat profitable. Loans of up to $100,000 are available, with no security required. I won't give you examples at this time, but BDC does take far more risks than conventional financial lending institutions.

Ms. Francine Lalonde: Is it true that more venture capital is available in Quebec that in other regions of Canada?

Mr. Luc Provencher: The venture capital industry is flourishing, in terms of investment in excess of $1 million. This sector is performing well.

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The financing we provide is on a more modest scale. As Ms. Desjardins mentioned, we provide venture capital financing which, depending on the size of the company, can range from less than $100,000 up to $1 million, with the average loan totaling approximately $300,000. Private investors are not interested in these types of loans because the rate of return isn't as interesting for them. As a Crown corporation, we try to help SMEs grow over time through investments of this nature, while at the same performing reasonably well.

The Chair: One last question.

Ms. Francine Lalonde: Regrettably, it will be my last one.

Much is expected of other banks. We have tried unsuccessfully to find out what SMEs have requested in terms of financing, what conditions banks have set and what the success rate has been. We haven't been able to find a satisfactory way of getting that information. I'm sure there must be a way, but no one has discovered it yet. I get the feeling that there can't be anything worse than being a small business, regardless of whether one operates in a conventional or innovative sector. Despite the guarantees provided by the former small business loans program, as I believe it was called, the reality is that if you're a small business, the banks don't especially enjoy dealing with you and it is more difficult to obtain a loan because of the high risk factor involved. Like other members, I know for a fact that this is the case because I've met at my office with many people who had good ideas and sound projects, but weren't able to get the financing they needed.

Mr. Luc Provencher: In my presentation, I mentioned that BDC was in business precisely to fill financing gaps in the marketplace.

Ms. Francine Lalonde: Do you keep statistics on the number of loan applications received, approved or rejected for analysis purposes?

Mr. Luc Provencher: Statistics on loan applications?

Ms. Francine Lalonde: Yes. Your tone appears to be quite upbeat, but it doesn't quite jibe with the experiences some businesses have had in their dealings with BDC.

Mr. Luc Provencher: Are you referring to the success rate of businesses that have turned to us for assistance?

Ms. Francine Lalonde: Perhaps.

Mr. Luc Provencher: The success rate is very high.

Ms. Francine Lalonde: Do you have documented proof of that?

Mr. Luc Provencher: Yes. Moreover, we do more than that.

Ms. Francine Lalonde: You should share that proof with us.

Mr. Luc Provencher: As Ms. Desjardins mentioned, instead of telling people that we can't help them, we try to see if one of our programs might not meet their needs. We have established innovative financing options like the Micro-Business Program, the Young Entrepreneur Financing Program and the Working Capital for Exporters Program. These programs are designed for those who are unable to obtain financing directly from other sources. We provide support through consulting and mentoring programs in order to help them address problems that prevent us from financing their operations in the first place. Private industry cannot afford this luxury. The rate of return is not high enough. We take new entrepreneurs under our wing and support their development and growth.

Ms. Francine Lalonde: Therefore, you must have some statistics that you can share with us.

Mr. Luc Provencher: Yes.

Ms. Francine Lalonde: I'd certainly like to hear them.

Mr. Luc Provencher: Of course. Let me explain to you the approach we take instead of merely telling entrepreneurs that their loan application has been rejected because of the risk factor involved.

[English]

The Chair: Merci, Madame Lalonde.

Mr. Shepherd, please.

Mr. Alex Shepherd (Durham, Lib.): Getting back to your financial structure, because presumably that's kind of why you're here in that you're asking us to support the bank, can you give me figures like return on equity? What kind of return on equity did the government actually earn out of this in the last three or four years?

Mr. Luc Provencher: In the mandate, the government asked us to get at least the equivalent of the cost of funds for the government. This is what the government is asking us to generate as income, as a development bank, and we are generating that and a bit more.

Mr. Alex Shepherd: So they take the average cost of—

Mr. Luc Provencher: Of the government...and we are generating at least that cost and more, and that's what we've been generating as we have been incorporated, sir.

Mr. Alex Shepherd: So what was that last year? Was it 5%?

Mr. Luc Provencher: No. It was more than that. It was 8%.

Mr. Alex Shepherd: Eight per cent.

Mr. Luc Provencher: Yes.

Mr. Alex Shepherd: Okay. Who owns the preferred stock—the part in which you referred to the preference...?

Mr. Luc Provencher: All the shares are owned by the government.

Mr. Alex Shepherd: They're all preferred stock?

Mr. Luc Provencher: Yes.

Mr. Alex Shepherd: Oh, I see.

You also do debt issues, right? Do you have Eurobonds and so forth?

Mr. Luc Provencher: Yes. We have debt around the world.

Mr. Alex Shepherd: What's your debt-equity ratio?

Mr. Luc Provencher: The maximum by our law is 12:1, and right now it's in the area of 9:1.

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Mr. Alex Shepherd: Let me get it straight: on the debt markets, you're borrowing $9 for every $1 of equity.

Mr. Luc Provencher: Yes.

Mr. Alex Shepherd: Is that healthy?

Mr. Luc Provencher: Yes.

Mr. Alex Shepherd: It is?

Mr. Luc Provencher: Yes.

Mr. Alex Shepherd: Okay.

Are there other methodologies to do this? Is it possible that there could be some form of—dare I say—privatization or the issuance of some common shares to the general public?

Mr. Luc Provencher: If you refer to article 28 of our laws, we can issue hybrid capital. Banks are issuing that all the time. It's like a debt that is considered equity—and it can be owned by others than the government. It is not shares; they call that hybrid capital. It's debt, but because of conditions associated with that debt, it is there for a certain period of time—normally 5 years to 10 years—and it's considered to be like equity from a former financial institution.

Mr. Alex Shepherd: So they would share in the earnings of the company, but at a certain point—

Mr. Luc Provencher: There is normally a coupon, so that they already know the interest or the dividend that will be paid. Normally it's in interest.

Mr. Alex Shepherd: Are you suggesting that we allow you to do that?

Mr. Luc Provencher: It was in our laws when they were created in 1995. It is there, and we could use that document, sir.

Mr. Alex Shepherd: So you're thinking of it as an alternative to the actual government itself—

Mr. Luc Provencher: Yes.

Mr. Alex Shepherd: —putting up more money.

Mr. Luc Provencher: Yes.

Mr. Alex Shepherd: You talk about your orientation to knowledge-based industries. Today, everybody uses the words “knowledge-based industries” as a catch-all; we all want to invest in it and so forth, but few of us know how to define it. I look at the breakdown in your portfolio and I can't really.... I see wholesalers, retailers, construction, and so forth. Are you trying to concentrate your lending in knowledge-based industries per se?

Mr. Luc Provencher: No. What I mentioned is that we are concentrating up to half of our activity in knowledge-based and exporting activities; it accounts right now for 44% of our new activities. These businesses are from all kinds of different industries. Exporting or knowledge can be in all types of industry, not necessarily only in technology. For instance, knowledge workers are one dimension that people could measure the knowledge industry by.

Mr. Alex Shepherd: Is that how you measure it?

Mr. Luc Provencher: For the time being, Statistics Canada and Industry Canada use certain industrial codes. You're familiar with the Canadian industrial codes. We are using them as a measure of the progress we're making. For export, we're using the export sales of the businesses to other countries, to the States and abroad.

Mr. Alex Shepherd: How's your venture capital program working out?

Mr. Luc Provencher: Very well, with a good level of success. We have progressed a lot. We're unique in the country. We've established offices across the country. We have offices in Vancouver, Calgary, Toronto, Ottawa, Montreal, and Halifax to make sure that we cover the full market of the industry. We have people who are specialists. We have people who have a technology background, a scientific background, and a business background, which work together.

Mr. Alex Shepherd: Do you get some cash flow through your venture capital side for—

Mr. Luc Provencher: Yes, we do, sir.

Mr. Alex Shepherd: —repayment of dividends?

Mr. Luc Provencher: Yes. The average that we hold venture capital for is about seven years and, frankly, when we get paid it's mostly through an IPO. With the IPO, it normally takes us another three years to get our money.

The Chair: Last question, Mr. Shepherd, please.

Mr. Alex Shepherd: What kind of return would you get on a normal venture capital loan? Have you looked at the whole period of time in which...?

Mr. Luc Provencher: The spectrum that we're looking for is between 25% and 30%. On average, our internal rate of return for venture capital is slightly over 8% too, over time.

The Chair: Thank you, Mr. Shepherd.

Mr. Riis.

Mr. Nelson Riis (Kamloops, Thompson and Highland Valleys, NDP): Thank you, Madam Chair.

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Mr. Provencher, you were mentioning that the small business sector is your passion and is, I think you said, your only focus or certainly your major focus. I think we all agree with you that's what it should be, that's what it is. If we look at the emergence of the knowledge-based businesses, the growth of home-based businesses, and the growth of the self-employed sector, how do you define small business for us? When you say you loan to small businesses, who are those small businesses? Recognizing that you have three or four other partners with you, what is your average loan for the small business sector?

Mr. Luc Provencher: Slightly over $200,000.

Mr. Nelson Riis: Then there would be four or five others as well.

Mr. Luc Provencher: No. I'm saying that the average client owes our bank slightly over $200,000.

Mr. Nelson Riis: So they'd be borrowing in the neighbourhood of $1 million or so, $800,000 or so.

Mr. Luc Provencher: Not necessarily, because—

Mr. Nelson Riis: Would it be $600,000 or $500,000?

Mr. Luc Provencher: —some are doing it strictly with us or with others.

Mr. Nelson Riis: To me that seems like a very big small business. That person is going to be borrowing from $200,000 to $600,000. That's not my view of the home-based business that's trying to sell some products of some kind or whatever. This is a criticism of the bank that I've received—and I could go on about all of the accolades that I also receive, so I'm not criticizing the bank particularly—that is, your view of this emerging small business sector is rather a unique banker's view and, really, you're missing out on a lot of people.

Just this last weekend, somebody came to me who wanted to open a tattoo and body-piercing parlour in Kamloops, and they said they're having a tough time getting financing. Do you fund tattoo parlours? Would you fund a tattoo parlour?

Mr. Luc Provencher: We don't have a particular view on.... We finance small businesses. The smallest businesses that we finance are student businesses.

Mr. Nelson Riis: I understand, and that's a special category, but—

Mr. Luc Provencher: We do that, and we are doing that through our BDC Connex. We'll lend as little as $3,000. The youth businesses—

Mr. Nelson Riis: What percentage of your loan portfolio would be in that sector?

Mr. Luc Provencher: This year we're going to make about 900 loans there, sir, out of 6,000, so it's fairly big. The micro-business loans are loans below $50,000. The youth entrepreneurship program loans are loans below $25,000. We have a pretty good level of success. Our program, Working Capital for Growth, is for people who borrow $100,000 and less.

Ms. Simone Desjardins: To that I would add that we have also created entrepreneurship centres across the country in order to make sure that the small business community is aware that we are targeting small business.

I think we have 10 entrepreneurship centres across the country, Luc, and micro-business and youth business are basically the entrepreneurship centres' focus.

Mr. Nelson Riis: Don't take my questioning wrong here, Luc.

Ms. Simone Desjardins: No.

Mr. Nelson Riis: I'm not being critical, but don't you think that there is still a bit of a gap at the bottom end of the small business scale that perhaps is being overlooked these days? Would you agree with that sort of general statement?

Mr. Luc Provencher: I was mentioning earlier that we've defined four big gaps and I've said that there are several other gaps. We try to fill them. As Simone has just mentioned, our entrepreneurship centres are there to give it another shot. The smaller the spectrum of the loan that we're doing...for sure, we don't fill all the needs.

Mr. Nelson Riis: Two quick questions, Madam Chair.

Is it possible to receive from you a profile of your clients, their geographic distribution, the size of the loans, and so on?

Mr. Luc Provencher: Yes, we do have that.

Mr. Nelson Riis: Thank you.

Secondly, going back to the question of Madame Lalonde about the minority shareholder preferred non-voting shares in Cominco Ltd., can you explain a bit more about that, please?

Mr. Luc Provencher: First, this was not a normal operation of the bank. We were directed by the government in the mid-eighties to invest $75 million—if my memory is correct—into a special venture that has collapsed, and that was a write-off with our bank. The government, to do so, had invested the money within the capital of our bank to use that, to use our bank as a vehicle to do that investment.

Mr. Nelson Riis: So the bank made a loan to Cominco and that loan has been written off.

Mr. Luc Provencher: Yes.

Mr. Nelson Riis: There seems to be more to go on that one, but I don't know what question to ask next, so I'll leave it. Thank you.

The Chair: Mr. Riis, thank you.

Mr. Lastewka, please.

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Mr. Walt Lastewka (St. Catharines, Lib.): Thank you, Madam Chair.

Could you just enlighten me as to how long the Business Development Bank has been profitable? There have been stories written saying that the Business Development Bank has been profitable. For how many years has it been profitable?

Mr. Luc Provencher: The BDC was created in 1995. It has always been profitable through those years. It was profitable under FBDB for the previous years, except for—from memory—three or four years in the early 1980s after a recession. The bank was profitable through all the years of its existence; we're talking about 54 years.

Mr. Walt Lastewka: You talked about venture capital and I wrote down my question concerning it. You have 80 branches, but you have 10 venture capital areas across the country. Let's zero in on this. In Ontario, it's in Toronto.

Mr. Luc Provencher: In Toronto and in Ottawa.

Mr. Walt Lastewka: Toronto and Ottawa. Do the other branches also service venture capital?

Mr. Luc Provencher: Yes.

Mr. Walt Lastewka: But the offices are in Ottawa...? I'm thinking about how we get the venture capital to the outlying areas, where this is the greatest concern for SMEs; they have to go on bended knee to Toronto.

Ms. Simone Desjardins: Yes, I can talk about that. I'm in Toronto now, but I'll talk about my previous position when I was in Halifax and servicing all of Atlantic Canada. It's a good example to use to answer your question.

We were actually organizing round tables with the business community to promote the fact that we had venture capital. We were actually soliciting approaches for venture capital in order to make sure that the business community was aware we had venture capital and, again, to make sure that we were responding to the requests we would receive from any parts of Atlantic Canada even though the venture capital person was in Halifax.

Mr. Walt Lastewka: So I take it from your answer that the Business Development Bank branches that are spread out serve as a conduit to your venture capital offices in the various areas.

Ms. Simone Desjardins: All of our account managers, all of our officers, represent the bank and offer every product that is available from the bank even though it might not be available on those premises from a specialist in that location. All of our products are available in all locations.

Mr. Walt Lastewka: One of the items we discussed earlier is consulting and management support. One of the things I hear from SMEs across the country, since I do various workshops across the country, is that consulting people to SMEs move around and move out and so forth. What is the movement of your SME consultants in the branches? Do they move around?

Ms. Simone Desjardins: I would say that in the last couple of years there has not been a lot of movement in the consulting group—in Ontario for sure.

Is it like that across the country, Luc?

Mr. Luc Provencher: Yes.

Mr. Walt Lastewka: One of the things that we heard when Mr. Riis and I were at a conference is that this is a continuous problem of consulting groups continuously moving and going elsewhere. The poor SMEs that are trying to get confidence in a consultant continue to have different reps all the time. So what you're saying is that you minimize the movement of your consulting reps.

I have one more question, Madam Chair, if I have time. The BDC is involved with the Canada community investment project pilot programs across the country. One of the things that came out at the latest conference held three or four weeks ago is the need to continually do more management training without having SMEs pay a lot of money to try to move to the next step, especially those who are moving from home businesses where there are only one or two people. Can you tell me about your involvement with home businesses and the transition of home businesses to larger businesses and so forth? Can you tell me about your experience with that?

Ms. Simone Desjardins: First of all, on the management training, again, the bank is retaining its complementary role. On the management training, because the private sector is offering probably any kind of training that is requested, the bank is not very involved in training any more.

We will stay involved, let's say, in our NEXPRO program, where there is a component of the program that is training our small businesses to be exporters. We will do that as a component of the consulting program that we offer them.

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But to do just management training, to just progress the owner from one level to the next, we don't do that per se, because it is available from the private sector. We will work with a consultant, though, with a home-based business. If they want us to progress the small business owner from.... Let's say they're lacking in human resources management on the marketing part of it, on the product development, we will provide those counselling services but not pure training.

Mr. Walt Lastewka: You see, one of my problems, which I've heard about from many SMEs and when I attended conferences, is that anybody can become a consultant. There's no certification for consulting for small business, and the people who pay for that lack of certification are the small businesses. They then lack confidence in consultants because those consultants come with their cards and supposed backgrounds and really don't help SMEs. Have you not heard that there's a problem in that area?

Ms. Simone Desjardins: There is a group of certified management consultants, CMC, so there is a certification process for management consultants. Right now, our own consultants have to go through an accreditation process to be accredited with the bank. They have to be registered with us in order to be our consultants. So with us they are registered and they go through a screening process, and there is also a group that's called CMC.

Mr. Walt Lastewka: Then there is a whole pile of people who portray themselves as consultants, who I believe SMEs are getting hurt by, not benefiting from. That's a concern in my area.

Ms. Simone Desjardins: Definitely.

Mr. Walt Lastewka: Thank you, Madam Chair.

The Chair: Thank you, Mr. Lastewka.

Mr. Jones, please.

Mr. Jim Jones (Markham, PC): Thanks, Madam Chair.

Last week we heard that HRDC announced financial grants without so much as a business plan or departmental approval. Can you assure this committee that loan guarantees to Pierre Thibault and Yvon Duhaime were treated as any other application without any interference from the Prime Minister's office? Would you—

The Chair: Mr. Jones—

Mr. Jim Jones: —table documentary—

The Chair: Mr. Jones—

Mr. Jim Jones: —evidence to substantiate—

The Chair: Mr. Jones—

Mr. Jim Jones: —your testimony?

The Chair: —you were advised months ago that individual circumstances such as that would be out of order. It's still out of order even though it's in the form of a question. You're entitled to ask anything you'd like today about the Business Development Bank, their operations, and their mandate, but not about individuals, in particular those who, indirectly or directly, relate to the conduct of a member.

Mr. Jim Jones: Well, my questions that I'm going to ask are all related to the operations of the bank, and this relates to the operations of the bank.

What are the role and the responsibilities of the Business Development Bank's vice-president for corporate affairs? Do many of your senior executives serve as directors on the boards of private corporations? What steps are taken to ensure that there is no conflict of interest?

Mr. Luc Provencher: Excuse me. Can you repeat the question? I didn't catch it.

Mr. Jim Jones: What are the role and the responsibilities of the BDC vice-president for corporate affairs? Do many of your senior executives serve as directors on the boards of directors of private corporations? What steps are taken to ensure that there is no conflict of interest?

Mr. Luc Provencher: The vice-president of corporate affairs is responsible for all the corporate affairs of the bank. That person supervises the legal activities of the bank, the public affairs, and the governmental affairs. These are the key functions of that person.

Mr. Jim Jones: In my recent request for information on Duhaime and Thibault under the Access to Information Act, the BDC cited section 37 of the Business Development Bank of Canada Act to refuse my requests. Would you support an amendment to section 37 to allow the release of information by Order in Council?

Mr. Luc Provencher: If I remember correctly, section 37 is the question of confidentiality between the client and our bank. This was requested in the protection of the public's own interest when the bank was created in 1995.

Mr. Jim Jones: Both Duhaime and Thibault—

The Chair: Mr. Jones, can you please relate your questions without mentioning individuals? I'm going to remind you for the last time.

Mr. Jim Jones: Well, I am relating it to two loans here from people—

The Chair: Well, you can rephrase it in a general way about loans of the bank.

Mr. Jim Jones: Well, there are two—

The Chair: I know it's hard if you have to read the question, if you don't know what it is....

Mr. Jim Jones: I know what the question is. There are two people that have very questionable financial histories, and one has defaulted on—

The Chair: Mr. Jones, again, we're not going to allow questions about individuals. If you have operational questions about the bank, you're more than welcome to ask them, and now is the time. You were advised of this months ago.

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Mr. Jim Jones: What instruments or policies exist within BDC to scrutinize for accuracy the information for financial assistance that is submitted by applicants?

Mr. Luc Provencher: Can you inform me...?

Mr. Jim Jones: What instruments or policies exist within the Canadian Business Development Bank to scrutinize for accuracy the information for financial assistance that is submitted by applicants?

Mr. Luc Provencher: When a small business wants to deal with the bank, they first have to fill in a request for financing and they have to give us full information on their corporation and on the owners of that company if that company is a corporation. As a bank, we validate the information that was provided to us by our officer, either by ourselves or through others, to make sure that we fully understand the company and its level of possible future success.

Mr. Jim Jones: How many principals of organizations who have received assistance from the Canadian Business Development Bank or its predecessor agency, the Federal Business Development Bank, have criminal records? This question is on your application form.

Mr. Luc Provencher: If you read our request for financing, people have to declare if they have a criminal record. If they declare it, the people will be questioned.

Mr. Jim Jones: What type of due diligence do you do, especially on large loans? What type of due diligence do you do to make sure that...?

Mr. Luc Provencher: First when we get requests for financing, we get financial statements; we get information from their credit unions, from their caisses populaires, from their chartered banks, and from different business dealings, to see if the people have the ability to do the business that they are in and if the venture that they are in will make sense and will make enough profit to repay us and to succeed as a small business.

The Chair: Last question, Mr. Jones.

Mr. Jim Jones: That's it.

The Chair: Thank you, Mr. Jones.

Ms. Barnes.

Mrs. Sue Barnes (London West, Lib.): Thank you, Madam Chair.

I'm interested in your presentation, at page 12, where you talk about—and I'm sorry I wasn't here for your oral presentation—becoming a designated lender under the Canada Small Business Financing Act. I want to know what you're doing to make that happen. What is the strategic plan of the bank to do that?

Mr. Luc Provencher: I'm sorry, but you're talking about...?

Mrs. Sue Barnes: Canada's Small Business Financing Act and your strategic initiative—

Mr. Luc Provencher: Yes.

Mrs. Sue Barnes: —on page 12.

Mr. Luc Provencher: Yes. Last fall, through the Minister of Industry, we requested the possibility, when the law was changed, of becoming a lender accredited by government. That is in front of the minister, to be approved.

Mrs. Sue Barnes: If that were to be so.... You realize that some of the changes made in the fall affected the volunteer sector. Would you also be interested in assisting them in their financing?

Mr. Luc Provencher: The financing has to fall within our own act.

Mrs. Sue Barnes: Does that act allow that type of financing now?

Mr. Luc Provencher: That's what we hear.

Mrs. Sue Barnes: Okay. That's interesting, because a lot of the traditional banks are seen to be reluctant in that area. If they don't take up that cause and that need, that might be a niche strategy for you.

Mr. Luc Provencher: You're right. The bank has always been a catalyst in breaking new ground. The bank was created in 1944. If you look at the progress realized over the years and if you go to page 10 and look at all the different products that we've introduced, they are are all something different and new in order to create that momentum around the support and financing of small business, and we're pleased to go out and do more on that.

Mrs. Sue Barnes: I suggest to you that you might want to look at those sections, because there doesn't seem to be a lot of take-up so far.

Mr. Luc Provencher: Okay. Thank you.

Mrs. Sue Barnes: There's another area. A lot of the traditional banks and lending institutions are now actively and proactively reaching out to women entrepreneurs because of their successes. I didn't seen anything in your listing that specifically targets this sector of business, and I wonder what you're doing or not doing there.

• 1625

Ms. Simone Desjardins: Being a woman myself, I'm quite involved in that. Last week, as a matter of fact, I was participating in the trade mission follow-up. I attended that first trade mission in Washington in 1997. The follow-up meeting to that was held last week in Toronto, where we had 150 Canadian women and 150 American women trying to do better links together. Of course the BDC is very present at those kinds of conferences.

In regard to the result that we have for women entrepreneurs in our dealings last year, 1,200 new loans were done with women entrepreneurs across the country. We know that the women-led businesses across the country.... According to the last statistics we could see, which were from 1996, less than 20% of businesses are led by women and our portfolio is over 20% women-led businesses.

Mrs. Sue Barnes: What's the gender split on the board of directors?

Ms. Simone Desjardins: How many board members are women, Luc?

We have quite a few.

Mr. Luc Provencher: We have four women on a board of thirteen members.

Ms. Simone Desjardins: About 25%.

Mrs. Sue Barnes: Twenty-five per cent is better than the last time I asked this.

Thank you.

The Chair: Thank you, Ms. Barnes.

I have no more questions on my list.

Mr. Provencher, I don't know if....

Mr. Jim Pankiw: Madam Chair—

The Chair: We don't have time for a whole second round. We have something else on the agenda at 4.30, and no one indicated questions, so I've allowed people to go over at times. I apologize. Do you have a brief question?

Mr. Jim Pankiw: Yes.

The Chair: Everyone has a brief question?

An hon. member: Very brief.

The Chair: Well, can we do it in three minutes? Not just you—I mean everybody. One minute each.

Mr. Jim Pankiw: We'll try.

The Chair: Mr. Pankiw, you have one minute.

Mr. Jim Pankiw: You said that your goal is to help small businesses and to act as a catalyst, but do you not understand that having $500 million of taxpayers' money invested in the bank is killing business? There's no way that you can take $500 million from businesses and then re-administer it through a bank selectively and have a greater effect than if you had just left that money there in the first place.

Mr. Luc Provencher: I think what you have to look at is the leverage that we are doing with this investment. First, we give a return to the government, so it does not cost the taxpayer any money. We generate an income equivalent to the cost of the fund—or more. Plus, we are leveraging that money on behalf of small business in order to be able to have more. With $500 million, we get $5 billion within the economy of this country. I think we're doing a pretty good job for small business from that standpoint.

The Chair: Thank you, Mr. Pankiw.

Madame Lalonde.

[Translation]

Ms. Francine Lalonde: In December 1998, I rose in the House to ask a question about an article that appeared in the newspapers. It revealed that BDC management in Montreal had spent $221,000 on the purchase of golf club memberships for bank executives. Do you have an idea of how much BDC spends on all of its executives across Canada?

Mr. Luc Provencher: I will have to take that question under advisement and provide you with an answer at a later date. Off the top of my head, I couldn't tell you.

Ms. Francine Lalonde: Some people have called my office to report this, while others have come to see me in person. They've told me that no one is ready to purchase golf club memberships for SME owners.

Mr. Luc Provencher: I'd simply like to point out that this expense comes out of the bank's operating budget and that it is quite common in the business world for executives to participate in these kinds of activities as a means of drumming up new business.

Ms. Francine Lalonde: And yours is a different kind of bank.

Mr. Luc Provencher: That's correct.

[English]

The Chair: Thank you, Madame Lalonde.

Mr. Riis, please.

Mr. Nelson Riis: Thank you.

Luc, in response to Ms. Barnes' question, how many loans did you say that you had issued to women entrepreneurs this year?

Ms. Simone Desjardins: Twelve hundred.

Mr. Nelson Riis: You have 80 branches. What would be a typical number of loans that you would write annually per branch?

Mr. Luc Provencher: We have 84 branches. The branches are quite different. Some are very small and some are bigger, depending on the profile of the community. We do about 6,000 transactions a year across the country. We have nearly 19,000 regular clients among these 84 branches, sir.

Mr. Nelson Riis: Thank you.

The Chair: Thank you very much, Mr. Riis.

Those were good questions at the last—quick and to the point.

Mr. Jones, do you have a one-minute question too?

Mr. Jim Jones: Yes. Your average loan is $200,000. What additional analysis do you do for any loans that are over $500,000 to $1 million?

• 1630

Ms. Simone Desjardins: The additional due diligence doesn't depend necessarily on the size of the loan, although it could. The additional due diligence could be done on a $100,000 loan depending on the risk. So it's all based on risk: the more risky it is, the more due diligence we do.

The Chair: Thank you.

Mr. Provencher, I don't know if you have any closing statement or any final comment for us.

Mr. Luc Provencher: We'd like to thank you for giving us the opportunity to express to you what we do, and we hope to see you again. Next year we will have a five-year revision of our act, and we will be pleased to come back and discuss the matter with you.

The Chair: Thank you. We look forward to that opportunity as well, and we thank you for taking the time to be here. We know you're busy, and we appreciate your participation today. You're welcome to leave, because now we're going to move on to future business.

On the items for future business, we have Mr. Jaffer.

Mr. Rahim Jaffer (Edmonton—Strathcona, Ref.): Thanks, Madam Chair.

I don't know if I need to read the motion in order to move it. Can I just move it? Okay.

I sent everyone a letter giving some background on why I think this motion is important and complementary to some of the things that we'll be looking at when we're studying the Competition Act and the issues surrounding the Competition Act. When I was discussing this with Mr. Lastewka, he mentioned to me that this may in fact be something that the finance committee or...that we should be looking at—

Mr. Walt Lastewka: I said foreign affairs and international trade—

Mr. Rahim Jaffer: Foreign affairs and trade.... The only issue, I think, that was brought to my attention is that obviously as it pertains to the issue of competition and the Competition Act, foreign affairs and trade.... I don't know if it would fall under their area because competition obviously is an industry committee responsibility, so that's one of the reasons that I thought it would be complementary to our committee as we look at the Competition Act in the next little while.

I'm encouraging all members on this because of the fact that it is a complementary motion to what we're studying. It wouldn't really take away any time; I know that's something this committee has been concerned about. I clarified that in my statement that I sent around to everyone. I think it would be something that would be complementary to what we're going to be studying, and I would encourage all members to support the motion, because it is a positive motion in that sense.

The Chair: Mr. Lastewka.

Mr. Walt Lastewka: Thank you, Madam Chair.

I did have a conversation with a fellow colleague who has served on the foreign affairs and trade committee for two years. The foreign affairs and trade committee calls in representatives from all departments to be witnesses. When you start to get into the International Trade Tribunal section, when you start to get into markets and going from domestic to international, it gets into their responsibilities. They would call in not only the department industry; they would call in the Competition Bureau, the finance department, and all of their departments that deal with the international trade section.

We already have the motion on the floor to talk about the Competition Bureau as a result of our Bill C-235 deliberations. To add that on top of it.... I think you're confusing what we're trying to get done on the previous motion. I would recommend, Mr. Jaffer, if you want some support, that we refer it to the foreign affairs and international trade committee. They're into this all the time and they're always bringing in witnesses from all the departments, as I mentioned earlier.

Mr. Rahim Jaffer: I think that in fact is true. I guess the only thing that specifically was even referred to by the commissioner of the Competition Bureau was that he had said that one of the confusing things, which would be in the mandate of this committee—and I put that in my letter—is a study of the Competition Act...or the activities of the Competition Bureau would be more complete—and we are looking at that—if we understand the primary cause of anti-competitive domestic markets or industries, not international but domestic markets.

That's what I was trying to clarify. It's complementary to what the mandate of our committee is and obviously to the Competition Bureau...and not really looking at the international side but more so at own problems with our competition within our own market. That's why I was saying that it is technically still the mandate of this committee and it would be complementary to what we're looking at.

Mr. Walt Lastewka: Yes, but as soon as you put in the Canadian International Trade Tribunal and those other trade items, you've expanded it, you see—

Mr. Rahim Jaffer: Yes, but—

• 1635

Mr. Walt Lastewka: —and under the motion that's on the floor now for our study, we're going to be covering all the other items.

Mr. Rahim Jaffer: I wonder...maybe if I were to amend the motion when it comes to the decisions of the Canadian International Trade Tribunal but to look specifically, as I mentioned, to the domestic issue of anti-competitiveness and dumping....

Mr. Walt Lastewka: That's on our previous motion, which Mr. Keyes made.

The Chair: Mr. Keyes.

Mr. Stan Keyes (Hamilton West, Lib.): Madam Chair, maybe it will help to refresh Mr. Jaffer's memory. The original motion, which looked at a thorough review of the Competition Act and the Competition Bureau, was amended.

You may not have been here at that particular juncture, Mr. Jaffer, but we amended that to include this:

Review the anti-competitive pricing practices within the Competition Act and any related enforcement guidelines and operations of the Competition Bureau.

So if you do drop your last five or six lines on your motion, you are in effect saying exactly what the original motion said on Tuesday, April 20, when I moved the motion and then moved an amendment to carry through with exactly the debate you're seeking at this time.

Mr. Rahim Jaffer: I understand and appreciate your comments, but my only concern, I guess, is that when it comes to anti-competitive pricing specifically, like we're talking about, it's tough to separate the two.

Mr. Walt Lastewka: That's right. That's why, when we looked at the motion and then amended it, we wanted to get at that item and other related areas; so as we investigate and see other things, the motion, I think, does read that we're going to get into those other things.

Mr. Rahim Jaffer: Okay. My concern was that I didn't think that it went far enough.

Mr. Walt Lastewka: The motion as amended leaves it open for the committee to call the witnesses—

Mr. Rahim Jaffer: And to touch on these things—

Mr. Walt Lastewka: —in the surrounding areas of the problem that we think it is—

An hon. member: Withdraw or question?

The Chair: Mr. Jaffer...?

Mr. Rahim Jaffer: Since I've done all this work, I might as well leave it on in order to have a vote on it—

The Chair: Okay.

Mr. Rahim Jaffer: —and then, obviously, if it isn't going to go ahead, I can call witnesses pertaining to that particular side. I'll let the question stand and I'll ask for a recorded vote, please.

The Chair: Okay, it's a recorded vote.

(Motion negatived: nays 7; yeas 4)

The Chair: The next item on our agenda is a motion that Mr. Jones has circulated.

I'm going to remind members that we have had a motion very similar to this. I ruled it out of order then and I'm ruling this motion out of order now. Just so we're all clear and so we all understand what the mandate of this committee is, I ruled it out of order last time because it was beyond the mandate of the committee, and I'm ruling it out of order now because it doesn't fall under the general mandate of the committee.

Furthermore, while the committee in theory possesses the power to request production of documents related to its proceedings, it cannot in the course of its proceedings challenge the conduct of another honourable member directly or indirectly, and if a member wishes to challenge that conduct by alleging conflict of interest, the law of privilege provides that this can be done in the House and only in the House.

For those reasons, I rule this motion out of order. I want to be very clear. It is beyond the mandate of this committee.

Are there any other comments? Is there any other future business?

• 1640

Okay. If there are no comments, then, we'll move to the next part of the meeting. We'll be moving in camera to consider our draft report.

[Proceedings continue in camera]