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pdf ACKNOWLEDGEMENTS
The CDFI Fund is very grateful to all the Tribal leaders, Tribal economic development
professionals, Native Hawaiian representatives, representatives of commercial banking
organizations, private equity investors, federal government agency officials, financial
supervisory agency officials, and Native American entrepreneurs who took the time to
participated in the Native American Lending Study Workshops and Roundtable meetings.
Their economic development and financing expertise greatly contributed to identifying
barriers to accessing capital and possible remedies. In addition, the advice and contribution
by the Study’s ad hoc advisory group is greatly appreciated.
The CDFI Fund acknowledges and appreciates the professionalism of the Johnson Strategy
Group, Inc. for facilitating all the Workshops and Roundtable meetings, and for its
contribution to the final report.
THE REPORT OF THE
NATIVE AMERICAN LENDING STUDY
COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND
U.S. DEPARTMENT OF THE TREASURY
NOVEMBER 2001
NATIVE AMERICAN LENDING STUDY
i
Table of Contents
EXECUTIVE SUMMARY ........................................................................................... 1
The Issue ............................................................................................................... 1
Study Approach .................................................................................................... 3
Barriers to Capital Access ...................................................................................... 4
Remedies and Recommendations .......................................................................... 6
Examples of Initiatives and Programs .................................................................. 11
CHAPTER ONE
INTRODUCTION .................................................................................................... 13
Mandate for the Study ........................................................................................ 13
Economic Conditions on
the Indian Lands and Hawaiian Home Lands ............................................... 13
Profile of the Native American Community ........................................................ 15
CHAPTER TWO
RESEARCH DESIGN ................................................................................................ 17
Regional Workshops and National Roundtable ................................................... 18
The Financial Survey ........................................................................................... 19
Objectives of the Financial Survey ................................................................ 19
Financial Survey Methodology ..................................................................... 20
The Equity Investment Roundtable and Research Report on Equity Investment . 20
The Equity Investment Roundtable .............................................................. 20
The Equity Investment Report ..................................................................... 21
CHAPTER THREE
BARRIERS TO PRIVATE FINANCING
AND POTENTIAL REMEDIES ............................................................................... 23
Legal Infrastructure Barriers ................................................................................ 23
Identification of Barrier ................................................................................ 23
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U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
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NATIVE AMERICAN LENDING STUDY
Inadequate Tribal Commercial Laws and Regulations .......................... 23
Potential Remedy.......................................................................................... 24
Enhance the Tribal Legal Infrastructure................................................ 24
Government Operations ..................................................................................... 25
Identification of Barriers ............................................................................... 26
Cumbersome, Conflicting,
or Inefficient Federal or State Programs and Regulations .............. 26
Inflexible Bank Lending Rules and Regulations ................................... 26
Uncertainty Generated by
Changes in Tribal Government Leadership .................................... 27
Potential Remedies ....................................................................................... 27
Improve Tribal Planning Processes and Structure ................................. 27
Separate the Goals and Management of
Tribal Government From Those of Tribal Business ........................ 28
Strengthen Tribal Courts ...................................................................... 28
Streamline and Improve the Efficiency and Effectiveness of Federal and
State Programs for Native Americans and Native Hawaiians ......... 29
Economic Barriers ............................................................................................... 30
Identification of Barriers ............................................................................... 30
Limited Use of Trust Land as Collateral ............................................... 30
Lack of Capital, Collateral, and/or Credit Histories
of Native Americans on Indian Lands and Native Hawaiians ........ 31
Negligible Economic Base on Indian Lands ......................................... 32
Lack of Networking
of Native-owned Businesses with Equity Investors......................... 32
Potential Remedies ....................................................................................... 33
Create Alternative Collateral Options for Trust Land ........................... 33
Develop Ways to Access Debt
and Equity Capital on Indian Lands and Hawaiian Home Lands .. 33
Increase Equity Investment
on Indian Lands and Hawaiian Home Lands ................................ 34
Establish a Native American and Native Hawaiian Equity Fund .......... 38
Financial and Physical Infrastructure ................................................................... 38
Identification of Barriers ............................................................................... 39
Lack of Financial Institutions on
or Near Indian Lands or Native Hawaiian Communities .............. 39
Lack of Physical and Telecommunications Infrastructure
on Indian Lands or Hawaiian Home Lands ................................... 39
Potential Remedies ....................................................................................... 41
Increase the Number of Financial Institutions on
or Near Indian Lands and Hawaiian Home Lands ........................ 41
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
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Develop Regional Financial Institutions .............................................. 42
Develop Financial Products and Services that Will Meet
the Needs of Native American
and Native Hawaiian Depositors and Borrowers ........................... 43
Create Innovative Strategies to Develop Indian Lands
and Hawaiian Home Lands Infrastructure..................................... 43
Educational and Cultural Barriers ....................................................................... 44
Identification of Barriers ............................................................................... 45
Lack of Knowledge or Experience with
the Financial World on the Part of Tribes
and Individual Native Americans and Native Hawaiians ............... 45
Lack of Technical Assistance Resources ................................................ 46
Failure of Lenders and Investors
to Understand Tribal Government or Legal Systems ...................... 46
Poor Understanding of Tribal Sovereignty and Sovereign Immunity .... 46
Historical Absence of Trust Between Tribes and Banks ......................... 47
Differences Between Native American
and Native Hawaiian Cultures and
the Banking and Investor Cultures ................................................ 47
Discrimination Against and/or Stereotyping
of Native American and Native Hawaiian Communities ............... 48
Potential Remedies ....................................................................................... 48
Expand Financial Education
for Native Americans and Native Hawaiians ................................. 48
Develop Entrepreneurship Programs
for Native Americans and Native Hawaiians ................................. 49
Conduct Lender and Investor Education ............................................. 49
Expand Technical Assistance ................................................................ 50
CHAPTER FOUR
CONCLUSION: KEY INITIATIVES ........................................................................ 53
Federal Government Next Steps .......................................................................... 53
Tribes’ and Native Hawaiians’ Next Steps ............................................................ 54
Financial Institutions’ Next Steps ........................................................................ 54
Cooperative Activity ........................................................................................... 54
APPENDICES
Appendix A: Financial Survey—Financial Services Organizations ....................... 58
Appendix B: Financial Survey—Tribal Leaders.................................................... 64
NOVEMBER 2001
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
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NATIVE AMERICAN LENDING STUDY
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
EXECUTIVE SUMMARY
The Native American Lending Study (the “Study”) 1 was undertaken by the Community
Development Financial Institutions Fund (the “CDFI Fund”), a government corporation
within the U.S. Department of Treasury, for the purposes of examining the access to
capital and financial services on Indian Lands2 and Hawaiian Home Lands3 , identifying
the barriers to access, and providing options to address these barriers. The mission of the
CDFI Fund is to expand the capacity of financial institutions to provide capital, credit
and financial services in underserved markets.
THE ISSUE
In the Community Development Banking and Financial Institutions Act (1994)4 , Congress
found that “[m]any of the Nation’s urban, rural and Native American communities face
critical social and economic problems arising in part from the lack of economic growth,
people living in poverty, and the lack of employment and other economic opportunities.”5
Indeed, many communities located in Indian Lands face economic and social challenges
that place them significantly behind the rest of the U.S. economy.
Financial Survey respondents and Workshop participants identified a number of
historical, economic, and institutional reasons for these conditions. Affirming the
Congressional findings with respect to the absence of economic opportunity, many of
1
The Native American Lending Study reports the findings of: (1) 13 Regional Workshops (the “Workshops”), convened
by the CDFI Fund from March through December, 1999 – which included over 700 individual participants, of
whom: 43 percent were representatives of Tribal governments as herein after defined; 33 percent were representatives
of federal, state and non-profit organizations; and 24 percent were representatives of financial institutions; (2) the
National Roundtable, convened January 13-14, 2000; (3) the Community Development Financial Institutions Fund
Financial Survey (the “Financial Survey”), administered October, 2000 to 1,600 Tribal and financial organizations;
and (4) the Equity Investment Roundtable, convened on November 27-28, 2000, and the CDFI Fund Equity Research
Investment Report. For a more detailed description of the Study design, see Chapter II.
2
“Indian Lands” are defined for the purposes of the Study as lands owned by or under the control of Tribal governments,
including reservations, Indian Lands in Oklahoma, and Alaska Native Villages. For purposes of the Study, Alaska
Native Villages shall have the definition ascribed by 43 U.S.C. § 1602, et. seq.
3
“Hawaiian Home Lands” are defined for the purposes of the Study as trust lands held for the benefit of Native
Hawaiian people and are administered by the State of Hawaii’s Department of Hawaiian Home Lands.
4
12 U.S.C §§ 4701, et seq. (2000).
5
12 U.S.C. § 4701 (a) (1) (2000).
2
EXECUTIVE SUMMARY
NATIVE AMERICAN LENDING STUDY
the Study participants identified one significant factor: a lack of access to capital and
financial services in Native American and Native Hawaiian communities.6 In fact, the
CDFI Fund’s research found that there exists a significant difference in the amount of
capital investment when comparing the rest of the United States to Indian Lands and
Hawaiian Home Lands. 7
The Financial Survey and supporting research found the following evidence of this
historic underinvestment on Indian Lands and Hawaiian Home Lands8 :
• 65 percent of Native American and Native Hawaiian respondents to the Financial Survey
report that conventional mortgages are “difficult” or “impossible” to obtain. Home
equity loans and construction and property rehabilitation loans are also in short supply
on Indian Lands and Hawaiian Home Lands.
• Business loans were rated as “impossible” to obtain by 24 percent of Native American
and Native Hawaiian respondents to the Financial Survey and as “difficult” to obtain
by 37 percent. Larger business loans, those over $100,000, are even more difficult to
obtain; 67 percent of said Financial Survey respondents rated them as “difficult” to
impossible to obtain.
• 66 percent of Native American and Native Hawaiian respondents to the Financial Survey
stated that private equity investments are “difficult” or “impossible” to obtain for Native
American and Native Hawaiian business owners.
• The CDFI Fund’s Equity Research Report estimates that the investment gap between
Native American and Native Hawaiian economies and the United States overall totals
$44 billion9 .
Accordingly, the major objectives of the Study are to identify the barriers to capital access,
credit, and basic financial services on Indian Lands and Hawaiian Home Lands and to
develop policy recommendations that address these barriers.
6
For the purposes of the Study, the term “Native Hawaiian” is defined as “a person having origins in the original
peoples of Hawaii”, see 62 Fed. Reg. 58,781 (1997). “Native Hawaiian” is not a term comparable to a federallyrecognized American Indian Tribe. Inclusion of Native Hawaiians in the study does not confer or imply any specific,
legally enforceable duties on the United States as trustee that apply under certain circumstances when it manages
tribal or individual Indian property or resources. In addition, this study does not support or create any right enforceable
or cause of action by or against the United States, its agencies, officers or any person. The CDFI Fund’s experience
with CDFIs and prospective CDFIs in Hawaii has suggested that Native Hawaiians face many of the same issues and
barriers as Native Americans and Alaska Natives in their attempts to access loans and investment capital. Accordingly,
in 1999, the CDFI Fund proposed to Congress to expand the Study beyond the original Congressional mandate to
include Native Hawaiians. The Senate Committee on Indian Affairs encouraged and supported the proposed expansion.
7
Based upon research prepared for the CDFI Fund by Complexity Management, Inc., a business, financial, and economic
development consultant firm, it is estimated that a given region or country can support equity investment at a
particular rate based on the level Gross Domestic Product, and other economic and demographic factors. Based on
that calculation, Indian Lands and Hawaiian Home Lands, with their “local GDP” (i.e.- the cost of goods and
services purchased and sold), could support equity investment in an amount equal to $16 billion. However, it is
estimated that $10 billion is currently invested in Indian Lands and Hawaiian Home Lands. Indeed, similar
estimates project that Indian Lands and Hawaiian Home Lands could support approximately $40 billion of equity
investment if their demographics and economic conditions more closely reflected those of the rest of the United
States as a whole. This Study refers to the difference between investment at the prescribed rate and current investment
as the “investment gap” or “equity gap.” See Ch. III for additional discussion.
8
See Chapter II for a detailed description of the design of the research and the Financial Surveys. A more detailed
discussion of the barriers follows in Chapter III.
9
See Chapter II for a detailed description of the design of the equity research. See also, n. 7, above.
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
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STUDY APPROACH
The Study was designed to produce a broad, if not necessarily exhaustive, qualitative
review of the state of lending and investment on Indian Lands and Hawaiian Home Lands.
This was accomplished largely through input from many of the stakeholders involved in
capital access issues on Indian Lands and Hawaiian Home Lands. Simultaneously, the
Study has attempted to supplement this review with meaningful quantitative input and
analysis. This was accomplished through the Financial Survey, the Equity Investment
Research Report, and other CDFI Research10 . Accordingly, the Study approach was designed
not only to provide a catalog of economic problems on Indian lands and Hawaiian Home
Lands by integrating the concerns and recommendations of those who are attempting to
lead their communities into the nation’s economic mainstream, but to provide a statistical
reporting as well.
To assist in accomplishing this, the CDFI Fund convened 13 regional and two national
Workshops involving Tribal11 leaders and economic development professionals, Native
American and Native Hawaiian business people, private investors and bankers, federal
and state government officials, and other stakeholders. Participants discussed the major
barriers to Native American and Native Hawaiian access to capital and developed strategies
and actions to overcome those barriers. The Workshops represent an extensive effort to
bring together a broad array of stakeholders who each have specific economic development
and financing expertise, with experience on Indian and Native Hawaiian lands, to discuss
issues related to barriers to capital access and identify possible remedies. Workshop and
Equity Investment Roundtable participants offered their diverse range of views and
perspectives on accessing capital based on their individual expertise.
The Financial Survey was designed to probe the same set of issues with a broader group of
individuals having expertise and experience similar to that of Workshop and Equity
Roundtable participants, and who, for the most part were located in or within ten miles of
Indian Lands and Native Hawaiian communities. The Financial Survey response rate (33
percent for representatives of FSOs and 25 percent for representatives of Tribal and Native
Hawaiian organizations) was lower than expected due to the limited data collection time
frame. Nonetheless, the Financial Survey results were consistent with the findings of the
Workshops and Equity Roundtable.
The Workshops were complemented by the following research:
• The Financial Survey was administered to Tribal government housing and economic
development directors and private financial service organizations (FSOs)12 located on
or near Indian Lands or located in Hawaiian Home Lands to identify the barriers to
lending and provide financial services and to help develop recommendations to address
those barriers.
10
A Bibliography detailing the sources for the CDFI Fund research is located on the CDFI Fund website at:
www.treas.gov/cdfi/. The Bibliography is not intended to be exhaustive, or to indicate any CDFI Fund or
Department of Treasury endorsement of the positions or opinions expressed in the materials listed therein. Rather,
the Bibliography provides the reader with a list of the key sources of information that informed the preparation of
this Study.
11
In the Study, “Tribal” refers to Native American and Alaska Native governments, except as may be hereinafter
specified.
12
Financial Service Organizations (FSOs) are commercial banks, thrifts, credit unions and other related insured
depository institutions.
NOVEMBER 2001
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EXECUTIVE SUMMARY
NATIVE AMERICAN LENDING STUDY
• A study on equity investment on Indian Lands and Hawaiian Home Lands was
conducted to provide the background and recommendations for enhancing equity capital
access. This research included discussions with equity market participants, review of
the relevant findings from the Financial Survey, and analysis of the findings from the
Workshops. In addition, a questionnaire was administered to participants in the Equity
Investment Roundtable that provided useful information about equity investment on
Indian Lands and Hawaiian Home Lands.
BARRIERS TO CAPITAL ACCESS
The Study identified 17 major barriers to capital access, relating to legal infrastructure,
government operations, economic, financial and physical infrastructure, and education
and cultural issues. 13
The Study identified one major barrier to capital access related to legal infrastructure:
1.
Uncertain Tribal Commercial Laws and Regulations and the Absence of an
Independent Judiciary. Investors and financial service providers who participated
in Workshops and responded to the Financial Survey were concerned that, in
many Tribal governments, Tribal courts may not be sufficiently independent
of the executive branch of the Tribal government. Moreover, Workshop
participants and Financial Survey participants cited the absence of codified
Tribal commercial laws and regulations as causing investors to be hesitant to
invest capital on Indian Lands.
Three major capital access barriers were identified that are related to government operations:
13
1.
Cumbersome, Conflicting, or Ineffective Federal Programs and Regulations. Study
participants noted their experience or perception that the pace of government
decision-making is often slow and may involve extensive requirements and
paperwork, program requirements often conflict with one another, some
programs fail to meet the needs of the Native American and Native Hawaiian
communities that they were designed to meet, and some programs have
excessively restrictive entry guidelines.
2.
Uncertainty Generated by Changes in Tribal Government Leadership. As is often
true for elected governments, when a new Tribal administration is elected it
may eliminate plans for programs begun by the previous administration. Since
most Tribal governments do not exercise general taxing authority, many support
their operation with revenues derived from their ownership of private businesses.
Accordingly, a Tribal government sometimes operates simultaneously as both
private sector investor and public sector “regulator” and Tribal business
endeavors can at times take on both a public and private character.
3.
Poor Understanding of Tribal Sovereignty and Sovereign Immunity. Study
participants noted that lenders and investors are uncertain about the operation
of Tribal and Alaska Native village sovereignty and sovereign immunity and,
thus, often perceive greater risk to conduct business on Indian Lands.
See Chapter III for a description of how the 17 barriers to capital access were identified.
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
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Five major economic barriers to capital access were identified:
1.
Limited Use of Trust Land as Collateral. Study participants and Fund research
revealed that financing home mortgages and business loans presents a major
challenge, since most Indian Lands and Hawaiian Home Lands are held in
trust by federal or state governments and cannot be sold or encumbered by a
mortgage lien, except as authorized by the Secretary of the Interior or other
appropriate state official.
2.
Inflexible Bank Lending Rules and Regulations. In many cases, Study participants
noted their experience or perception that underwriting standards of traditional
financial institutions do not appear to be structured to account for the particular
economic circumstances of Native American and Native Hawaiian people, many
of whom might otherwise be creditworthy.
3.
Lack of Capital, Collateral, and/or Credit Histories of Native Americans and Native
Hawaiians on Indian Lands and Hawaiian Home Lands. Fund research suggests
that most Native Americans and Native Hawaiians living on Indian Lands or
Hawaiian Home Lands do not have access to capital in the form of home
equity, stock holdings, or other assets.
4.
Negligible Economic Base on Indian Lands and Hawaiian Home Lands. Fund
research found that, at present, many Native American and Native Hawaiian
communities on Indian Lands or Hawaiian Home Lands lack adequate
economic bases to meet the needs of their communities.
5.
Lack of Networking of Native-owned Businesses With Equity Investors. The CDFI
Fund Equity Investment Research Report reveals that many of the nation’s
venture capital investors are concentrated in areas that are physically and even
socially remote to Native American and Native Hawaiian entrepreneurs. The
equity research and comments of Workshop participants confirm that little
investment occurs when potential investors and entrepreneurs live in different
states and operate in different social and business circles.
There are two major capital access barriers related to financial and physical infrastructure:
14
1.
Lack of Financial Institutions on or Near Indian Lands. A number of Financial
Survey and Workshop participants stated that few financial institutions,
bank branches, or even ATMs are located on or near (within 30 miles)
Indian Lands. The participants posited that the absence of financial
institutions impedes the development of bank-community relationships,
and drives up borrowing costs.
2.
Lack of Physical and Telecommunications Infrastructure on Indian Lands or
Hawaiian Home Lands. Many areas within Indian Lands lack the physical
infrastructure necessary for business development and expansion. A New Mexico
State University Study14 reports, and Study participants confirm, that many
households on Indian Lands lack telephones, electricity and/or natural gas
and improved roads. Workshop participants reported that similar conditions
prevail in Hawaiian Home Lands.
Assessment of Technolog y Infrastructure in Native Communities, College of Engineering of New Mexico State
University, 2000, prepared for the Economic Development Administration, U.S. Department of Commerce.
NOVEMBER 2001
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EXECUTIVE SUMMARY
NATIVE AMERICAN LENDING STUDY
Six major capital access barriers related to education and cultural issues were identified:
1.
Lack of Knowledge or Experience With the Financial World on the Part of Native
Americans and Native Hawaiians. Some Study participants related that in many
Native American and Native Hawaiian economies, financial transactions have
traditionally been conducted using cash. Thus, according to Study participants,
many Native Americans and Native Hawaiians lack experience with and
understanding of banking, credit reporting, and loan qualification processes
and standards. They may have difficulty obtaining credit, and often lack
knowledge and experience in preparing business plans required for bank
financing or equity investment.
2.
Lack of Technical Assistance Resources. The Study identified the lack of technical
assistance and training resources, in areas including financial literacy, financial
management and entrepreneurship, as a serious barrier to capital access and,
throughout the Workshops, participants identified a variety of unmet training
needs for Tribal governments and Native American and Native Hawaiian
entrepreneurs.
3.
Failure of Lenders and Investors to Understand Tribal Government or Legal Systems.
Study participants noted that lenders and investors have had limited exposure
to Tribal government operations, regulations, and enforcement, and thus may
be concerned about not being able to collect on their debts or may fear that the
process of doing so will be complex and difficult.
4.
Historical Absence of Trust Between Tribes and Banks. Study participants noted
that there has been a historical lack of trust between Native Americans and
Native Hawaiians and FSOs. This may cause misunderstandings that lead to
failed negotiations for loans, increased costs of doing business for Native
Americans and Native Hawaiians, and a reluctance on the part of banks to
underwrite loans.
5.
Differences Between Native American and Native Hawaiian Cultures and Banking
and Investor Cultures. The differences between Native American and Native
Hawaiian cultures and banking and investor cultures are substantial, according
to Study participants. There are, for example, differing views of the concepts
of wealth and wealth sharing, profit motive, asset accumulation, credit
worthiness, and land ownership.
6.
Discrimination Against and/or Stereotyping of Native American and Native
Hawaiian Communities. Financial Survey respondents and Workshop
participants reported that Native Americans and Native Hawaiians suffer from
stereotyping and discrimination, with problems ranging from cultural
misunderstandings to overt redlining and discriminatory lending practices.
REMEDIES AND RECOMMENDATIONS
Study participants identified a number of potential remedies and recommendations
related to the major capital access barriers identified above.
Participants identified one recommendation related to the legal infrastructure
barrier cited above.
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
1.
7
Enhance the Tribal Legal Infrastructure. Some Study participants
recommended a strategy of creating a more pro-business legal environment
on Indian Lands, through such actions as:
• Establishment of a Tribal legal infrastructure for business development,
including Tribal commercial codes, foreclosure regulations, bankruptcy codes,
permitting processes, and general regulatory frameworks
• Development of zoning codes and land use plans
• Clarification of sovereignty and sovereign immunity, particularly regarding
business and housing development
Study participants identified four recommendations related to the three government
operations barriers:
1.
Improve Tribal Planning Processes and Structures. Some Workshop participants
felt that Tribal governments need to enhance their ability to establish, articulate
and manage a clear and concise vision, to formulate policies and strategic plans
for overall economic development, and to cultivate the professional government
workforce necessary to implement such plans.
2.
Separate the Goals and Management of Tribal Government From Those of Tribal
Business. Some Workshop participants recommended separating the
management of business and government, spinning off Tribally-owned
enterprises to a separate bodies for oversight and management, delegating
privately-owned enterprise oversight to nonpolitical bodies, and clarifying the
differences between Tribal government and corporate liability.
3.
Strengthen Tribal Courts. Some actions recommended by Study participants
include:
• Further development of independent Tribal courts
• Provision of training for court personnel on commercial and financial law
• Increasing the skills and capacity of judges and judicial personnel regarding
lender and investor issues
• Establishment of enforcement procedures for foreclosure, repossession,
garnishment, and bankruptcy
4.
Streamline and Improve the Efficiency and Effectiveness of Certain Federal and
State Programs Used By Native Americans and Native Hawaiians. Many Workshop
participants expressed the need to accelerate the pace of decision-making,
reducing excessive requirements and paperwork, rationalizing conflicting
requirements and revising programs with overly restrictive entry guidelines, of
certain state and federal programs.
There were four remedies identified that relate to economic barriers:
1.
Create Alternative Collateral Options for Trust Land. Workshop participants
recommended recognizing and leveraging the value of trust assets; facilitating
development of trust land through alternative means of valuation and
collateralization, such as the creation of leaseholds and master leaseholds;
building equity pools from trust lands and other resources; and converting
NOVEMBER 2001
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
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EXECUTIVE SUMMARY
NATIVE AMERICAN LENDING STUDY
traditional assets into collateral. Workshop participants also recommended
that, for Indian Lands and Native Hawaiian Home Lands, the U.S.
Department of the Interior and the Hawaii Department of Hawaiian Home
Lands, respectively, examine the feasibility of further streamlining leasing
procedures.
2.
Develop New Local and Non-traditional Mechanisms to Deliver Capital on
Indian Lands and Hawaiian Home Lands. Workshop participants suggested
that Tribal governments should develop their capacity to orchestrate and
leverage all sources of capital, and financial institutions should develop new
lending and financing products and revise underwriting criteria to meet the
unique needs of Native American and Native Hawaiian markets, including
the development of micro-lending programs for small businesses and
securitization of oil and gas reserves and timber. Workshop participants
proposed two options for providing access to nontraditional sources of debt
and equity capital:
• Develop Tribal or Inter-Tribal CDFIs, community banks, and other lending
and investment institutions.
• Create Tribal or Inter-Tribal pools for loan guarantees, equity investments/
venture capital, micro-lending and lending for housing and small business.
3.
Increase Equity Investment on Indian Lands and Hawaiian Home Lands. Equity
Investment Roundtable participants suggested the following methods of
increasing equity investment in Native American and Native Hawaiian
communities:
• Create industry sector specific incubators that provide management and
technical assistance to start-up businesses and that focus on the specific
needs of Native American and Native Hawaiian business owners.
•
Use existing “angel investor” networks (i.e. – networks of investors who
provide start-up capital for new business, sometimes accompanied by
technical expertise and contacts networks).
• Build an “angel” network that specializes in investments in Native Americanowned or Native Hawaiian-owned businesses.
• Create community development venture capital (CDVC) funds,
• Use existing corporate venture capital programs.
• Use state and city venture capital programs.
• Form a public/private intermediary to direct funds into Native American
and Native Hawaiian CDFIs, businesses, or projects.
4.
Establish a Native American/Native Hawaiian Equity Fund. To attract equity
investments in Native American and Native Hawaiian communities, Workshop
participants suggested that the federal government sponsor an equity fund to
help encourage private sector investors and public/private partnerships to
invest on Indian Lands and Hawaiian Home Lands.
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
9
Four recommendations related to the two financial and physical infrastructure barriers
cited above, were identified:
1.
Increase the Number of Financial Institutions on or Near Indian Lands. To
provide Native Americans and Native Hawaiians greater access to financial
services, a number of policies need to be considered, including:
• Creating more financial institutions, including CDFIs, on Indian Lands
• Encouraging existing financial institutions that are not located on Indian
Lands to open branches on Indian Lands
2.
Develop Regional Financial Institutions. The Workshop participants believed
that regional partnerships and alliances are essential to overcoming barriers to
capital and credit access, and possible strategies include:
• Building on partnerships established with the CDFI Fund’s regional InterTribal cosponsors and holding follow-up forums similar to those conducted
in the Study
• Establishing information clearinghouses at the regional level on model
financing approaches, methods of accessing equity capital, and sources of
training and technical assistance
• Providing channels of information to Native American and Native Hawaiian
communities so that they can adapt existing models to their unique cultural
and community needs
• Establishing regional partnerships among banks, lending institutions, venture
capitalists, federal agencies, and Tribes/Inter-Tribal organizations
3.
Develop Financial Products and Services That Will Meet the Needs of Native
American and Native Hawaiian Depositors and Borrowers. Workshop participants
suggested that this could be accomplished by financial institutions through
the development of new lending and financing products, revised underwriting
criteria more suited to the unique attributes of Native American and Native
Hawaiian communities, the creation of micro lending programs for small
business, and the creation of CDFIs.
4.
Create Innovative Strategies to Develop Physical Infrastructure on Indian Lands
and Hawaiian Home Lands. Various initiatives were explored at the Workshops
to facilitate development of a more adequate infrastructure system on Indian
Lands and Hawaiian Home Lands, including creation of partnerships with
private developers to plan for infrastructure development and development of
an infrastructure investment strategy that utilizes available federal resources
and encourages private partnerships to participate in the funding and
development process.
Study participants identified four recommendations related to the seven educational and
cultural barriers:
1.
Expand Financial Literacy Education Opportunities for Native Americans and
Native Hawaiians. Workshop participants agreed that providing financial
literacy education and personal finance education for Native Americans and
Native Hawaiians can provide them with the means to participate in the
NOVEMBER 2001
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
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EXECUTIVE SUMMARY
NATIVE AMERICAN LENDING STUDY
contemporary economy and that culturally appropriate financial literacy
curriculum is available from various sources. Many existing CDFIs regularly
provide this type of training in their communities.
2.
Develop Entrepreneurship Programs for Native Americans and Native Hawaiians.
Workshop participants recommended that these programs include:
• Development of core materials on small business finance and
entrepreneurship
• Establishment of teaching partnerships with Tribal and non-Tribal colleges,
financial institutions, CDFIs, and nonprofits
• Incorporation of web-based training in the curriculum
• Facilitation of funding and teacher recruitment through the private sector,
Tribes, Inter-Tribal organizations, and federal agencies
3.
Conduct Lender and Investor Education. Actions recommended by the Workshop
participants include:
• Development of informational handbooks on issues such as Tribal
government structures, sovereignty and sovereign immunity, and land status
• Creation of a directory of Tribal credit officers, economic development
officers, and department heads and a directory of attorneys qualified to
practice in Tribal courts
• Development of a marketing campaign that illustrates effective practices
and success stories, initiation of educational outreach seminars by Native
American and Native Hawaiian communities for potential lenders and
investors
• Initiation of “road shows” focusing on investment opportunities on Indian
Lands and Hawaiian Home Lands
4.
Expand Technical Assistance and Training. From the Workshops, several initiatives
were identified for increasing technical assistance and training on Indian Lands
and Hawaiian Home Lands:
• Provide Native Americans and Native Hawaiian business owners with
technical assistance related to developing business plans and proposals and
other business management needs15 .
• Help Tribal governments develop a comprehensive strategic plan to meet
development and financing needs.
• Assist lenders, investors, and potential business partners in developing
an understanding of Tribal laws, Tribal enforcement capabilities, and
lender rights.
• Help lenders, investors, and potential business partners understand federal
programs, requirements, and application processes.
15
In Fall 2001, the CDFI Fund will publish in the Federal Register a Notice of Funds Availability (NOFA),
inviting applications for the initial round of the Native American CDFI Technical Assistance (NACTA) Component
of the CDFI Program. The NACTA Component will be supported by the CDFI Fund’s Native American CDFI
Training Program. These programs are designed to assist the creation and capacity building of existing and nascent
CDFIs and to build financial management capacity on Indian Lands.
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
11
EXAMPLES OF INITIATIVES AND PROGRAMS
One of the important aspects of the Study was the identification by participants of
programs and initiatives that involve government, the private sector and Tribes to address
the major barriers identified above. Each initiative identified below, designed to meet
the needs of a particular community, may offer insights to other communities that can
be adapted to meet the unique needs of other particular communities or regions.
For example, some Tribes have enacted legislation to promote business development,
Tribal commercial codes, land use and planning codes, zoning codes and laws regulating
corporate and business activity.16
Workshop participants noted that lenders and investors are often reluctant to accept the
jurisdiction of Tribal courts to enforce financial contracts and, to address this problem,
suggested increasing the capacity of Tribal courts to resolve commercial and financial
disputes and to enforce commercial codes. Some initiatives are currently underway:
• The Federal Bureau of Justice Assistance, Department of Justice, and Bureau of Indian
Affairs17 are currently funding technical assistance and training grants for Tribal Court
capacity building.
• The National American Indian Court Judges Association has established the National
Tribal Justice Resource Center18 to assist Tribes in strengthening methods of selfgovernment and to provide technical assistance for enhancing Tribal justice systems.
• The Tribal Court Clearinghouse19 has been created as a resource for Tribal court
development, training, court review, code drafting, and training.
To provide Native Americans and Native Hawaiians greater access to financial services,
Study participants felt that a number of options need to be considered, including creating
more financial institutions on Indian Lands and Hawaiian Home Lands, expanding and/
or rebuilding existing financial institutions on Indian Lands, purchasing existing banks,
expanding Native-ownership of financial institutions through purchase or de novo creation
of new institutions, and creating more CDFIs. Workshop participants and CDFI Fund
research identified the following examples of successful initiatives:
• The Cheyenne River Sioux Tribe used an existing revolving loan fund to create the
non-profit Four Bands Community Fund, which makes business loans.
• In 1990, the Navajo Nation had only three bank branches and one ATM serving a
geographic area of 17 million acres. To increase the availability of financial services on
the reservation, the Tribe entered into an agreement with Norwest Bank (now Wells
Fargo) to build four new branch banks with ATMs, hire and train Navajo personnel,
and target financing to business startups and housing development.
• In all, nine Tribally-owned commercial banks, seven credit unions, and 14 loan
funds have been developed nationwide to serve Native American communities.
• Hawaiian Community Assets, Inc. is developing a charter for the first Native
Hawaiian-owned bank.
16
For a brief descrition of some strategies that Tribes have implemented to improve business climates, see Ch. III.
17
For further information, see www.doi.gov/bia/courts.
18
For further information, see www.naicja.org.
19
For further information, see www.tribal-institute.org.
NOVEMBER 2001
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
12
EXECUTIVE SUMMARY
NATIVE AMERICAN LENDING STUDY
• As of September 30, 2000, the CDFI Fund had made awards totaling nearly $27
million to 33 CDFIs that provide some level of service to Native American or Native
Hawaiian communities.
Workshop participants identified regional partnerships and alliances as essential components
to overcoming barriers to capital and credit access, and examples of successful regional
initiatives include:
• The Native American Development Corporation is a CDFI that provides Native
American business communities in Montana and Wyoming with funds to create jobs,
develop long-term economic self-sufficiency, and facilitate access to capital. Its Capital
Loan Fund was initially capitalized with funding from banks, the federal government,
First Nations Development Institute, and private corporations.
• The Native American Lending Group, Inc. is a nonprofit multi-Tribe CDFI in New
Mexico that serves 19 Pueblo communities. It was created to provide Tribes, businesses,
and individuals access to private investment capital.
• Coastal Enterprises, Inc. is a nonprofit CDFI that serves low-income communities in
Maine and provides financial and technical assistance for development and expansion
of certain targeted industries, small businesses, housing, and social services. CEI has
established a partnership with the Penobscot Indian Nation to develop a CDFI to fund
housing and business development.
Tribal leaders and private investors participating in the Workshops suggested strategies
that relied on accessing capital sources that have not traditionally been on the Native
American investment “radar screen” and on expanding Native American awareness to
include more equity and nontraditional financing and thus increase the likelihood of
securing funding. One example of an existing strategy captured significant Workshop
participant attention: Center of North America Capital Fund is an “angel” investor network
and investment fund in North Dakota that links two Tribes — the Turtle Mountain Band
of Chippewa and the Spirit Lake Sioux — with investors. The CONAC Fund was modeled
after Minnesota’s Regional Angel Investor Networks Fund, a series of rural investment
funds formed by the Minnesota Investment Network Corporation.
The following are examples of public/private intermediaries cited by Workshop participants
that direct funds to Native American and Native Hawaiian businesses:
• The Hopi Credit Association is a Tribal credit union that provides a bridge between
banks and Tribal borrowers, obtaining funds from banks, handling all loan selection
and servicing with Tribal members. Participating banks thus gain a point of entry to the
Tribal community, via a Tribal credit union that understands banking needs, and Tribal
members are served directly by a credit union that understands their needs.
• Another example is the Southern Ute Growth Fund, which uses a partnership
approach and co-invests, using its growth fund and capital provided by outside
investors, in a variety of growth opportunities.
The following Chapters One through Four of this Study contain quotes that are attributed to
Workshop, Equity Roundtable, and other Study participants. The Fund has not included such
quotations to indicate Fund or Treasury Department endorsement of the positions therein expressed,
or to represent, necessarily, a prevailing point of view among any particular group of participants.
Rather, the Fund has included quotations to add context and background to the report where such
additions might help inform the reader’s understanding of the subject.
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
“…we recognize that we’re the ones that have to go in there and make it happen,
and we have to take a pro-active stand to identify who we are, what we stand for,
what we want, and to be able to identify the opportunities and position ourselves
to take advantage of those opportunities.”
—Curtis Zunigha, Oklahomans for Indian Opportunity
INTRODUCTION
MANDATE FOR THE STUDY
In September 1994, Congress mandated that the Community Development Financial
Institutions Fund (the CDFI Fund), a wholly-owned government corporation within the
Department of the Treasury, conduct a study on lending and investment practices on
Indian reservations and other lands held in trust by the United States.20 Congress mandated
that the Study:
• Identify barriers to private financing.
• Identify the impact of such barriers on access to capital and to credit for Native
Americans21 and Native Hawaiians22
• Develop recommendations for statutory and regulatory changes to existing federal
programs.
• Develop policy recommendations for community development financial institutions
(CDFIs), insured depository institutions, secondary market institutions, and privatesector capital institutions.
• Submit final report to Congress and the President.
ECONOMIC CONDITIONS ON
THE INDIAN LANDS AND HAWAIIAN HOME LANDS
Economic and social conditions on many Indian Lands23 and Hawaiian Home Lands24
place them significantly behind the mainstream U.S. economy. For example:
• According to U.S. Department of Commerce census data25 , unemployment rates
on Indian Lands in the continental United States range between 20 percent and 80
percent, and are over 90 percent in some Alaska Native Villages where it is common
20
12 U.S.C. §§ 4701 et seq.
21
See footnote 4, Executive Summary for a definition of Native American.
22
See footnote 5, Executive Summary for a definition of Native Hawaiian.
23
See footnote 2, Executive Summary for a definition of Indian Lands and Alaska Native Villages.
24
See footnote 3, Executive Summary for a definition of Hawaiian Home Lands.
25
U.S. Department of Commerce, Census 1990
CHAPTER
ONE
14
INTRODUCTION
for 90 - 100 percent of the population to depend on subsistence farming or hunting
for their livelihood, according to Financial Survey respondents. Average
unemployment rates on Indian Lands are about 50 percent, whereas the rate for the
United States as a whole is less than five percent.26
“We all know that as we
live on the
Reservation,…our
money goes off each
time, every two weeks,
we go off to the malls
somewhere else. We
spend our money. So
we’re supporting the
jobs in Rapid City,
Bismarck, Missoula,
Great Falls, and we’re
not making jobs of our
own.”
—Linda Pease, Native
American
Development
Corporation, Montana
• According to U.S. census data, poverty rates in the late 1990s were 26 percent for
Native Americans, lower than earlier in the decade, but still far above the national
average of 12 percent.27
• Also, U.S. census data estimates that Native American household income is about threequarters the national household average.28
• Workshop participants report that transportation, telecommunications, energy,
financial, and other infrastructures are often substandard and inadequate to support
new business formation.
• While it is not clear precisely how many mortgages there are on Indian Lands held in
trust, as of 1999, there were 471 home mortgages on Indian Lands, overall 29 , even
though an estimated 38,000 households have sufficient income to qualify for a
mortgage30 .
In addition, the Financial Survey revealed the following:
• Only 14 percent of Indian Lands located in the continental United States have a financial
institution in the community, fewer than half have such an institution anywhere nearby,
and 15 percent of Native American people must travel more than 100 miles to reach a
bank or automatic teller machine (ATM).
• Although 85 percent of financial institutions on or near Indian Lands located in the
continental United States offer deposit accounts to Native Americans residing there, 50
percent of these financial institutions offer primarily two financial services — ATMs
and personal consumer loans.
• Conventional home mortgages were rated as “difficult” or “very difficult” to finance by
65 percent Tribal respondents, and 35 percent of FSO respondents. Home equity loans,
construction and property rehabilitation loans are also in short supply on Indian Lands
and Hawaiian Home Lands.
• Business loans were rated as “impossible” to obtain by 24 percent of Native American
and Native Hawaiian respondents and as “difficult” to obtain by 37 percent. Larger
business loans, those over $100,000, are even more difficult to obtain, 67 percent of
respondents rated them as difficult to impossible to obtain.
• The percentage of the overall financial service organization (FSO) loan portfolio
represented by conventional home mortgages is disproportionately lower on Indian
Lands and Hawaiian Home Lands (81.9 percent of the overall portfolio versus 54.3
percent of the portfolio of products offered to Native Americans and Native
Hawaiians).
26
Id.
27
Id.
28
Id.
29
U.S. Department of Housing and Urban Development, U.S. Department of Treasury, One Stop Mortgage Center
Initiative In Indian Country, A Report to the President, October 2000.
30
Estimated household income information is based on a study by First Nations Development Institute
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
• Conventional home mortgages were rated as “difficult” or “very difficult” to finance
by 65 percent of Tribal respondents and 35 percent of FSO respondents.
• Only one-third of financial institutions on or near Indian Lands and Hawaiian Home
Lands offer state loan or loan guarantee programs to Native Americans and Native
Hawaiians residing there.
• 66 percent of Native American and Native Hawaiian respondents stated that private
equity investments are “difficult” or “impossible” to obtain for Native American and
Native Hawaiian business owners.
Native American economies have about half of the level of equity that comparable
international economies (that is, countries or regions with similar GDP, population
and other demographic factors) have.31 Further, the Equity Investment Research Report’s
comparisons of Indian Lands to similar economies suggests that if external equity investors
were located in or serving Indian Lands and if the strategies to overcome existing obstacles
were pursued and were successful, an additional $10 billion in equity could be invested in
the Native American economy.
What accounts for the equity gap on Indian Lands and Hawaiian Home Lands? The
Equity Research and Workshops identified the following causes:
• The perception of unreasonably high risk surrounding private lending on Indian Lands
and Hawaiian Home Lands results in little infusion of development capital.
• The underdeveloped nature of Native American and Native Hawaiian economies.
• The difficulty that private investments on Indian Lands and Hawaiian Home Lands
have in producing adequate financial returns.
• The inability of Native American and Native Hawaiian communities to attract
conventional financing due to trust land status.
15
“…often time with Native
Americans there’s one
product or there’s just
one source of loans, and
there’s less competition
for it…it forces people
[Native Americans] who
need loans to go to
alternative sources,
which are often
exploitative, often
charge a high interest
rate…a lot of time the
Tribes see that there’s
limited lending
resources, so they put
their own resources into
lending. Now, the effect
that this has on them is
they’re using their
money instead of
bringing in outside
money like other
communities.”
—Ken Goosens,
Seminole Tribe of
Florida
• Only seven percent of Native American and Native Hawaiian respondents to the
Financial Survey reported obtaining private equity investment with relative ease. Less
than one percent reported that private equity was easy to obtain, while 66 percent
found obtaining private equity difficult or impossible. Moreover, Workshop participants
reported that even profitable and growing businesses in Native American and Native
Hawaiian communities have difficulty obtaining even small amounts of equity capital
to expand because entrepreneurs do not know how to apply for it and have difficulty
locating equity investors.
PROFILE OF THE NATIVE AMERICAN COMMUNITY
There are approximately 2.7 million Native American and Native Hawaiian people
living in the United States, of whom approximately half live on Indian Lands or Hawaiian
Home Lands. 32 This population has grown rapidly since the 1970s, and Native
Americans and Native Hawaiians constitute the third fastest growing population
31
For a more comprehensive discussion of the comparison, see Equity Investment Roundtable and Research Report,
January 2001.
32
The US Census Bureau estimates that there were 2.45 million American Indians, Eskimos, and Aleuts living in the
United States as of October 1, 2000. The Office of Hawaiian Affairs has 250,000 enrolled members who, as of
December 2000, declare Native Hawaiian descent.
NOVEMBER 2001
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
16
INTRODUCTION
segment in the nation, after Hispanics and Asians. The nation’s 562 federally recognized
Tribes and Alaska Native Villages, along with Native Hawaiian communities, are
heterogeneous with respect to traditions, cultures, and languages, and about half of
the population lives in economically depressed rural communities. There are 334 Indian
Tribes 33 in the continental United States and 228 Alaska Native Villages. Tribal
populations range from fewer than five members on several acres of land to the Navajo
Nation with 250,000 enrolled members and a land base of 17 million acres. Tribal
governments vary in size and organization from small elected councils to three-branch
governments that include executive and legislative bodies as well as independent court
systems.
The federally recognized Tribes in the continental United States and Alaska have been
recognized as sovereign entities through peace treaties, Congressional legislation, and U.S.
Supreme Court decisions. Congressional legislation — such as the Indian Reorganization
Act of 193434 , the Indian Financing Act of 197435 , and the Indian Self-Determination
and Educational Act of 197536 — further established the principle of Tribal self-government.
Most Tribes, with the exception of those in Oklahoma, have a land base that comprises
trust, allotted, and fee-simple land.
In the early 1970s, Alaska Natives negotiated the transfer of Alaskan land, previously held
in trust by the federal government for their benefit. This land was given to Alaska
Natives in exchange for the sale of land to the federal government for the Alaska oil
pipeline right-of-way. The Alaska Native Settlement and Claims Act of 197137 divided
the state into 12 regions, created a for-profit corporation and a non-profit corporation
wholly owned by the Alaska Natives of that region, and transferred ownership of that
trust land to the 12 regional for-profit corporations. Some land was also transferred to
several dozen village corporations.
Native Hawaiians, who number approximately 250,000, are not members of a separate,
federally recognized entity, but do maintain a formal relationship with the State of Hawaii.
Native Hawaiians lived under a monarchy until 1893, and 203,000 acres of land were set
aside for them under the provisions of the Hawaiian Homes Commission Act of 192038 .
At present, this land holding totals 193,935 acres held as state trust land and administered
by the Department of Hawaiian Home Lands, a state government agency. In 1970, the
state created the Office of Hawaiian Affairs (OHA), both a government agency and a
trust, to assist Native Hawaiians. OHA operates economic development, education, health
and human services, land, and natural resource programs.
33
Here we use the terms Tribe and Tribal interchangeably to refer to Tribal governments and to a given Tribe as a
whole — i.e. the Tribal government and the individual members. We use the term Tribal government to refer only
to the Tribe’s government.
34
25 U.S.C. §§ 461 et seq.
35
25 U.S.C. §§ 1452 et seq.
36
25 U.S.C. §§ 450 et seq.
37
See, note 47, infra.
38
48 U.S.C. §§691et seq. (omitted as obsolete after admission of Hawaii to the Union).
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
RESEARCH DESIGN
The CDFI Fund developed the design for the Study to ensure that findings and
recommendations were derived from empirical data and research. Also, very importantly,
the Study was designed to obtain as much meaningful input as possible from many of the
stakeholders involved in the issue of capital access on Indian Lands and Hawaiian Home
Lands. Consequently, the Study presents a non-exhaustive quantitative review of the state
of lending and equity investment on Indian Lands and Hawaiian Home Lands, together
with qualitative information reported by Workshop participants. The Study did not
catalogue or review every program or policy (federal, state, local, or otherwise) operative
on Indian Lands and Hawaiian Home Lands. Rather, the Study chronicles Financial Survey
respondents’ and Workshop participants’ experiences with particular programs and policies.
Specifically, the Study included:
• Thirteen regional Workshops conducted to identify the barriers to lending and
investment in Native American and Native Hawaiian communities (the “Workshops”).
• A national roundtable on barriers to lending on Indian Lands and Hawaiian Home
Lands (the “National Roundtable”).
• A national Financial Survey of lending practices relating to Native Americans and Native
Hawaiians (the “Financial Survey”).
• A national roundtable and a research report on equity investment on Indian Lands and
Hawaiian Home Lands (the “Equity Investment Roundtable” and “Equity Investment
Report”).
STUDY APPROACH BUILDING BLOCKS
CHAPTER
TWO
18
RESEARCH DESIGN
“It has to be a two-way
street. The lenders have
to learn what we are,
just as you expect us to
learn how to operate in
your world.”
—Samuel Rock,
White Earth Band of
Chippewa, Minnesota
REGIONAL WORKSHOPS AND NATIONAL ROUNDTABLE
The Study design combined two approaches. First, the CDFI Fund identified and involved
experts in the field. Second, to ensure that all the major issues were addressed, to quantify
the incidence and severity of access to capital barriers, and to ascertain whether the problems
identified were widespread, the CDFI Fund conducted extensive additional research,
including the Financial Survey.
The Study design ensured that input from a substantial group involved in the provision
of capital access on Indian Lands and Hawaiian Home Lands would be obtained.
Tribal 39 leaders, Tribal economic development professionals, Native American and
Native Hawaiian entrepreneurs, commercial banking organizations and other financial
institutions, private equity investors, secondary market organizations, U.S. government
officials from financial supervisory agencies and other federal agencies, officials from
state agencies, and other financial services and lending experts participated in numerous
and detailed discussions.
The 13 regional Workshops were conducted with the assistance of 14 co-sponsors,
including: regional Native American organizations, Alaska Native corporations, and
Hawaiian state agencies.
Of the approximately 700 Workshop participants, 43 percent represented Native American
or Native Hawaiian organizations, 24 percent represented financial institutions, and 33
percent represented federal, state and non-profit organizations.
Regional Workshops were held as follows:
• Northwest Region — Seattle, Washington, March 24-25, 1999; cosponsored by the
Affiliated Tribes of Northwest Indians Economic Development Corporation, Seattle,
Washington
• Southwest Region — Phoenix, Arizona, April 1-2, 1999; cosponsored by the InterTribal Council of Arizona
“I’m kind of seeing this
as the meeting of the
minds. I really don’t
think that there is a
right answer and a
wrong answer to all of
these issues that are
coming together; it’s
coming together in
knowing how we each
think and
communicate.”
—John Lucero,
First National Bank,
Santa Fe
• Southwest Region — Albuquerque, New Mexico, April 28-29, 1999; cosponsored by
the All Indian Pueblo Council
• West Region — Reno/Sparks, Nevada, May 12-13, 1999; cosponsored by the InterTribal Council of Nevada and the California Indian Manpower Consortium, Inc.
• Midwest Region — Oklahoma City, Oklahoma, June 2-3, 1999; cosponsored by the
Oklahomans for Indian Opportunity
• Great Lakes Region — Minneapolis, Minnesota, June 29-30, 1999; cosponsored by
the Midwest Alliance of Sovereign Tribes
• North Central Region — Rapid City, South Dakota, July 26-27, 1999; cosponsored by
the Rapid City Housing Coalition and the Montana- Wyoming Tribal Leaders Council
• Hawaii Region — Honolulu, Hawaii, August 11-12, 1999; cosponsored by the State
Department of Hawaiian Home Lands and the State Office of Hawaiian Affairs
39
In the Study, “Tribal” refers to Native American and Alaska Native governments, except as may be hereinafter
specified. See n.12
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
19
• Hawaii Region — Hilo, Hawaii, August 17-18, 1999; cosponsored by the State
Department of Hawaiian Home Lands and the State Office of Hawaiian Affairs
• Alaska Region — Anchorage, Alaska, November 15-16, 1999; cosponsored by Alaska
Village Initiatives
• Alaska Region — Fairbanks, Alaska, November 18-19, 1999, cosponsored by the Tanana
Chiefs Conference, Inc.
• Northeastern Region-Mystic, Connecticut, December 1-2, 1999; cosponsored by
the United South And Eastern Tribes
• Southeastern Region — Tampa, Florida, December 14-15, 1999; cosponsored by
the United South and Eastern Tribes
Participants identified and discussed the major barriers to Native Americans’ and Native
Hawaiians’ access to capital, prioritized the significance of those barriers, noted impacts
for each barrier, and identified strategies and actions to address such barriers. A report of
the proceedings of each Workshop was prepared.
Workshop Consultation Process
Barriers
Impacts
Strategies
Action
Plan
In addition, in January 2000, representatives of Native American and Native Hawaiian
communities, along with federal and financial institution representatives, were invited to
Washington, D.C. for a roundtable discussion on barriers and strategies. After discussing
the issues raised in the regional workshops, participants focused on:
• How to access capital, equity, and investments.
• How to establish effective, mutually beneficial partnerships across stakeholder groups.
• The kinds of messages that should be delivered to the various audiences.
• Plans for implementing the recommendations.
• Success stories that demonstrate how Native American and Native Hawaiian
communities have partnered with and/or leveraged public and private sources of capital.
The discussions at this workshop formed the basis for the recommendations contained in
this Study.
THE FINANCIAL SURVEY
OBJECTIVES OF THE FINANCIAL SURVEY
Following the National Roundtable, the CDFI Fund developed a nationwide
Financial Survey, which was administered to Tribal governments, Native Hawaiian
representatives and FSOs familiar with lending on Indian Lands and Hawaiian Home
Lands to identify the barriers to capital access and to help develop and recommend
strategies to address those barriers. Specifically, the objectives of the Financial
NOVEMBER 2001
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
20
RESEARCH DESIGN
Survey were to: provide quantitative data to complement and enhance the
qualitative and anecdotal findings of the Workshops and the National Roundtable;
identify the kinds of relationships that exist between FSOs and Native American
and Native Hawaiian communities, as well as the mix of financial services available
or provided by FSOs to Native American and Native Hawaiian communities;
and ensure that the issues addressed are representative of the diversity of both
Native American and Native Hawaiian communities and FSOs.
The Financial Survey results were then compared to the results of Workshops
and the National Roundtable.
FINANCIAL SURVEY METHODOLOGY
To conduct the Financial Survey, the CDFI Fund engaged three contractors: Deloitte
& Touche LLP, an accounting and professional services firm with extensive experience
in designing and conducting Financial Surveys, the Metro Chicago Information
Center, a non-profit research and consulting firm, and the Johnson Strategy Group,
Inc., the firm that conducted the 13 Workshops and the National Roundtable.
This team developed two Financial Survey instruments, one for Tribal governments
and one for FSOs. Slightly different versions of each instrument were developed for
respondents in Alaska and Hawaii to reflect the appropriate terminology used in
those areas.40
The Financial Survey was sent to all federally recognized Tribes, including those in
Alaska, as well as to non-federally recognized Tribes in Oklahoma and organizations
representing Native Hawaiians, including the two Hawaii State agencies with missions
relating to the Native Hawaiian community. The final Financial Survey response
rates were: for FSOs, 735 Financial Surveys were sent and 245 Financial Surveys
were completed, for a response rate of 33 percent; for Tribes and Native Hawaiian
representatives, 851 Financial Surveys were sent, and 212 were completed, for a
response rate of 25 percent.
THE EQUITY INVESTMENT ROUNDTABLE AND RESEARCH
REPORT ON EQUITY INVESTMENT
THE EQUITY INVESTMENT ROUNDTABLE
In November 2000, the CDFI Fund convened a second meeting of Tribal officials,
Native American entrepreneurs, private equity players, government agency
representatives, and experts on issues related to accessing equity capital in underserved
communities. Like the CDFI Fund’s 13 Workshops, the goal of Equity Investment
Roundtable was to obtain input from individuals who have direct experience in
dealing with the barriers of accessing or providing equity investments, and to
develop appropriate strategies and actions to address these barriers. Forty-seven
people participated in a two-day roundtable discussion, and a proceedings report
was prepared.
The Equity Investment Roundtable focused on defining the equity investment
landscape and identifying Native American and Native Hawaiian opportunities for
“getting on the equity investment radar screen.” Structured discussion topics included:
40
Appendices A and B of this report contain the Financial Survey instruments.
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
21
• The equity investment landscape and “radar screen”, i.e. types of equity investors
and their investment criteria
• The equity investment gap on Indian Lands and Hawaiian Home Lands
• Barriers to equity investment on Indian Lands and Hawaiian Home Lands
• Strategies to overcome these barriers and improve access to equity capital
• Action plans and model approaches that can be adapted for use on Indian Lands
and Hawaiian Home Lands
THE EQUITY INVESTMENT REPORT
The CDFI Fund also conducted research on equity investment on Indian Lands
and Hawaiian Home Lands to provide the background and recommendations for
enhancing equity capital access. Primary research included extensive discussions with
equity market participants about equity investment on Indian Lands and Hawaiian
Home Lands. Other primary research included review of the relevant findings
concerning equity investment from the Financial Survey and analysis of the major
preliminary findings from the Workshops. In addition, a questionnaire was developed
for participants in the Equity Investment Roundtable that provided useful information
about equity investment performance and demand for equity on Indian Lands and
Hawaiian Home Lands.
“Indian Country appears
to be an ‘equity desert.’
What is needed is
irrigation, seeding,
weeding, and growth.”
—Equity Investment
Research Report
The CDFI Fund also conducted research on the level of equity investment on Indian
Lands, using mostly census data and Native American-owned business data obtained
from the Dun & Bradstreet Minority-Owned Business Database. The CDFI Fund
estimated the amount of equity in economies comparable to those on Indian Lands
based on census and related information, and data on underdeveloped countries was
obtained from various UN, International Monetary Fund, and World Bank, and
other sources.41 The CDFI Fund’s Equity Research analyzed these data, along with
information on the effects of various public sector-sponsored, economically targeted,
and community development equity investment programs, to estimate the potential
benefits of bridging the estimated equity gap. The CDFI Fund supplemented this
primary research with a review of over 150 secondary sources.42
In addition, the CDFI Fund studied models being used elsewhere that may have
applicability to Native American and Native Hawaiian communities based on
published reviews of these efforts, analysts’ knowledge of different programs,
interviews with practitioners, and the roundtable discussions. Materials from the
Equity Investment Report were also used in the Equity Investment Roundtable to
provide a general overview of the equity landscape and to provide structure for the
roundtable discussions.
41
These sources included the International Finance Corporation/ Standard & Poor’s global stock market figures, the
Milken Institute Capital Access Index, Heritage Foundation ratings on ease of capital flows, and others.
42
These included articles in the general press, books on investment and/or obtaining financing, government
publications, testimony, and press releases, academic research articles, practitioner articles and guides, and Tribal
and Indian Land publications. A complete list is provided in the Bibliography, available on the CDFI website at:
www.treas.gov/cdfi/. Inclusion of materials in the Bibliography, or in this Study, does not indicate CDFI Fund or
U.S. Department of Treasury endorsement of the positions or opinions expressed therein. The Bibliography is
provided for informational purposes only.
NOVEMBER 2001
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“You know, probably the scariest thing for a Tribal member and for the bank, too,
if you’re sitting across the desk from a banker who really doesn’t understand what
the Tribe is all about, and on the other side of the table it’s a Tribal member who
really never has been in a position of borrowing money, they don’t know what
the financial statement is all about, …they know what they want to do, but
they’ve never been in that position.”
—Pat Strong, Chitimacha Tribe
BARRIERS TO PRIVATE FINANCING
AND POTENTIAL REMEDIES
The 13 Workshops resulted in the identification and prioritization of barriers to lending
and investment in Native American and Native Hawaiian communities and development
of strategies for addressing the barriers. The Workshops provided a forum for the
stakeholders who live and work with these issues on a day-to-day basis and, working in
teams, participants identified, in the aggregate, hundreds of barriers. They then prioritized
the barriers and developed strategies and action plans to address them. The CDFI Fund
synthesized the barriers into 17 priority barriers.
The 17 priority barriers were used as the basis for further research, and the results from the
Financial Survey permitted a more detailed analysis of the barriers identified by type of
respondent. Finally, barriers were reviewed during a National Roundtable and an Equity
Investment Roundtable. The priority barriers are grouped into five categories, as follows:
• Legal Infrastructure
• Government Operations
• Economic
• Financial and Physical Infrastructure
• Educational and Cultural
LEGAL INFRASTRUCTURE BARRIERS
Study participants identified one legal infrastructure barrier:
• Inadequate Tribal Commercial Laws and Regulations.
Participants suggested the following recommendation:
• Enhance the Tribal Legal Infrastructure.
IDENTIFICATION OF BARRIER
Inadequate Tribal Commercial Laws and Regulations
Tribal sovereignty generally entails the right to govern, adjudicate disputes,
and be immune from suit. In 1975, Congress promoted Tribal self-government
by enacting the Indian Self-Determination and Educational Assistance Act43 .
Since then, Tribal governments have assumed from federal agencies increasing
43
25 U.S.C. §§ 450, et esq.
CHAPTER
THREE
24
BARRIERS TO PRIVATE FINANCING AND POTENTIAL REMEDIES
responsibility for day-to-day Tribal affairs. Several Workshop participants
related that, in their respective experience, when lenders and investors express
concerns about sovereign immunity, often they meant that Tribal
governments had not developed or clearly defined the legal infrastructure
for the enforcement of contracts or other commercial arrangements. Many
of the FSO representatives who participated in the Workshops reported
their perception that many Tribes lacked clear, predictable guidelines for
the operation of Tribal sovereignty comparable to those of the neighboring
states and municipal governments.
Fund research found that Tribal commercial codes and Tribal courts are at
varying stages of development. Some Tribal governments have fully developed
commercial codes and court systems, including trial and appellate courts, while
others maintain the Tribal council or executive body as the legal enforcement
mechanism. Some Tribes are too small to have their own court system and rely
on the courts of neighboring states. Others are in the process of developing
commercial laws, regulations, and trial and appellate courts.
Fund Equity Research and Roundtable participants reported that When Tribal
commercial laws and regulations are inadequate and ambiguous, uncertainty
results for potential lenders and investors. Such uncertainty can increase
investors’ perceived risks and cost. As a result, investors and lenders are unwilling,
without increased compensation in the form of higher rates or other terms, to
make investments or extend credit for home mortgages and business loans.
Additionally, some FSOs are concerned that existing Tribal courts may not be
sufficiently independent of the executive branch of the Tribal government to
offer a secure source of recourse to aggrieved parties from outside the
community. Until investors feel confident that they can sue to enforce a contract,
and appeal an adverse decision to a higher court, they may be hesitant to invest
on Indian Lands.
POTENTIAL REMEDY
Enhance the Tribal Legal Infrastructure
Workshop participants reported that one potential remedy to the barriers
presented by Tribal sovereignty would be the development of clearer, more
predictable guidelines. In particular, Workshop participants expressed a need
to inform potential lenders and investors of the circumstances under which
Tribes would waive or invoke their sovereign immunity in the context of
commercial transactions. It was noted that following the model of federal and
state governments, many Tribal governments have enacted limited waivers of
their immunity from suit for commercial development as a matter of standard
business practice.
Fund research found that as Tribal economies expand and as their capital needs
increase, Tribal governments need to cultivate an environment conducive to
entrepreneurship, lending, and investment. A key component of a pro-business
environment is a legal infrastructure that supports contract enforcement and
facilitates commercial activity in the communities.
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
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Study participants recommended a strategy of creating a more pro-business
environment on Indian Lands through such actions as:
• Establishment of Tribal uniform commercial codes, foreclosure regulations,
bankruptcy codes, permitting processes, and general regulatory frameworks
• Development of zoning codes and land use plans
• Development of educational programs for lenders and investors on Tribal
government, laws, codes, and sovereignty and sovereign immunity
Workshop participants and CDFI research identified the following strategies
implemented by various Tribal governments and examples of activities that
have helped to create and strengthen those communities’ respective legal
infrastructures and, in some cases, have improved access to capital:
• The Tribal Commercial Code (UCC): developed by the Navajo Nation, Crow
Tribe, Hoopa Valley Tribe, Lummi Indian Nation, Northern Cheyenne Tribe,
Cheyenne River, Mille Lacs Band, Rosebud Sioux Tribe, and Standing Rock
Sioux.
• The Tribal Land Use and Planning Code: developed by the Navajo Nation,
Cabazon Band of Mission Indians, and Gila River Indian Community.
• Tribal Zoning Codes: developed by the Navajo Nation, Colville, Muckleshoot,
and Menominee Tribes.
• Building Codes: developed by the Colorado River Standing Rock Sioux and
the Navajo Nation.
• Tribal Corporation Codes (licensing, incorporation, and contracts): developed
by the Navajo Nation, Cherokee Nation (Oklahoma), and the Hoopa Valley
Tribe.
• Tribal Housing Codes: model codes developed by the HUD Office of Native
American Programs.
• The Model Tribal Code: developed by the University of Montana-Missoula
School of Law and has been adopted by several Tribes.
• Two hundred governance projects specifically for code development have
been funded by the Administration for Native Americans, Department of
Health and Human Services.
GOVERNMENT OPERATIONS
There is a group of barriers identified by Workshop participants and Financial Survey
respondents that point to the role of government (Federal, state and Tribal) in slowing the
flow of capital into these communities. The three most significant of those barriers are:
• Cumbersome, conflicting, or ineffective Federal or state programs and regulations
• Inflexible banking regulations
• Uncertainty generated by changes in Tribal government leadership
Participants suggested four recommendations:
• Improve Tribal planning processes and structure
NOVEMBER 2001
“…most people just flat
don’t understand how
Tribal governments are
set up. …A lot of times,
they look at it as ‘nomans-land.’ …The
impact of that is that
there’s a great fear of
investment.”
—Richard Kontz, Navajo
Partnership for Housing
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BARRIERS TO PRIVATE FINANCING AND POTENTIAL REMEDIES
• Separate the goals and management of Tribal government from those of
Tribal business
• Strengthen Tribal Courts
• Streamline and improve the efficiency and effectiveness of Federal and
state programs for Native Americans and Native Hawaiians
IDENTIFICATION OF BARRIERS
Cumbersome, Conflicting, or Inefficient Federal or State Programs
and Regulations44
Workshop participants expressed their perceptions of: the slow pace of
government decision-making; excessive requirements and paperwork;
conflicting requirements of certain programs; programs that fail to address the
needs of the community; and programs with overly restrictive entry guidelines.
Frustration was especially pronounced because, according to participants, the
role of the federal government in developing Native American and Native
Hawaiian economies can be critical. Participants noted that federal funding,
combined with Tribal resources, has been a major source of capital that often is
necessary to leverage private capital. Accordingly, breakdowns or delays in the
systems that deliver federal funding stymie the flow of private capital. Some
participants related that many federal agencies have made strides in streamlining
their applications and review processes with improved coordination and
shortened response times, but there remains considerable room for
improvement.
Inefficient regulations can discourage lenders and investors from doing business
in Native American and Native Hawaiian communities. According to Workshop
participants, resultant bureaucratic delays increase investor risk and the costs
of doing business, and discourage business development.
Inflexible Bank Lending Rules and Regulations
Many Study participants felt that, in many cases, underwriting standards that
financial institutions use in non-Tribal and non-Native Hawaiian communities
are inappropriate to evaluate the unique attributes of potential borrowers on
Indian Lands or Hawaiian Home Lands. Moreover, many participants felt that
most mainstream financial institutions do not offer credit products appropriate
for the income and credit histories of non-traditional income earners or for
individuals with minimal credit histories. Few resources are available in Native
American and Native Hawaiian communities to help people establish or repair
their credit rating.
“Traditional loans don’t
work in rural Alaska
because we don’t
qualify. We don’t have
a steady income. We
have seasonal income
or else we’re on
welfare.”
—Fred Bahr,
Noorvik, Alaska
Study participants cited the following examples of Native American and Native
Hawaiian economic circumstances that may disadvantage certain borrowers
under traditional underwriting standards:
44
This section is based upon the reported experiences with certain programs of Workshop participants and Financial
Survey respondents. It does not contain a comprehensive review of all programs purporting to serve Native American
or Native Hawaiian communities.
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
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• Seasonal, agricultural, and part-time incomes are common in Native
American, Native Hawaiian communities, and especially in Alaska Native
Villages.
• Many non-traditional income earners use cash for all of their transactions
and consequently have not established credit histories.
Uncertainty Generated by Changes in Tribal Government
Leadership
Newly-elected Tribal administrations have the authority, at their discretion, to
change and or eliminate the priorities of prior administrations. Because Tribal
governments frequently operate private business enterprises to augment the
Tribal tax base, these priorities may, or may not, include prior administrations’
business arrangements. This represents one kind of possible economic disruption
resulting from transitions of Tribal governments, but Tribal ownership of
businesses create other uncertainties as well. When Tribal governments maintain
a dual role of governance and management oversight of Tribally-owned
enterprises, the dual role can become complicated — especially when the two
roles are in conflict. In the Workshops, both lenders and Tribal participants
expressed concerns that newly elected officials and their administrations may
change a previous administration’s policies and programs in such a way as to
affect private sector business arrangements. The possibility that new
administrations would undermine the business arrangements of their
predecessors may create uncertainty and, accordingly, risk for lenders and
investors as well as for Tribal business people.
“…you need to ensure
that the policies are in
place that bridge the
administrations and
councils - both banks,
Tribes, and Feds - so that
as people are constantly
revolving and going in
and out, the policies will
already be in place so
you have something to
fall back on.”
—Justin Parker,
Administrative Services
Director, Makah Tribe,
Washington
According to Workshop participants, uncertainties resulting from changes in
Tribal government leadership can imply that Tribal businesses may not operate
efficiently because management may emphasize meeting political goals instead
of business goals, Tribal entrepreneurs may become frustrated and move their
businesses out of Native American and Native Hawaiian communities, and
lenders and investors may invest less in Tribal businesses.
POTENTIAL REMEDIES
Improve Tribal Planning Processes and Structure
Workshop participants felt that Tribal governments have the responsibility to
establish a clear and concise vision for the community’s long-term future, to
formulate policies and strategic plans for overall economic development, and
to build a well-trained government workforce. They felt that a Tribally-driven,
systematic approach to economic development will foster an environment that
is more favorable to economic development. A plan will allow Tribal
governments to proactively develop their business climate from within, rather
than reacting to isolated opportunities from outside the community. Potential
business partners and investors will be assured that the Tribe will continue to
move in a given direction and that specific future initiatives will be implemented.
The Financial Survey revealed that some Tribes have economic development
plans, land use plans, and programs encouraging entrepreneurship; however,
many of these plans lack crucial components for success.
NOVEMBER 2001
“The lack of a
comprehensive,
cohesive plan for
development, …
sometimes forces the
Indian Nation to, or the
government and the
people to, place greater
reliance on the federal
government or the state
government.”
—Phil Scott, Chief
Financial Office, Navajo
Nation Division of
Economic Development
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
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BARRIERS TO PRIVATE FINANCING AND POTENTIAL REMEDIES
Specifically, participants recommended that Tribal plans should include
strategies for economic diversification, a consumer spending assessment,
and land use and zoning plans. They should identify businesses the Tribe
wishes to target — those that are appropriate for the Tribe and that are
consistent with the Tribe’s culture and goals — such as, maximizing
economic growth or job creation. In addition, performance evaluation plans
containing measures to monitor progress should be included.
Separate the Goals and Management of
Tribal Government From Those of Tribal Business
Lenders, investors, and Native American and Native business partners
participating in the Workshops recommended that Tribes separate management
of Tribal enterprises from the management of Tribal government operations.
This would de-politicize business decisions and encourage business management
decision making to focus solely on the benefit of the business operation. One
strategy suggested by Workshop participants is to spin off Tribally-owned
enterprises to a separate body for oversight and management, and delegate
privately owned enterprise decision-making authority to a nonpolitical body,
thus clarifying the roles between Tribal government activities and Tribally-owned
enterprise/corporation business activities. For example, several Tribes have
created Tribally-owned enterprises and corporations with separate boards and
management. The Navajo Nation and Southern Ute Tribes have created Tribal
for-profit oil and gas corporations, the Salt River Pima-Maricopa Community
owns and operates a sand and gravel business and a cement company, and the
Mississippi Band of Choctaw Indians owns and operates manufacturing plants
and construction companies, all with separate governing bodies.
Strengthen Tribal Courts
Tribal courts are an integral part of a legal environment that promotes/facilitates
economic development on Indian Lands, but they vary widely in their capacity
and breadth of jurisdiction. Some Tribes are too small to have a court system
and rely primarily on courts in surrounding jurisdictions and federal courts
for enforcement. CDFI Fund research determined that there are approximately
275 formal Tribal courts, including peacemaker, traditional, and formal courts.
Workshop participants noted that lenders and investors are often reluctant to
accept the jurisdiction of Tribal courts to enforce financial contracts, although
it is unclear whether this reluctance is based on experience with courts or lack
of knowledge of them. To address this problem, Workshop participants
recommended an increase in the capacity of Tribal courts to resolve commercial
and financial disputes and to enforce commercial codes. Recommended actions
include the further development of independent Tribal courts, provision of
training for court personnel on commercial and financial law, increasing the
skills and capacity of judges and judicial personnel regarding lender and investor
issues, and establishment of enforcement procedures for foreclosures and
repossession, garnishment, and bankruptcy. Some initiatives are currently
underway:
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
29
• The Bureau of Justice Assistance, U.S. Department of Justice, and BIA
are currently funding technical assistance and training grants for Tribal
Court capacity building.45
• The National American Indian Court Judges Association has established
the National Tribal Justice Resource Center to assist Tribes in strengthening
methods of self-government and to provide technical assistance for enhancing
Tribal justice systems.46
• The Tribal Court Clearinghouse has been created as a resource for Tribal
court development, training, court review, code drafting, and training. 47
Streamline and Improve the Efficiency and Effectiveness of
Federal and State Programs for Native Americans and Native
Hawaiians
Workshop participants acknowledged the important role that state and federal
programs play in economic development on Indian Lands and Hawaiian Home
Lands. However, Workshop participants also consistently expressed the need
to accelerate the pace of government decision-making, reduce excessive
requirements and paperwork, rationalize the requirements of different programs
that conflict with one another, reform programs that do not meet the needs of
the community, and revise programs with overly-restrictive entry guidelines.
They stressed that bureaucratic delays and onerous programmatic requirements
extend timelines for physical and business development on Indian Lands and
Hawaiian Home Lands. Many participants felt that if the federal government
and the State of Hawaii could shorten their decision-making processes and
ease programmatic requirements, development timelines could be shortened,
and the associated risk and cost could be reduced.
Moreover, many Workshop participants felt that streamlining the processes
that limit Tribes’ abilities to alienate land, so that Tribal governments and
individuals can exercise greater control over the assets that benefit them, would
help remove barriers to the private sector to finance real estate and business
development. As an example, in 2000 Congress passed the Omnibus Indian
Advancement Act, Public Law 106-568.48 The Act provided the opportunity
to establish a streamlined process for the Navajo Nation to lease trust lands
without having to obtain the approval of the Secretary of the Interior for
individual leases, except leases for exploration, development, or extraction of
any mineral resources. The terms of these leases, in the case of business or
agricultural leases, would not exceed 25 years, but may include an option to
renew for up to an additional 25 years. For residential purposes, the lease could
be for a term of 75 years.
45
See, note 15, supra.
46
See, note 16, supra.
47
See, note 17, supra.
48
25 U.S.C. §§ 4101, et seq.
NOVEMBER 2001
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
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BARRIERS TO PRIVATE FINANCING AND POTENTIAL REMEDIES
ECONOMIC BARRIERS
Workshop participants identified four major barriers that affect the economic capacity
of Native American and Native Hawaiian communities:
• Limited use of trust land as collateral
• Lack of capital, collateral, and/or credit histories of Native Americans on Indian Lands
and Native Hawaiians
• Negligible economic base on Indian Lands
• Lack of networking of Native-owned businesses with equity investors
Participants suggested four recommendations:
• Create alternative collateral options for trust land
• Develop ways to access debt and equity capital on Indian Lands and Hawaiian Home
Lands
• Increase equity investment on Indian Lands and Hawaiian Home Lands
• Establish a Native American and Native Hawaiian equity fund
IDENTIFICATION OF BARRIERS
Limited Use of Trust Land as Collateral
One of the most complex and long-standing barriers identified in the course of
the Study is the status of Indian Lands. In the latter part of the eighteenth
century, Congress passed the Trade and Intercourse Act49 , which voided any
transfer trust of Tribally-owned land without the approval of the federal
government. In 1887, Congress passed the Allotment Act50 , which provided
to individual Native Americans land from both the public domain and from
the reservations themselves. Often, reservation land that remained after
allotments were issued would be sold in fee status to non-Indians, creating a
checkerboard land tenure system and jurisdictional uncertainty. This practice
was ended in 1934. At present, land tenure on most reservations is identified
as Tribal trust, individual allotment in trust, and fee-simple (which is privately
owned land that is transferable and may be encumbered by a mortgage or lien).
Historic changes in federal policy, the historical distrust of certain federal policies
and programs by Native Americans, and basic cultural differences relating to
land ownership have led to the present confusing, hybrid system of land tenure
on reservations.
“…that is the biggest
impediment, in our
view, as far as banks
coming on and lending
dollars to Tribes is
because of collateral
issues. You cannot put
the land that is in trust
as collateral because if
you default, there is no
way for the bank to
come in and to recoup
so they don’t have a
loss.”
—Keller George,
President, United South
and Eastern Tribes, Inc.
Trust land (tribal or allotted) is held in trust by the federal government for the
benefit and use of the Tribe or the allottee and cannot be conveyed by the Tribe
or members for such transactions as business leases or mortgages, without the
approval of the Secretary of Interior. In Hawaii, the situation is very similar for
Hawaiian Home Lands. These lands are held in trust for the benefit of the
Native Hawaiian people, who may homestead a parcel of this trust land only
with the approval of the State Department of Hawaiian Home Lands.
49
25 U.S.C. § 177.
50
25 U.S.C. §§ 331, et seq.
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
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According to Workshop participants, slow and inefficient operation of such
restrictions can effectively deprive Native Americans and Native Hawaiians of
opportunities to use what is potentially the most valuable asset in their
communities and thus creates an obvious barrier to the availability of debt
financing. This barrier was identified in the Workshops and in the Financial
Survey, with 55 percent of the FSOs citing limited use of trust land as collateral
as a significant barrier to lending.
Even leasing, an alternative to sale requires approval from the Bureau of
Indian Affairs or (in the case of Hawaiian Home Lands) the State of Hawaii.
According to Workshop participants, the approval process can often take six
months to two years and, even after approval, many mortgage lenders are
reluctant to accept a leasehold interest in property as collateral for a mortgage.
The result is that most Native Americans and Native Hawaiians either
purchase mobile homes, rent apartments, reside with friends or family, wait
for public housing, or purchase homes outside their communities.
In Alaska, federal ownership is replaced by regional corporation ownership of
land, creating similar difficulties. As in the continental United States and Hawaii,
an Alaska Native does not own the land on which his/her home or business
may be constructed. 51
According to Workshop participants and Fund research, the limited use of
trust land as collateral has the following results:
• As of 1999, there were 471 home mortgages on Indian Lands.
• The out-migration of Indian Lands caused by those seeking home ownership,
results in the loss of talent and economic vitality in Native American
communities.
• Native Americans and Native Hawaiians often lack home equity to pay for
small-business start-ups, consumer loans, and college expenses.
Lack of Capital, Collateral, and/or Credit Histories of Native
Americans on Indian Lands and Native Hawaiians
Many Native Americans and Native Hawaiians do not have access to capital in
the form of home equity, stock holdings, or other assets and, according to
Workshop participants, the result is that:
• Low levels of home-ownership deny Native Americans and Native Hawaiians
the most common form of collateral to obtain loans for purchases or smallbusiness startups.
• Individual Native Americans and Native Hawaiians wishing to start a
business, purchase a home, or make another large purchase are often not
able to qualify for the loans that they need.
• Fund research and Workshop participants suggest that compared to the
United States overall, fewer business and consumer loans are granted on
Indian Lands and Hawaiian Home Lands.
51
The Alaska Native Claims Settlement Act of 1971, codified at 43 U.S.C. §§ 1601 et seq., transferred trust land
beneficiary status from the Alaska Native Tribes and Villages to 12 regional corporations. See also, Alaska v. Venetie
Tribal Government, 118 S. Ct. 948 (1998).
NOVEMBER 2001
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
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BARRIERS TO PRIVATE FINANCING AND POTENTIAL REMEDIES
Negligible Economic Base on Indian Lands
Another key barrier that Workshop participants identified is the limited
economic base in most Native American communities, which is due to a
combination of small population, remote location, and the other barriers
discussed in this report. According to Workshop participants, the impacts of
this barrier are severe:
• Native American communities cannot support the establishment or
expansion of local businesses, so that community members are forced to
seek work, goods and services off Indian Lands or Hawaiian Home Lands.
• Native American communities experience a “brain drain,” as the most highly
skilled members of the community emigrate in search of employment and
housing opportunities.
• Private firms, investors, and financial institutions are unable to obtain the
scale or volume necessary to support business.
• Community economies are concentrated in one economic sector and are
vulnerable to the economic fortunes of that sector.
As a result, according to Workshop participants, Native American economies
lack the diversity to withstand economic shocks or even more routine, cyclical
movements. Native American communities, accordingly, are more sensitive to
downturns in particular sectors.
Lack of Networking of Native-owned Businesses With Equity
Investors
The CDFI Fund’s Equity Investment Research Report shows that locations
with significant numbers of investors and significant volume of investment
activity do not coincide with significant populations of Native American and
Native Hawaiian people. Additionally, investors and Native American and
Native Hawaiian entrepreneurs often operate in different social/business circles.
This separation can inhibit investment in Native American and Native Hawaiian
businesses. “Angel” and venture capital investors generally take an active role
in the management of the companies in which they invest, and most prefer to
invest in companies located in close proximity to them. Areas with the highest
number of venture capital offices, such as Silicon Valley in California and
Boston, Massachusetts, are not generally the locations with large numbers of
Native American and Native Hawaiian firms. In addition, “angel” investors
and venture capitalists often obtain investment leads and business plan
submissions through a network of trusted sources, generally colleagues that
they have worked with or socialized with for years, and Native American and
Native Hawaiian business owners and entrepreneurs are not usually members
of these referral networks. This geographic and social mismatch between Native
American and Native Hawaiian entrepreneurs and investors can impede access
to outside investment for many Native American and Native Hawaiian
entrepreneurs.
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
33
POTENTIAL REMEDIES
Create Alternative Collateral Options for Trust Land
One strategy recommended by Workshop participants is to recognize and
leverage the value of trust assets and other commercial or financial assets and
to build equity pools from these resources. For example, the Southern Ute
Tribe has established a growth fund built on the Tribal mineral estate. This
fund has leveraged outside capital and currently provides the basis for Tribal
economic self-sufficiency.
Another potential strategy identified by Workshop participants is to facilitate
development of trust land and unlock the value of assets through alternative
means of valuation and of turning assets into collateral. Alternative collateral
options could be utilized, including master leases, and streamlined leasing
procedures could be implemented to overcome restrictions on using trust land
as collateral. For example, in 2000, Congress passed the Omnibus Indian
Advancement Act (P.L.106-568), which established a streamlined process for
the Navajo Nation to lease trust lands without having to obtain the approval of
the Secretary of the Interior for individual leases.52
Develop Ways to Access Debt and Equity Capital on Indian Lands
and Hawaiian Home Lands
There are four potential sources of capital on Indian Lands and Hawaiian
Home Lands:
• Tribal financial resources. Tribal respondents to the Financial Survey reported
that they use their own resources to fund infrastructure on Indian Lands,
Tribally owned businesses, economic development, and home construction
and purchases.
• Federal and state government loans and grants. These are primarily used,
according to Financial Survey respondents, to finance infrastructure on
Indian Lands and Hawaiian Home Lands, economic development, home
construction, property redevelopment, and large businesses.
• Debt capital from banks. According to Financial Survey respondents, banks
most commonly finance consumer purchases.
• External equity for businesses, investment. According to the Fund’s research,
external equity investment is the least used form of financing on Indian
Lands and Hawaiian Home Lands.
Another recommendation from Workshop participants was to form more
FSOs and CDFIs on Indian Lands and Hawaiian Home Lands. Workshop
participants felt that locally controlled FSOs and CDFIs could be an
important source of investment, loans and financial services that would be
crafted to respond to their particular community’s needs. A CDFI, in order
52
P.L. 106-568 provides modification to existing law concerning the leasing of Navajo Nation trust lands. The
Navajo Nation Trust Land Leasing Act of 2000 allows trust land to be leased, subject to Tribal regulations, without
the approval of the Secretary of the Interior. The terms of these leases, in the case of business or agricultural leases,
cannot exceed 25 years, but may include an option to renew for an additional 25 years. For residential purposes,
leases can be for a term of 75 years.
NOVEMBER 2001
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BARRIERS TO PRIVATE FINANCING AND POTENTIAL REMEDIES
to be certified as such by the CDFI Fund, is required to provide services to
support the consumers of its products and to demonstrate that its products
and services are targeted to the market that it serves. Several Workshop
participants stated that, in many instances, only financial institutions and
investors that have some broader stake in Native American and Native
Hawaiian communities will undertake the level of activity and investment
needed to serve the communities adequately.
Accordingly, Workshop participants recommended that Tribes and Native
Hawaiian communities should develop their capacity to orchestrate and leverage
all sources of capital, that financial institutions should develop new lending
and financing products and revise underwriting criteria to meet the unique
needs of Native American and Native Hawaiian communities, and that lending
programs of regulated and unregulated entities be developed to finance
businesses of all sizes and home ownership, especially on trust land.
“It seems like the
underlying question is:
How do you create –
carve a channel for
capital to flow into
Indian Country in terms
of equity funding?”
—Glenn Yago, The
Milken Institute
“The latest research we
did both on the angels
[startup equity
investors] and the
venture capital markets
are interesting in the
fact that there is plenty
of capital out there.
What they miss is
quality deal flow,
putting the emphasis
on quality… You will
certainly have to
develop that pipeline
that feeds the systems.”
Increase Equity Investment on Indian Lands and Hawaiian Home
Lands
Equity Investment Roundtable participants noted that having access to new
equity investments would provide financing for businesses and allow greater
lending to these businesses by allowing them increased ability to leverage their
equity. As explained in the Equity Investment Research Report, however, external
equity investment, although widely used throughout the U.S. and in countries
around the world, has not been widely used on Indian Lands and Hawaiian
Home Lands. Equity investment is a critical missing ingredient because equity
investments often do not require the types of physical assets as collateral that
loans or other types of credit financing require. In particular, equity investment
does not require using land as security and accordingly, equity investments
overcomes the obstacles presented by impediments to using trust land as security.
Equity investments can thus provide money to businesses that do not qualify
for loans but are still good investments. Bankers provide liquidity and
expansion capability to businesses with cash flow and collateral, whereas
equity investors invest in management teams with credible business plans
— teams that investors expect will generate returns on their investments.
Many Workshop participants agreed that in order to improve access to equity
capital, investors must understand Native American and Native Hawaiian
communities and Native Americans and Native Hawaiians must understand
how equity markets function — what investors want and why. There are many
sources of equity to suit different needs: some companies evolve through one
or more of these equity sources as they change and grow, whereas others may
only use the type most applicable to them at the time they need it. Tribal
—Jeffrey Sohl, Professor,
University of New
Hampshire
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
35
leaders and private investors suggested strategies that relied on accessing
capital sources that have not traditionally been on the Native American
investment “radar screen” and on expanding Native American awareness to
include more equity and nontraditional financing and thus increase the
chance of securing funding. Exhibit 1 depicts the new tribal-investment
“radar screen” and illustrates how participants at the November 28-29,
2000, Equity Investment Roundtable Meeting view future awareness of
equity sources.
EXHIBIT 1
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BARRIERS TO PRIVATE FINANCING AND POTENTIAL REMEDIES
Exhibit 2 illustrates an equity landscape in terms of types of equity
investment versus enterprise stages of business development.
Types
of
Equity
Investment
Exhibit 2
Equity Investment Roundtable participants discussed, and the Equity
Investment Research Report reviewed, several potential strategies53 :
• First, business incubators provide seed capital, physical space, and expert advice
on technical and management issues to small businesses and start-ups. Industry
or sector-specific incubators can provide full spectrum management and
technical assistance on Indian Lands and Hawaiian Home Lands, and thus
meet the needs of Native American and Native Hawaiian communities.
• Second, “angel” investors are another source of early money (seed capital)
and expert advice. Most angel investors are entrepreneurs who have
successfully launched one or more businesses of their own and enjoy helping
other entrepreneurs get their businesses started. In addition to money and
advice, they contribute time and help with contacts. They are usually very
involved in the day-to-day management of the business, and they usually
prefer to finance businesses in an industry in which they have experience
and in businesses that are in close physical proximity to their headquarters.
Existing angel investor networks could be utilized and, in addition, a Native
American and Native Hawaiian angel network could be created. A relevant
example is the Center of North America Capital Fund (CONAC), an angel
investor network and investment fund that links two Tribes — the Turtle
Mountain Band of Chippewa and the Spirit Lake Sioux — with nationwide
investors for investment in North Dakota. The CONAC Fund was modeled
after Minnesota’s Regional Angel Investor Networks (RAIN) Fund, a series
of rural investment funds formed by the Minnesota Investment Network
Corporation.
53
For a more complete discussion of the equity strategies discussed here, see CDFI Fund Native American Lending Study,
Equity Investment Roundtable and Research Report, January 2001, prepared by Complexity Management, Inc. and The
Johnson Strategy Group, Inc.
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
• Third, existing community development venture capital (CDVC) funds
can be used and Native-specific ones can be created. CDVC combines
venture capital with high levels of technical assistance, similar to what
incubators and angels provide. CDVC strives for both financial and social
returns. CDVC has been a successful and growing approach to bringing
capital to businesses in underserved communities, but is still a small part
of the overall equity investment landscape, representing only about 0.03
percent of all private equity available in 2000. Traditional venture capital
funds typically raise funds and then liquidate their investments and return
money to investors in ten-year increments. Funding such as grants,
foundation loans, and official aid does not always require a market rate of
financial return. However, while some private sector equity investors are
willing to accept less-than-market returns for helping the community,
their resources are limited. The social returns sought by CDVCs vary,
but are typically characterized by increased minority and women
ownership, job creation, diversity in hiring, employment of residents in
the targeted disadvantaged communities, quality benefits as part of
compensation, and environmental criteria. Sensitivity to the culture of
Native American and Native Hawaiian communities can also be built
into the investment criteria of these funds.
37
“Demand for equity is
exactly equal to the
number of businesses
that you start. If you put
it in the vernacular,
there ain’t a business
that’s going to be
started without equity.”
—Ray Moncrief,
Kentucky Highlands
Investment
For example, the Kentucky Highlands Investment Corporation (KHIC) has
succeeded in providing training and technical assistance to Appalachian
entrepreneurs. The corporation initiates new businesses by helping the
entrepreneur create a viable business, management team, and business plan,
and thus investing equity in the business.
• Fourth, some corporations have internal venture capital funds. Generally,
they invest in businesses that can potentially offer a promising new
technology, a complementary product or component of their own product
line, or a new or complementary market approach. Corporate venture capital
funds may invest in an early stage or an expansion stage of a business.
Becoming a partner with, and receiving equity investments from,
corporations outside Native American and Native Hawaiian communities
has been used occasionally on Indian Lands, and could be used more widely
in the future. Corporate “partnering” offers not only financing, but also
management skills, industry expertise, and informal networks to assist small
businesses.
• Fifth, state and city venture capital programs can be used. Public sector
sponsored funds, fund guarantees, and incentives of various types are proving
to be a source of learning and information for investors. Public and private
sector partnership approaches, often joint funds with an intermediary, have
proven successful. For example, several states, including Massachusetts and
Oklahoma, have launched profitable, growing businesses that created jobs
and a more diverse economy.
• Finally, public/private intermediaries could be formed to direct equity and
loan funds to Native American and Native Hawaiian businesses. For example,
the Hopi Credit Association provides a bridge between banks and Tribal
borrowers. The credit union obtains funds from banks and handles all loan
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BARRIERS TO PRIVATE FINANCING AND POTENTIAL REMEDIES
selection and servicing interaction with Native Americans, the banks with
a responsible Tribal credit union that understands banking needs, and
the Native Americans are comfortable with a credit union that understands
their needs. In another case, the Southern Ute Growth Fund uses a
partnership approach: the Tribe co-invests, using its growth fund and
capital provided by outside investors, in a variety of growth opportunities.
This approach initially began with the Tribe’s oil and gas business, and
then expanded to other ventures.
Establish a Native American and Native Hawaiian Equity Fund
Equity Investment Roundtable participants, noting that an emerging economy
can find it difficult to become self-sustaining until adequate levels of private
debt and equity capital are available to the businesses in that economy, felt that
public funds can play an important role in this process. Since public funds can
have the mission of developing a particular region, they can be provided on the
basis of greater risk and lower returns than private sector investors may be
willing to accept. Historically, the public sector has often played a crucial role
in investing in underdeveloped areas, and can help develop a critical mass of
investment to encourage the private sector to invest.
To attract equity to Native American and Native Hawaiian communities, one
option identified by Workshop participants was for the federal government to
play an initial role by sponsoring an equity fund on Indian Lands and Hawaiian
Home Lands. According to Workshop participants, this could encourage private
sector investors to invest on Indian Lands and Hawaiian Home Lands and
could be combined with other incentives, such as guarantees, tax credits, or
other risk-reduction measures.
FINANCIAL AND PHYSICAL INFRASTRUCTURE
Workshop participants and Financial Survey respondents identified the lack of financial
and physical infrastructure as a significant barrier to investment in Native American and
Native Hawaiian communities. These issues will be discussed in the following barrier
sections:
“Without necessary
infrastructure to build
an economy, why
would a banking
industry want to lend
money? It wants money
returned. But for money
to return, it has to have
a sustained economy…
But to have a sustained
economy, you need
necessary
infrastructure.”
—Brian Henry, Alaska
Village Initiatives
• Lack of financial institutions on or near Indian Lands or Native Hawaiian communities
• Lack of physical and telecommunications infrastructure on Indian Lands or Hawaiian
Home Lands
Participants and respondents suggested the following four potential recommendations:
• Increase the number of financial institutions on or near Indian Lands and Hawaiian
Home Lands
• Develop regional financial institutions
• Develop financial products and services that will meet the needs of Native American
and Native Hawaiian depositors and borrowers
• Create innovative strategies to develop Indian Lands and Hawaiian Home Lands
infrastructure
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
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IDENTIFICATION OF BARRIERS
Lack of Financial Institutions on or Near Indian Lands or Native
Hawaiian Communities
The Financial Survey identified the lack of financial institutions based in Indian
Land and Hawaiian Home Land as a serious problem and noted that, unlike
non-Native American or non-Native Hawaiian communities, Indian Lands
and Hawaiian Home Lands are not generally served by a variety of financial
institutions. In the Financial Survey, 33 percent of Tribal respondents indicated
that they had to travel at least 30 miles to reach an ATM or a bank branch, and
many Native Americans and Native Hawaiians have difficulty in accessing any
form of banking service. This lack of basic financial services has implications
for financial literacy, capacity building, and banker-customer communication.
It exacerbates the capital access gap and increases the difficulty of starting new
businesses and acquiring home mortgages. The Financial Survey also found
that:
• Only 14 percent of communities on Indian Lands have a financial institution
in their community.
• Approximately half of these communities have a financial institution nearby,
and only about half have an easily accessible ATM.
• Six percent of the residents of Indian Lands must travel more than 100
miles to reach the nearest bank or ATM.
Native American Workshop participants noted that in many of their
communities that lack financial institutions, individuals needing credit must
often rely on sub-prime lenders who charge high fees for their services. In
addition, the absence of financial service providers reinforces the cash and barter
system of trade and contributes to Native Americans’ and Native Hawaiians’
unfamiliarity with financial institutions and the contemporary financial services
culture. According to CDFI research and Workshop participants, the impact
of this lack of financial institutions on Indian Lands and Hawaiian Home
Lands is substantial:
• Native Americans and Native Hawaiians’ access to even basic banking services
is limited, and they must leave Tribal lands to obtain these services.
• Financial services are costly for Native Americans and Native Hawaiians.
• Native Americans and Native Hawaiians have limited opportunity to
acquire financial expertise or the capacity and experience to manage
community-based financial institutions.
• Many Native Americans and Native Hawaiians have either no credit history
or a poor credit history that prevents them from qualifying for loans.
Lack of Physical and Telecommunications Infrastructure on Indian
Lands or Hawaiian Home Lands
According to Workshop participants, there is serious lack of physical and
telecommunications infrastructure54 on Indian Lands and Hawaiian Home
Lands. Several Workshop participants and, in particular, investors who
54
For purposes of this report, physical infrastructure is defined as water, sewer, and electrical lines and roads;
telecommunications infrastructure is defined as telephone, cable, and fiber optic lines.
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BARRIERS TO PRIVATE FINANCING AND POTENTIAL REMEDIES
participated in the Equity Investment Roundtable cited this absence of
developed infrastructure as a significant impediment to attracting investment
to Indian Lands. Further, participants reported that undeveloped infrastructure
significantly increased the costs associated with business development on Indian
Lands:
• Only 47 percent of households on Indian Lands have telephones, compared
to 94 percent for non-Native rural communities in the United States.55
• Twenty-six percent of Tribes report that they do not have 911 police/fire
emergency services.56
• In rural areas (with populations of 2,500 or fewer), 12 percent of Native
American households lack electricity and 23 percent do not have access to
natural gas.57
• Only nine percent of rural Native American households have personal
computers and, of these, only eight percent have Internet access.58
• There is significant unmet need for road and bridge improvements on Indian
Lands and Hawaiian Home Lands.59
• More than 66 percent of the Indian Reservation Roads (IRR) system consists
of unimproved earth and gravel surfaces that wash out in severe weather,
and 26 percent of IRR bridges are deficient. The annual fatality rate on
these roads is more than four times the national average.60
Workshop participants expressed concern about infrastructure, and a recent
study by the New Mexico State University also found that Tribes identified
infrastructure development as one of their top priorities.61 The NMSU Study
of infrastructure needs on Indian Lands in the lower 48 states and Alaska found
that “Tribes overwhelmingly identified their top investment priorities as housing,
roads, wastewater technology, and medical facilities.”62
Moreover, the NMSU Study reports that due to this inferior physical and
telecommunications infrastructure:
• The cost of economic development is increased and private commercial
development is decreased.
• Business startups face prohibitive costs, and economic activity on Indian
Lands is limited to a large degree to service industries.
55
“Fact Sheet Promoting Deployment/Subscribership in Underserved Areas, Including Tribal and Insular Areas”,
Federal Communications Commission, June 8, 2000.
56
Assessment of Technology Infrastructure in Native Communities, New Mexico State University, 2000.
57
Ibid.
58
Ibid.
59
Senator Ben Nighthorse Campbell, “Amending the Indian Reservation Roads Program,” Senate Report 106-406,
September 11, 2000, p. 3.
60
Ibid.
61
Assessment of Technology Infrastructure in Native Communities, op. cit.
62
Ibid.
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
41
• The Native American economies are not self-sustaining and create relatively
few jobs.
• Internet access is more expensive and more difficult to obtain in Native
American communities.
POTENTIAL REMEDIES
Increase the Number of Financial Institutions on or Near Indian
Lands and Hawaiian Home Lands
Workshop participants noted that different approaches have been used to address
the lack of access to financial services. A few Tribes have formed agreements
with banks to build branch banks on their land, some Tribes and Native
American non-profits have started revolving loan funds (some are CDFIs),
and some Tribal governments have instituted government-run revolving loan
funds.
Workshop participants strongly felt that the creation of community based
financial institutions in Native American and Native Hawaiian communities
should be given high priority, and CDFIs were identified as a crucial and
underutilized resource. Since, no single financial institution model can address
the needs of all Native American and Native Hawaiian communities, establishing
and expanding CDFIs on Indian Lands and Hawaiian Home Lands offers
important advantages for they can provide lending and investment funds that
employ people from the community. In addition, CDFIs provide opportunities
for to develop partnership programs among Tribes, other financial institutions,
equity investors, and federal agencies.
Another strategy is the expansion of existing financial institutions to Indian
Lands and Hawaiian Home Lands, and purchasing existing banks. There are
examples of successful initiatives cited by Workshop participants:
• The Cheyenne River Sioux Tribe used an existing revolving loan fund to
create the non-profit Four Bands Community Fund, a CDFI that provides
loans to businesses.
• In 1990, the Navajo Nation had only three bank branches and one ATM
serving a geographic area of 17 million acres. To increase the availability of
financial services on the reservation, the Tribe entered into an agreement
with Norwest Bank (now Wells Fargo) to build four new branch banks, hire
and train Navajo personnel, and target financing to business startups and
housing development.
• In all, nine Tribally-owned commercial banks, seven credit unions, and 14
loan funds have been developed nationwide to serve Native American and
Native Hawaiian communities.
• Hawaiian Community Assets, Inc. is developing a charter for the first Native
Hawaiian-owned bank.
• As of September 30, 2000, the CDFI Fund had certified 34 CDFIs that
serve Native American or Native Hawaiian communities.
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BARRIERS TO PRIVATE FINANCING AND POTENTIAL REMEDIES
“…this is the first time
I’ve met some of the
credit officers from
Tribal credit enterprises
here, and it’s really
exciting to see them
here, but I think they’re
all set up separately
and I think an
association might be
real helpful for training,
for collaboration, for
working with other
banks, for
partnerships.”
Develop Regional Financial Institutions
Workshop participants stated their belief that regional partnerships and alliances
are essential to overcoming barriers to capital and credit access,
The regional focus is important because, according to Workshop participants:
• Tribes and Tribal organizations can coordinate with federal agency financial
assistance providers at the regional level for initiatives such as Small Business
Investment Companies (SBICs) or CDFIs.
• Regional partnerships and alliances can address economies of scale for small
or newly recognized Tribes that do not have the necessary legal, economic,
and physical infrastructure necessary to support financial institutions.
Possible strategies identified by Workshop participants include building
partnerships established through the Workshop cosponsors63 and other InterTribal organizations; establishing regional information clearinghouses for
information on model financing approaches, accessing equity capital, and
sources of training and technical assistance; and providing channels of
information to Tribal communities so that they can adapt model approaches
unique to their cultural settings; and holding follow-up forums similar to those
conducted in this Study.
—Dave Tovey,
Confederated Tribes of
the Umatilla Indian
Reservation, Oregon
Another approach is to establish regional partnerships among banks, lending
institutions, venture capitalists, federal agencies, and Tribes/Inter-Tribal
organizations to:
• Conduct regional forums to assist Tribal businesses in identifying types and
sources of financing that best serve a given enterprise.
• Create financing intermediaries that provide regional and local assistance to
Tribes and Tribal entrepreneurs.
• Develop technical and underwriting standards at the regional level that can
be adapted to varying Tribal business environments.
Examples of successful regional initiatives cited by Workshop participants
include:
• The Native American Development Corporation is a nonprofit CDFI that
provides Native American business communities in Montana and Wyoming
with funds to create jobs, develop long-term economic self-sufficiency, and
facilitate access to capital. Its Capital Loan Fund was initially capitalized
with funding from banks, the federal government, First Nations Development
Institute, and private corporations.
• The Native American Lending Group, Inc. is a nonprofit multi-Tribe CDFI
in New Mexico that serves 19 Pueblo communities. It was created to provide
Tribes, Native American businesses, and individuals access to private
investment capital.
63
See Chapter II, pages 18-19, for the list of the 14 cosponsors.
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
43
• Coastal Enterprises, Inc. is a nonprofit CDFI serving low-income
communities in Maine, provides financial and technical assistance for
development and expansion of industries, small businesses, housing, and
social services. CEI has partnered with the Penobscot Indian Nation to
develop a CDFI to fund housing and business development.
Develop Financial Products and Services That Will Meet the
Needs of Native American and Native Hawaiian Depositors and
Borrowers
Many Workshop participants expressed the opinion that, in order to bridge
the divide between lenders and Native American communities, FSOs should
develop products and services that will address the economic attributes of Native
American or Native Hawaiian markets. For example, many participants
suggested that FSOs develop underwriting standards that can evaluate potential
borrowers who are employed seasonally, or who have lived in mostly cash
economies. In addition, Workshop participants believed that there would be
more creditworthy borrowers in Native American communities if FSOs
provided more educational and outreach services.
Create Innovative Strategies to Develop Indian Lands and
Hawaiian Home Lands Infrastructure
According to Workshop participants, infrastructure must be in place if Native
American and Native Hawaiian economies are to develop and create jobs, and
that, absent commercial grade infrastructure, projects proposed for financing
are frequently rejected by lenders. Various ideas were explored at the Workshops
to facilitate development of an infrastructure system capable of supporting
commercial and industrial needs on Indian Lands and Hawaiian Home Lands:
• Conduct a commercial and industrial infrastructure assessment to determine
infrastructure needs throughout Native American and Native Hawaiian
communities.
• Create partnerships between Tribal governments and private developers to
plan for comprehensive infrastructure development, including information
technology needs.
• Ensure that a federal infrastructure investment strategy best utilizes available
federal resources and encourages private partnerships to participate in the
funding and development process.
• Assess the feasibility of creating an entity similar to the Rural Community
Assistance Project (RCAP) that would focus on infrastructure development
in rural Native American and Native Hawaiian communities.
Workshop participants noted that the federal government has already begun to
address some of these issues. As an example, the Workshop participants cited
an initiative by the Federal Communications Commission (FCC) has to increase
assistance to Native Americans through the Lifeline and Link Up programs,
and conduct outreach to ensure that Native Americans are familiar with these
programs and know how to qualify for them. FCC has also changed its auction
NOVEMBER 2001
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BARRIERS TO PRIVATE FINANCING AND POTENTIAL REMEDIES
rules to increase incentives for wireless carriers to serve Indian lands, and
has streamlined the process for telecommunications companies to receive
universal-service support in serving Indian Lands.64
Another opportunity may exist through the Indian Financing Act of 197465 ,
under which Tribes may issue tax-exempt bonds to fund “essential government
functions” that state and local governments customarily provide — including
principal infrastructure improvements. However, according to Workshop
participants, most Tribes do not have the ability to service tax-exempt bond
debt. While Tribes as sovereigns have the authority to levy taxes, there is
frequently an inadequate tax base to finance infrastructure improvements.
A number of other mechanisms exist to finance infrastructure development,
including loans from Tribal trust funds, loans to Tribes from revolving credit
funds (established in section 10 of the Indian Reorganization Act of 193466 ),
loans for infrastructure development pursuant to the Indian Financing Act,
Tribal (general obligation) bonds, publicly issued and traded Tribal bonds,
revenue bonds, joint ventures with the private sector, and grants. However,
most of these are based on some form of debt, and most Tribes, according to
Workshop participants, do not have tax bases that would enable them to qualify
for loans or bonds.
EDUCATIONAL AND CULTURAL BARRIERS
Workshop participants and Financial Survey respondents identified banker, investor, and
Tribal lack of knowledge, understanding or capacity more often than any other set of
barriers to private investment. Specifically, they identified the following seven barriers
that were grouped into this theme:
• Lack of knowledge or experience with the financial world on the part of Tribes and
individual Native Americans and Native Hawaiians
• Lack of technical assistance resources
• Failure of lenders and investors to understand Tribal government or legal systems
• Poor understanding of Tribal sovereignty and sovereign immunity
• Historical absence of trust between Tribes and banks
• Differences between Native American and Native Hawaiian cultures and the banking
and investor cultures
• Discrimination against and/or stereotyping of Native American and Native Hawaiian
communities
64
“Federal Communications Commission Takes Steps to Promote Access to Telecommunications on Tribal Lands,”
Federal Communications Commission, June 8, 2000, p.1.
65
12 U.S.C. §§ 1451, et seq.
66
12 U.S.C. § 465.
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
45
Participants and respondents suggested the following four recommendations:
• Expand financial education for Native Americans and Native Hawaiians
• Develop entrepreneurship programs for Native Americans and Native Hawaiians
• Conduct lender and investor education
• Expand technical assistance
IDENTIFICATION OF BARRIERS
Lack of Knowledge or Experience With the Financial World on the
Part of Tribes and Individual Native Americans and Native
Hawaiians
According to CDFI Fund research, in Native American and Native Hawaiian
economies, most transactions have been conducted using cash. Many Native
Americans and Native Hawaiians thus lack an understanding of banking, credit
reporting, and loan qualification processes and standards and have difficulty
obtaining credit because they have no credit histories or, in some cases, bad
credit histories. Moreover, Native American residents of Indian Lands and
Native Hawaiians often lack knowledge and experience in preparing the business
plans required for bank financing. In addition, many are unfamiliar with how
financial markets work, how to make equity financing choices, and what
investors require.
According to CDFI Fund research and Equity Investment Roundtable, equity
investment has not traditionally been a Tribal focus for capital formation. While
Tribes are beginning to reinvest their funds as equity in new businesses, accepting
external equity investment is still often a foreign concept. Native American
and Native Hawaiian cultures have not traditionally been profit-driven, and
the Tribal government’s objective in business management and business
development is often job creation to address immediate unemployment
problems. Moreover, according to Workshop participants, in the past, some
unscrupulous salespeople have taken advantage of these Tribal sensibilities to
offer investments to Tribes that subverted Tribal values and returned little.
Such experiences have contributed to a history of Tribal distrust of “outside”
business interests. This is often exacerbated when a non-Native investor or
lender requires that, as part of the deal, the Tribe or entrepreneur relinquish
partial ownership and control of the business to the investor.
In evaluating potential funding opportunities, bankers and equity investors
analyze the loan applicant’s management skills, financial knowledge, and
business planning ability. Equity investors also require that applicants seeking
investment capital have business plans, which is often an unfamiliar concept
to many Native Americans and Native Hawaiians, according to Workshop
participants. Therefore, before they even apply for capital, potential Native
American and Native Hawaiian entrepreneurs are likely need assistance with
strategic, business, and financial planning. Equity Investment Roundtable
participants noted that the consequences of inexperience with the financial
services sector can be serious:
NOVEMBER 2001
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BARRIERS TO PRIVATE FINANCING AND POTENTIAL REMEDIES
• Many Native Americans and Native Hawaiians do not establish credit
histories or have poor credit histories that disqualify them from many loans,
and they tend to have relatively high loan default rates.
• Native Americans and Native Hawaiians can be vulnerable to predatory
lenders.
• Native Americans and Native Hawaiians can be subject to high financial
service costs that are passed on in high interest rates on loans.
Similarly, according to Workshop participants, the implications of a lack of
understanding of private equity investment can be serious:
• Tribes do not know how to locate and approach equity investors.
• Native American and Native Hawaiian business proposals are not funded if
they do not meet equity investors’ goals.
• Native Americans and Native Hawaiians often do not know how to package
development proposals for consideration for loan in equity investment, and
are thus not successful in obtaining funds.
“…there is a
misunderstanding of
Tribal sovereignty… We
fear what we don’t
understand. And when
you fear what you don’t
understand, it makes
you reluctant to work
with the Tribes. And if
the lenders won’t work
with the Tribes and
they fear them, then
biases are created. And
when the biases are
created they get carried
generation to
generation and the
problem just persists
over and over again.”
—Sharon Scott, Alatna
Tribal Council, Alaska
Lack of Technical Assistance Resources
The Study identified the lack of technical assistance and training financial
literacy, financial management and banking and investment standards as serious
barriers. Workshops participants identified a variety of unmet training needs
for Tribal governments and Native American and Native Hawaiian
entrepreneurs. Many stakeholders would benefit from technical assistance and
training that facilitate greater access to lending and investments in Native
American communities. The consensus of Workshop participants was that a
lack of technical assistance limits Tribes’ opportunities to build the internal
capacities of potential financial managers or entrepreneurs.
Failure of Lenders and Investors to Understand Tribal Government
or Legal Systems
Equity Investment Roundtable participants suggested that many lenders and
investors have had limited exposure to Tribal government operations,
regulations, and enforcement. Lenders and investors are concerned about not
being able to collect on their debts or fear that the process of doing so will be
complex and difficult. They may not know how to get Tribal government
approval or how to get a stalled project moving. They may not have or know
how to find attorneys that are knowledgeable about a particular Tribe’s laws
and regulatory requirements and they may not trust the impartiality of the
Tribe’s courts. As a result, lenders and investors perceive higher risk and cost
associated with lending and investment activity on Indian Lands and thus few
lenders and investors pursue Native American markets.
Poor Understanding of Tribal Sovereignty and Sovereign Immunity
Study results indicate that lenders and investors do not understand Tribal and
Village sovereignty and sovereign immunity, and thus often are reluctant to
conduct business on Indian Lands because they fear that they will not be able
to recover assets or enforce contracts in the event of a default or a bankruptcy.
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
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47
Further, a number of lenders and investors who participated in Workshops
or the Equity Investment Roundtable reported that they have tried to make
loans in Native American communities and have been unsuccessful because
they underestimated the time required or did not adequately address
community concerns.
Historical Absence of Trust Between Tribes and Banks
The Financial Survey revealed significant differences in perception between
Tribes and FSOs, involving the difficulty of accessing financial products and
services. Workshop participants reported that there has been a historical lack
of trust between Native Americans and Native Hawaiians and FSOs. Further,
they reported that this lack of trust has impeded the development of working
relationships, and caused misunderstanding that has led, in turn, to: failed
negotiations for loans; cultural isolation; increased costs of doing business for
Native Americans and Native Hawaiians; and a reluctance on the part of banks
to underwrite loans.
Differences Between Native American and Native Hawaiian
Cultures and the Banking and Investor Cultures
A key difference between Native American and Native Hawaiian cultures and
the financial and investment culture on views of wealth and sharing became
evident in the Workshops and the Equity Investment Roundtable. As
participants explained, traditional banking and investor cultures value profit
and the accumulation of assets; creditworthiness is determined by “objective”
standards based an individual’s accumulated wealth, income stream, controlling
assets, and credit history; and land is an asset with a value that is determined (it
belongs to individuals and can be legally transferred).
In contrast, according to Workshop participants, Native Americans and Native
Hawaiians with an asset to lend to another are more likely to consider the
borrower’s character and the relationship between the lender and the borrower.
The traditions and customs regarding debts of Tribal members exist in various
ways. Workshop participants and commentators have observed that debtor
creditor relationships in Native American communities frequently are family
as well as individual obligations. Moreover, they have noted, Native American
creditors’ determinations of potential borrowers’ creditworthiness factors in
the individuals’ character and the ongoing relationship between the lender and
the borrower. Perhaps most telling, CDFI Fund research found, and Workshop
participants confirmed, that such local “underwriting” practices yield more
than competitive repayment rates.
In many Native American and Native Hawaiian communities, relationships
are built on interdependence and resource sharing. Generosity and giving
away one’s possessions is a mark of Native American wealth. This is often
demonstrated at social gatherings where one’s possessions are distributed at a
“give away” or “potlatch” to members of the community. The concept of
wealth building, as most bankers and investors understand it, is often foreign
in many Native American and Native Hawaiian cultures. Land is held
communally and its value belongs to the community. The idea that one can
establish a credit history and develop assets through a home mortgage is not
seen as creating wealth.
NOVEMBER 2001
“…a lot of the Tribes are
faced with the fear of
losing self-governance
and control. So we felt it
was real important they
understand…the rules of
lending and how it
would apply to them as
a sovereign nation.”
—David Salmon,
Chalkyitsik Traditional
Council, Alaska
“We need to come up
with a balance, and they
[cultural heritage vs.
western values] both
have a place in our lives
today in the Hawaiian
community. But that is a
very sensitive issue. You
don’t want to have to
give up one in order to
pursue the other.”
—William Chang, HinaMalailena, Hawaii
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
48
BARRIERS TO PRIVATE FINANCING AND POTENTIAL REMEDIES
“It takes me back to my
point this morning
about communication,
knowledge, and
understanding. The
more both sides have
that, the more you
reach a level of trust.
That’s really where the
partnerships need to go
between Indian
Country organizations
and outside
organizations.”
The lack of understanding of these differences in value systems and their
impact on relationship building, approaches to contract making and
receptiveness to marketing approaches was apparent in the Workshops. For
example, some Native American and Native Hawaiian representatives
discussed the importance of maintaining their cultures and the difficulties
that they encounter when trying to establish new policies and procedures
that fulfill lender and investor demands and expectations. Workshop
participants from FSOs, investment, Native American, and Native Hawaiian
communities expressed a desire to learn more about each other in ways that
will facilitate relationship-building, contract-making and product
development.
Discrimination Against and/or Stereotyping of Native American
and Native Hawaiian Communities
According to Workshop participants, Native Americans and Native Hawaiians
suffer from discrimination and/or stereotyping in lending arenas. Study
participants reported that such activity plays out in many subtle and overt
ways ranging from misunderstandings and missteps that occur when two
individuals raised with different values communicate with each other to overt
redlining and discriminatory lending practices. Workshop participants report
that much discrimination today is subtle, and sometimes surfaces as less outreach
by lenders to Native American and Native Hawaiian communities than to
other communities and as prospective Native American and Native Hawaiian
borrowers feeling unwelcome and uncomfortable in the lending arena. In
addition, Workshop participants report that few in the Native American and
Native Hawaiian communities are familiar enough with federal and state
consumer protection and fair lending laws to address potential discrimination
in lending.
—James W. Wagele,
Bank of America
POTENTIAL REMEDIES
Expand Financial Education for Native Americans and Native
Hawaiians
A key strategy identified by Workshop participants for addressing educational
and cultural barriers is to provide financial education to Native Americans and
Native Hawaiians. Such education can enhance economic and community
development efforts on Indian Lands and Hawaiian Home Lands by giving
people the expertise to shape their own and their communities’ economic
futures. Financial literacy curricula are readily available from various sources,
although they may need to be adapted for Native American and Native
Hawaiian students. 67
“Our group felt that
education was our No.
1 priority… We’re
talking about Tribal
leaders being educated
as to what is needed to
get loans, what
processes you have to
go through; the lenders
as to how Tribes are
run, what our Tribal
codes are…”
—Sharon Holmdahl,
Colville Tribal Credit,
Washington
67
For example, First Nations Development Institute, in partnership with the Fannie Mae Foundation, has developed
a personal finance curriculum that is tailored to the Native American community. In addition, the National
Partnership for Financial Education, a consortium of federal agencies and regulators, non-profits, and trade
associations, is working to improve financial literacy in Native American communities.
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
The actions recommended by Workshop participants include:
• Establishment of teaching partnerships among Tribal and non-Tribal
colleges, financial institutions, nonprofits, and CDFIs.
• Incorporation of web-based training in the curriculum.
• Facilitation of funding and teacher recruitment through the private sector,
Tribes, Inter-Tribal organizations, and federal agencies.
Develop Entrepreneurship Programs for Native Americans and
Native Hawaiians
According to Workshop participants, entrepreneurs and small business owners
are essential to Native American and Native Hawaiian economies; however,
the skills of the trade of a good mechanic or restaurateur, for example, are
qualitatively different from the financial, marketing, and personnel development
skills required of a successful entrepreneur. An entrepreneurial training program
and small business finance education program can help bridge this gap.
49
“We’re only going to be
here for so long, but we
need to start working
with young people, you
know, the kids, and
that’s part of your vision
here and I want to see
that continued further.”
—Mark Madsen,
Jamestown S’Klallam
Tribe, Washington
Educational curricula can be adapted to fit elementary-to-high-school
educational programs, and Workshop participants recommended teaching
entrepreneurial skills to both school children and adults. Moreover, Workshop
participants suggested that entrepreneurship programs in high school could be
reinforced with business development programs, such as Junior Achievement,
where young people learn to start small businesses, and core materials on
personal finance, small business finance, and entrepreneurship can be presented.
An example of a training program cited by Workshop participants is the
American Indian Business Leaders entrepreneurial training program,
headquartered at the University of Montana in Missoula, for Native American
high school and college students.
Conduct Lender and Investor Education
One initiative suggested by Workshop participants is to develop educational
programs on Native American and Native Hawaiian economies and markets
so as to increase lender and investor awareness of Native American and Native
Hawaiian market opportunities, business successes, and emerging entrepreneurs.
Workshops and National Roundtable discussions revealed that stakeholders
are interested in continuing the information and education exchanges begun
here. Specific actions recommended by the participants include:
• Development of guides to Tribal government structures and procedures,
sovereignty and sovereign immunity, land status, Native American and Native
Hawaiian culture, protocol, and etiquette Tribal laws, regulatory/licensing
requirements and financing and economic development needs.
• Creation of a directory of Tribal credit officers, economic development
officers, department heads, and attorneys qualified to practice in Tribal courts.
“…we want to increase
the awareness with the
partners that we have,
the Federal government,
lenders, private players,
by bringing them out to
the communities… This
then, we would hope,
would lead to specific
projects that were
designed specifically for
that community…”
—Jeri Walters, National
Bank of Alaska
• Development of a general marketing campaign that illustrates effective
practices and success stories by implementing awards programs, such as
Honoring Nations (Harvard University’s annual awards for innovative Tribal
government programs).
NOVEMBER 2001
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
50
BARRIERS TO PRIVATE FINANCING AND POTENTIAL REMEDIES
• The initiation of educational seminars by Native American and Native
Hawaiian communities focusing on Native American and Native Hawaiian
business investment opportunities.
• Creation of speakers bureaus, to be offered through extension services,
chambers of commerce, Tribal community colleges, Inter-Tribal organizations
and Alaska Native regional corporations.
• Development of web-based databases that include economic and institutional
profiles of Native American and Native Hawaiian communities, federal
programs that may be available to support economic development projects,
and lending and investment resources.
• Development of educational materials about fair lending laws and creation
of forums to present these materials to Native American and Native Hawaiian
audiences.
• Development of educational materials about discrimination and cultural
awareness, and creation of forums to present these materials to lenders,
investors, and state and federal officials.
Expand Technical Assistance
Workshop participants recommended developing technical assistance resources
for small business owners on Indian Lands and Hawaiian Home Lands. Most
Workshop participants agreed that small business finance and entrepreneurship
training and education alone would not be enough to create financial
opportunities on Indian Lands and Hawaiian Home Lands, for entrepreneurs
and small-business owners would likely require assistance in applying the
training to their unique situations. The Financial Survey indicated that Native
Americans and Native Hawaiians with access to counseling, training, and/or
technical-assistance resources are more likely to rate financial products and
services as easier to obtain.
Actions recommended by Workshop participants include:
• Development of small business incubators, resource centers, “one-stop
shops,” and CDFIs to provide business development and management
technical assistance.
• Use of circuit riders or loaned staff from partner business and financial
institutions to augment small business resource center nonprofit staff in
training Tribal and Inter-Tribal office staffs.
• Creation of regional business resource centers funded by federal, Tribal,
and private sources.
Examples of such assistance cited by Workshop participants include the
SBA Micro Loan program, the SBA Tribal Business Information Centers,
and technical assistance programs for program borrowers such as the Hopi
Credit Association, the Lakota Fund, and the Alaska Growth Capital BIDCO,
Inc.
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
51
According to Workshop participants, another useful strategy may be to
coordinate technical assistance resources by establishing a national clearinghouse
of training and technical assistance resources relating to lending and investment,
developing a training package that includes planning models relevant to
Tribal business opportunities, and conducting regional forums and inviting
Tribal businesses to test plans before panels of experts.
According to Workshop participants, the basic financial training discussed
above can be further strengthened with student internships and with
exchanges for adults. Internships for Native American and Native Hawaiian
students with financial regulatory agencies and financial institutions could
be an effective way for students to obtain financial training and job skills.
In addition, Tribal government professionals could use exchange programs
and details or rotations in administration and regulatory agencies to improve
their financial skills. An exchange could be particularly useful because it
will allow federal and FSO staff to gain understanding of the workings and
needs of Tribal governments. Actions recommended by Workshop participants
include enhanced recruitment of Native Americans and Native Hawaiians
by financial institutions and establishment of Federal and private sector
internships, exchange programs, technical assistance and training programs,
personal finance and entrepreneurship education programs, and college and
graduate school student programs in business, finance, and economics.
Additionally, Workshop participants recommended the development of
mentoring programs with industry that would involve educating Tribal
entrepreneurs on the decision criteria and processes used by equity investment
fund boards, chambers of commerce, and industry and trade groups.
NOVEMBER 2001
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
52
BARRIERS TO PRIVATE FINANCING AND POTENTIAL REMEDIES
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U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
“I know what we need to do. All the ingredients are there. We just need to put
the pieces together. The challenge is, are tribes ready and is Congress and the
Administration willing to provide or create the necessary receptive environment
and support to ‘enable’ Native Nations to prosper.”
—Bobby Whitefeather, Tribal Chairman, Red Lake Band of Chippewa Indian,
Minnesota
CONCLUSION: KEY INITIATIVES
Tribal and Native Hawaiian communities throughout the nation confront daunting
economic challenges. They are confronted with legal infrastructure, governmental
operations, economic financial, physical infrastructure, education and cultural barriers.
As indicated in this Report, there has been palpable progress in addressing these challenges.
A significant number of Tribes have mounted innovative development strategies. Efforts
are underway to enhance the capacities of Tribal governments. There are many examples
of “win-win” relationships with major manufacturing and financial service organizations.
Real, albeit modest, progress has been made in addressing the backlog of investment in
human and physical capital. Recent federal policies that stress government-to-government
relationships are beginning to provide more Tribal governmental control.
Despite these achievements, much more remains to be accomplished. This requires a
disciplined focus on expanding access to capital for businesses and households located in
Tribal and Native Hawaiian communities. Workshop participants and Financial Survey
respondents identified a host of remedies for Tribal governments, the financial community
and the federal government acting independently or in concert to achieve this objective.
There are, however, a few critical initiatives that can serve as essential catalysts for accelerating
progress.
FEDERAL GOVERNMENT NEXT STEPS
This Study does not purport to review every program or policy that operates on Indian
Lands or Native Hawaiian Home Lands, whether federal, state or local. In particular, the
discussion of federal government programs set forth in this Study was generated primarily
from the comments and experiences of Workshop participants. From among their many
recommendations, priority initiatives involve maintaining investments for physical,
telecommunications and utility infrastructure, facilitating the creation of public-private
equity investment funds, and supporting for an array of vehicles for training, technical
assistance for both Tribal governments and businesses, and facilitating linkages to financial
markets. These and other initiatives would be assisted by the ongoing Congressional charge
to the General Accounting Office and the Department of Commerce for a comprehensive
review of federal government programs and policies that affect, and attempt to facilitate,
economic development and capital allocation on Indian Lands.
CHAPTER
FOUR
54
CONCLUSIONS
TRIBES’ AND NATIVE HAWAIIANS’ NEXT STEPS
In addition to ”next steps” for government entities, information gathered for this Study
also revealed a number of steps that Tribes and Native Hawaiians must take to facilitate
the flow of debt and equity capital into Indian Lands and Native American Home Lands.
The most oft-repeated step for Tribes is the need to rationalize Tribal legal systems and
promulgate commercially reasonable, predictable guidelines for their exercise of sovereign
immunity. One of the chief barriers to lending and equity investment in Indian Lands that
is squarely in Tribal control, as reported by Workshop participants, is unpredictability of
Tribal judicial systems. Accordingly, an important next step for Tribes is the development
of court systems that provide for the orderly disposition of the rights of aggrieved parties
to commercial transactions. Such reform would be buttressed by codifying or adopting
local commercial codes, zoning and planning codes, and laws generally regulating corporate
activity.
Another important step identified by the Study’s participants is the adoption and
publication of rational, predictable rules for the operation of sovereign immunity in
commercial transactions.
In addition, Tribes and Native Hawaiian communities will have to build their respective
local capacities to facilitate economic development and the financing of local activity.
Tribal authorities, for example, will have to expand their capacity to plan and coordinate
economic activity. Tribal Authorities and Native Hawaiian communities will need to build
the capacities of prospective local entrepreneurs. Tribes and Native Hawaiian groups can
forge regional cooperation through inter-Tribal organizations, and use programs like the
CDFI Fund’s Native American CDFI Technical Assistance (NACTA) program to increase
their respective capacities.
FINANCIAL INSTITUTIONS’ NEXT STEPS
Financial institutions, including private equity investors, also have a continuing role in
addressing the barriers to lending and equity investment in Indian Lands and Native
Hawaiian Home Lands. Financial institutions have to develop a local presence that is
flexible enough to participate in transactions that do not fit ‘typical’ profiles. This might
entail the opening of branch offices in Indian Land or Native Hawaiian communities. It
also might entail partnering with Tribes and Native Hawaiian groups to form local CDFIs,
loan funds or investor groups. To do this, financial institutions will have to find models
for managing risk, while addressing the non-traditional profiles of some borrowers.
Financial institutions can be important partners for Tribes. The institutions can be an
important resource in the capacity building that Tribes and Native Hawaiian communities
must undertake by providing technical assistance. Financial institutions can also work as a
bridge between Tribes or Native Hawaiian communities and the government to develop
new financial products that are tailored to the particular needs of the communities (for
example, mortgages for trust land).
COOPERATIVE ACTIVITY
Much of the progress in expanding access to capital was not achieved by tribal governments,
financial institutions or federal agencies acting alone. Rather, progress often depended on
these stakeholders acting together. One of the most important themes to emerge from the
CDFI Fund’s research, Workshops, and Equity Research is the need to foster even greater
coordinated activity among stakeholders. For example, input of Tribal or Native Hawaiian
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
55
representatives to any review of the effectiveness of government programs or policies
would help to answer questions about community compatibility and relevance. Neither
technical assistance nor cultural education will have the desired effect unless Tribes,
Native Hawaiian communities, and FSOs commit to such processes. Moreover, FSOs,
government regulators, and Tribes would all likely have to participate in attempts to
create new loan products for Native American or Native Hawaiian communities, or to
address the peculiar issues arising from attempting to mortgage trust lands.
NOVEMBER 2001
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
56
CONCLUSIONS
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U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
APPENDICES
APPENDIX A
FINANCIAL SURVEY—FINANCIAL SERVICES ORGANIZATIONS
APPENDIX B
FINANCIAL SURVEY—TRIBAL LEADERS
58
APPENDIX A
APPENDIX A: FINANCIAL SURVEY—FINANCIAL SERVICES ORGANIZATIONS
This Financial Survey seeks to gather information on the assets and activities of branch offices located closest to Reservations
or Indian Lands. To the extent possible, please provide branch level data.
1. What portion of your Branch’s loan portfolio is comprised of the following products?
(Loan portfolio is defined as: Total Loans Outstanding as of June 30, 2000)
Not
Applicable
Minor
Component
(10% or Less)
Not
Applicable
Conventional mortgages
❑
❑
❑
Loans for mobile home purchases
❑
❑
❑
Property rehabilitation loans
❑
❑
❑
Home equity loans
❑
❑
❑
Personal/consumer loans (e.g., trucks, autos, home furnishings)
❑
❑
❑
Construction loans (residential and commercial real estate)
❑
❑
❑
Start-up business loans (in operation for fewer than 2 years)
❑
❑
❑
Micro business loans under $25,000
❑
❑
❑
Small business loans between $25,000 and $100,000
❑
❑
❑
Large business loans over $100,000
❑
❑
❑
(PLEASE ✓ AS APPROPRIATE)
2. Does your branch or institution offer the following products to residents of Native American reservations or Indian
Lands?
Not
Applicable
Yes, a Minor
Component
(10% or Less
of Loan
Portfolio)
Yes, a Major
Component
(Greater than
10% of Loan
Portfolio)
Conventional mortgages
❑
❑
❑
Loans for mobile home purchases
❑
❑
❑
Property rehabilitation loans
❑
❑
❑
Home equity loans
❑
❑
❑
Personal/consumer loans (e.g., trucks, autos, home furnishings)
❑
❑
❑
Construction loans (residential and commercial real estate)
❑
❑
❑
Start-up business loans (in operation for fewer than 2 years)
❑
❑
❑
Micro business loans (under $25,000)
❑
❑
❑
Small business loans (between $25,000 and $100,000)
❑
❑
❑
Large business loans (over $100,000)
❑
❑
❑
(PLEASE ✓ AS APPROPRIATE)
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
59
3a. Does your branch or institution maintain and/or offer the following…
YES
NO
Financial services (deposit accounts) to tribal members
residing on a Reservation or Indian lands
❑
❑
A branch(s) or service center(s) on a Reservation or Indian lands
❑
❑
An ATM(s) on a Reservation or Indian lands
❑
❑
❑
❑
Branches and ATM’s near a Reservation or Indian lands that are
readily accessible to Reservation or Indian land residents
If so, what is the approximate distance from the Reservation
or Indian Lands to these services?
________ miles
A “mobile” branch serving the Reservation or Indian lands
❑
❑
Federal loan or loan guarantee programs
(e.g., SBA, HUD, VA, BIA, USDA, etc.) to tribal members
residing on a Reservation or Indian lands
❑
❑
State loan or loan guarantee programs
(e.g., state financing or mortgage authority, etc.)
to tribal members residing on a Reservation or Indian lands
❑
❑
3b. Does your institution provide grants or equity investments to community development financial institutions(s)
on reservations or Indian Lands, or does your institution partner with local CDFI’s to finance projects or businesses
on the reservation or Indian Lands?
If yes, does your institution participate in the
CDFI Fund’s Bank Enterprise Awards program?
❑
❑
YES
NO
a marketing or outreach program for reservation-based or
Indian Land-Based Communities in your area?
❑
❑
specific products for reservation or Indian Land-Based
communities in your area?
❑
❑
4. Does your branch or institution have…
If yes to either question, please provide examples:
NOVEMBER 2001
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
60
APPENDIX A
5. To what extent does your branch fund or directly provide training, counseling, or technical assistance to Native
Americans, tribes, or Native American organizations on a reservation or Indian Lands on the following topics…
NONE
VERY
LIMITED
MODEST
SUBSTANTIAL
Basic financial literacy
(e.g., family budget, managing a checkbook, savings plan)
❑
❑
❑
❑
Consumer credit counseling and/or credit repair
❑
❑
❑
❑
Your institution’s financial products and services
❑
❑
❑
❑
Home buyer education
❑
❑
❑
❑
Basic small business financial literacy
(e.g., writing a business plan, sources of financing,
obtaining a bank loan – what banks look for)
❑
❑
❑
❑
Accounting and bookkeeping
❑
❑
❑
❑
Federal laws and regulations
❑
❑
❑
❑
Other (please specify)
6. Please indicate the degree of ease or difficulty branch or institution typically experiences financing the following on
reservations or Indian Lands…
NOT
APPLICABLE
EASY
DIFFICULT
EXTREMELY
DIFFICULT
Conventional mortgages
❑
❑
❑
❑
❑
❑
Loans for mobile home purchases
❑
❑
❑
❑
❑
❑
Property rehabilitation loans
❑
❑
❑
❑
❑
❑
Home equity loans
❑
❑
❑
❑
❑
❑
Personal/consumer loans
(e.g. trucks, autos, home furnishings)
❑
❑
❑
❑
❑
❑
Construction loans
(residential and commercial real estate)
❑
❑
❑
❑
❑
❑
Start-up business loans
(in operation for fewer than 2 years)
❑
❑
❑
❑
❑
❑
Micro business loans under $25,000
❑
❑
❑
❑
❑
❑
Small business loans
between $25,000 and $100,000
❑
❑
❑
❑
❑
❑
Large business loans over $100,000
❑
❑
❑
❑
❑
❑
Comments:
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
SOMEWHAT SOMEWHAT
EASY
DIFFICULT
NATIVE AMERICAN LENDING STUDY
61
7. Review the list of items below and indicate the degree to which each item presents a barrier to your branch’s or
institution’s lending activity on the Reservation(s) or Indian Lands in your area.
Please rate each barrier by placing a ✓ in the corresponding box. You may add additional barriers in the space provided below.
The following list of items does not necessarily reflect the views of the Treasury Department, but is the stated views of participants in 13
national Workshops conducted by the CDFI Fund’s Native American Lending Study/Action Plan Program regarding possible barriers to
lending on Native American, Native Hawaiian, and Alaska Native Communities.
VERY
NOT
NOT A
MINOR
MODERATE SIGNIFICANT SIGNIFICANT
APPLICABLE BARRIER
BARRIER
BARRIER
BARRIER
BARRIER
A.
Cumbersome, conflicting,
or ineffective State and/or
Federal programs and regulations
❑
❑
❑
❑
❑
❑
B. Inflexible lending/underwriting regulations
❑
❑
❑
❑
❑
❑
C.
Limited use of Trust land as collateral
❑
❑
❑
❑
❑
❑
D.
Tribal members on the
Reservation or Indian lands lack
capital, collateral, and/or credit histories
❑
❑
❑
❑
❑
❑
Lenders do not understand
Tribal governmental or legal systems
❑
❑
❑
❑
❑
❑
Tribes and Tribal members on the
Reservation or Indian lands lack knowledge
of or experience with the financial world
❑
❑
❑
❑
❑
❑
Insufficient or non-existent written
Tribal commercial laws and regulations
(e.g., commercial code,
zoning code, or building code)
❑
❑
❑
❑
❑
❑
Differences between Native American
culture and the banking culture
❑
❑
❑
❑
❑
❑
Lack of understanding of Tribal
sovereignty and sovereign immunity
❑
❑
❑
❑
❑
❑
Tribes or Tribal members and banks
have historically not trusted each other
❑
❑
❑
❑
❑
❑
Lack of physical and
telecommunications infrastructure
on the Reservation or Indian lands
❑
❑
❑
❑
❑
❑
Discrimination against and/or stereotyping of Native American communities
❑
❑
❑
❑
❑
❑
Insufficient number of banks on or
near the Reservation or Indian lands
❑
❑
❑
❑
❑
❑
N.
Lack of technical assistance resources
❑
❑
❑
❑
❑
❑
O.
Change in Tribal governmental
leadership creates uncertainty
❑
❑
❑
❑
❑
❑
E.
F.
G.
H.
I.
J.
K.
L.
M.
Comments or other barriers not listed:
NOVEMBER 2001
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
62
APPENDIX A
8. Select and rank the top three barriers from the previous question in order of significance and recommend a
strategy or strategies to overcome each barrier.
Strategies may include initiatives that can be implemented by lending institutions, Native American communities,
or nationally (by Federal or private institutions). You may have more than one strategy per barrier. Please feel free to
attach additional sheets of paper if necessary.
RANK
LETTER OF
BARRIER
(FROM LIST IN #7)
STRATEGY TO OVERCOME THE BARRIER
(most significant) 3
2
(least significant) 1
9. To which industry sectors do you extend lending? (Please check all that apply)
❑ Agriculture
❑ Construction
❑ Manufacturing
❑ Natural Resources (Energy/Minerals/Timber)
❑ Retail
❑ Housing
❑ Services
❑ Tourism, Hospitality, Recreation
❑ Transportation
❑ Utilities and Telecommunications
❑ Other (please specify)
10. What is your Branch or Institution’s minimum loan threshold for…
Personal/Consumer Loans $
Business Loans $
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
63
11. What type of charter does your institution have? (Please check all that apply)
❑ Federally chartered bank
❑ State-chartered bank
❑ Federally chartered thrift, savings association, or savings bank
❑ State-chartered thrift, savings association, or savings bank
❑ Federally chartered credit union
❑ State-chartered credit union
❑ Other (please specify)
12.
Please indicate the asset size of your branch or institution as of 6/30/2000
❑ Up to $100 million
❑ $101 million to $1 billion
❑ $1 billion to $10 billion
❑ $10 billion to $20 billion
❑ More than $20 billion
13. Office or official responding:
Name and contact number (optional):
What state and Reservation(s) or Indian lands do you serve? (optional):
NOVEMBER 2001
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
64
APPENDIX B
APPENDIX B: FINANCIAL SURVEY—TRIBAL LEADERS
1. Does your tribe currently sponsor, fund, partner with, or otherwise offer to its members any of the following…
❑ Credit office, credit department, or credit association
❑ Rental assistance
❑ Mortgage assistance (down payment or subsidy)
❑ Business lending program (business/financing assistance)
❑ Cooperative services (agricultural, arts & crafts, or other cooperative services)
❑ Tribally-owned bank or other financial institution
❑ Community development corporation (CDC)
❑ Community development financial institution (CDFI)
(e.g., a community-based loan fund, credit union, venture capital fund, etc.)
2. Are non-tribally affiliated institutions offering the following types of financial products and services to your tribe,
tribal entities, or tribal members living on the reservation or Indian Lands…
LOCATED ON THE
RESERVATION/
INDIAN LANDS?
LOCATED NEAR THE
RESERVATION/
INDIAN LANDS?
Conventional home mortgages
❑
❑
Loans for mobile home purchases
❑
❑
Property rehabilitation loans
❑
❑
Home equity loans
❑
❑
Personal/consumer loans (e.g., vehicles, home furnishings, etc.)
❑
❑
Construction loans (residential and commercial real estate)
❑
❑
Start-up business loans (in operation for fewer than 2 years)
❑
❑
Micro business loans (businesses requiring under $25,000)
to individual tribal members
❑
❑
Small business loans (businesses requiring between $25,000
and $100,000) to individual tribal members
❑
❑
Private equity investments
(venture capital investments, start-up capital)
❑
❑
Financial services (checking and savings accounts)
❑
❑
Large business loans
(businesses requiring over $100,000) to individual tribal members
❑
❑
Large business loans (businesses requiring over $100,000) to tribe
❑
❑
“Mobile” banking services
❑
❑
Automated Teller Machines (ATM’s)
❑
❑
(✓ IF YES)
What is the approximate distance from the Reservation or
Indian Lands to the nearest branch or ATM?
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
65
3. Indicate the ease or difficult Tribal members residing on the reservation or Indian Lands typically experience
obtaining…
NOT
APPLICABLE
EASY
DIFFICULT
EXTREMELY
DIFFICULT
Conventional home mortgages
❑
❑
❑
❑
❑
❑
Loans for mobile home purchases
❑
❑
❑
❑
❑
❑
Property rehabilitation loans
❑
❑
❑
❑
❑
❑
Home equity loans
❑
❑
❑
❑
❑
❑
Personal/consumer loans
(e.g., vehicles, home furnishings, etc.)
❑
❑
❑
❑
❑
❑
Construction loans
(residential and commercial real estate)
❑
❑
❑
❑
❑
❑
Start-up business loans
(in operation for fewer than 2 years)
❑
❑
❑
❑
❑
❑
Micro business loans
(businesses requiring under $25,000)
❑
❑
❑
❑
❑
❑
Small business loans (businesses requiring
between $25,000 and $100,000)
❑
❑
❑
❑
❑
❑
Large business loans
(businesses requiring over $100,000)
❑
❑
❑
❑
❑
❑
Business site leases
❑
❑
❑
❑
❑
❑
Homesite leases
❑
❑
❑
❑
❑
❑
Private equity investments (venture
capital investments, start-up capital)
❑
❑
❑
❑
❑
❑
Financial services
(checking and savings accounts)
❑
❑
❑
❑
❑
❑
(PLEASE ✓ ONE FOR EACH ITEM LISTED)
NOVEMBER 2001
SOMEWHAT SOMEWHAT
EASY
DIFFICULT
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
66
APPENDIX A
4. From the list below, please ✓ the sources of funds your tribe or its members use most often to finance the activities
listed. (■ = not applicable)
Personal
Source
Tribal
(e.g., savings,
Source
credit cards, (e.g., credit
loan from
office, tribal
family)
corporation)
(Please ✓ all that apply)
How Your Tribe Finances…
Banks
Venture
Capital
Federal or
State
Government
(e.g., grants
or loans)
Bonding
Authority
Reservation infrastructure
■
❑
❑
❑
❑
❑
Large business (26 or more employees)
■
❑
❑
❑
❑
❑
Economic development
(e.g., capital improvement projects,
neighborhood revitalization, etc.)
■
❑
❑
❑
❑
❑
Consumer purchases
(vehicles, home furnishings, etc.)
❑
❑
❑
❑
❑
■
Home purchases
❑
❑
❑
❑
❑
❑
Home construction
❑
❑
❑
❑
❑
❑
Home equity loans
❑
❑
❑
❑
❑
❑
Property rehabilitation
❑
❑
❑
❑
❑
❑
Micro business (5 or fewer employees)
❑
❑
❑
❑
❑
❑
Small business (6-25 employees)
❑
❑
❑
❑
❑
❑
Large business (26 or more employees)
❑
❑
❑
❑
❑
❑
How Tribal Members Finance…
5. Approximately how many organizations on or near the reservation/Indian Lands provide training, counseling, or
technical assistance to tribal members residing on the reservation or Indian Lands regarding…
FILL IN
A NUMBER
( e.g., 0,1,2,…)
IS THIS SUFFICIENT TO MEET THE
NEEDS OF YOUR COMMUNITY?
YES
NO
Basic financial literacy
(e.g., family budget, managing a checkbook, savings plan)
❑
❑
Consumer credit counseling and/or credit repair
❑
❑
Banking and lending practices
❑
❑
Home buyer education
❑
❑
Basic small business financial literacy (e.g., writing a business plan,
sources of financing, obtaining a bank loan, etc.)
❑
❑
Accounting and bookkeeping
❑
❑
Federal laws and regulations
❑
❑
Other (please specify)
❑
❑
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
67
6. Review the list of items below and indicate the degree to which each item presents a barrier to your tribe’s and/or
its members’ ability to obtain credit, equity investments, and/or financial services from the private sector
(financial institutions, investors, etc.)
Please rate each barrier by placing a ✓ in the corresponding box. You may add additional barriers in the space provided below.
The following list of items does not necessarily reflect the views of the Treasury Department, but is the stated views of participants in 13
national Workshops conducted by the CDFI Fund’s Native American Lending Study/Action Plan Program regarding possible barriers to
lending on Native American, Native Hawaiian, and Alaska Native Communities.
VERY
NOT
NOT A
MINOR
MODERATE SIGNIFICANT SIGNIFICANT
APPLICABLE BARRIER
BARRIER
BARRIER
BARRIER
BARRIER
A.
Cumbersome, conflicting,
or ineffective State and/or
Federal programs and regulations
❑
❑
❑
❑
❑
❑
B.
Inflexible lending rules and regulations
❑
❑
❑
❑
❑
❑
C.
Limited use of Trust land as collateral
❑
❑
❑
❑
❑
❑
D.
Tribal members on the
Reservation or Indian lands lack
capital, collateral, and/or credit histories
❑
❑
❑
❑
❑
❑
Lenders do not understand
Tribal governmental or legal systems
❑
❑
❑
❑
❑
❑
Tribes and Tribal members on the
Reservation or Indian lands lack knowledge
of or experience with the financial world
❑
❑
❑
❑
❑
❑
Insufficient or non-existent written
Tribal commercial laws and regulations
(e.g., commercial code,
zoning code, or building code)
❑
❑
❑
❑
❑
❑
Differences between Native American
culture and the banking culture
❑
❑
❑
❑
❑
❑
Lack of understanding of Tribal
sovereignty and sovereign immunity
❑
❑
❑
❑
❑
❑
Tribes or Tribal members and banks
have historically not trusted each other
❑
❑
❑
❑
❑
❑
Lack of physical and
telecommunications infrastructure
on the Reservation or Indian lands
❑
❑
❑
❑
❑
❑
Discrimination against and/or stereotyping of Native American communities
❑
❑
❑
❑
❑
❑
Insufficient number of banks on or
near the Reservation or Indian lands
❑
❑
❑
❑
❑
❑
N.
Lack of technical assistance resources
❑
❑
❑
❑
❑
❑
O.
Change in Tribal governmental
leadership creates uncertainty
❑
❑
❑
❑
❑
❑
E.
F.
G.
H.
I.
J.
K.
L.
M.
Comments or other barriers not listed:
NOVEMBER 2001
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
68
APPENDIX B
7. Select and rank the top three barriers from the previous question in order of significance and recommend a
strategy or strategies to overcome each barrier.
Strategies may include initiatives that can be implemented by lending institutions, Native American communities,
or nationally (by Federal or private institutions). You may have more than one strategy per barrier. Please feel free to
attach additional sheets of paper if necessary.
RANK
LETTER OF
BARRIER
(FROM LIST IN #6)
STRATEGY TO OVERCOME THE BARRIER
(most significant) 3
2
(least significant) 1
8. Does your tribe have the following? (Please check all that apply)
❑ Tribal tax code
❑ Overall economic development plan
❑ A program that encourages entrepreneurship
❑ Land use plan including roads, communication, and future building uses
❑ Tribal zoning code
❑ Tribal building code
❑ Tribal court system
❑ Tribal mortgage code
❑ Tribal commercial code
❑ Tribal foreclosure code/ordinance
❑ Authority to waive or provide a limited waiver of sovereign immunity
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
NATIVE AMERICAN LENDING STUDY
69
9. In your best estimate, which of the following industry sectors on your reservation or Indian Landshave the most
significant need for credit and/or capital? (Please check no more than four)
❑ Agriculture
❑ Construction
❑ Manufacturing
❑ Natural Resources (Energy/Minerals/Timber)
❑ Retail
❑ Services (Government)
❑ Services (Non-Government)
❑ Housing
❑ Tourism, Hospitality, Recreation
❑ Transportation
❑ Utilities and Telecommunications
❑ Other (please specify)
10. What is your Tribe’s current unemployment rate? _____________%
11. To the best of your knowledge, what percentage of the total adult tribal population are employed full time or part
time, in…
FULL TIME
PART TIME
Agriculture
%
%
Construction
%
%
Manufacturing
%
%
Natural Resources (Energy/Minerals/Timber)
%
%
Retail
%
%
Housing
%
%
Services (Government)
%
%
Services (Non-Government)
%
%
Tourism, Hospitality, Recreation
%
%
Transportation
%
%
Utilities and Telecommunications
%
%
Other (please specify)
%
%
12. Office or official responding (chairman’s office, community development or economic development office,
planning office, etc.):
Name and contact number (optional):
NOVEMBER 2001
U.S. DEPARTMENT OF THE TREASURY—CDFI FUND
| File Type | application/pdf |
| File Title | CDFI Fund Report.p65 |
| Author | Jake |
| File Modified | 2001-11-20 |
| File Created | 2001-11-21 |