Indigenous Economic Growth Depends on Banks Serving First Nations’ Needs
- Within 30 years, the Indigenous economy in Canada is projected to grow to $100 billion because of the value of the resources within lands under the control of First Nations people.
- Indigenous communities are growing rapidly. In Saskatchewan, the percentage of the population which is Indigenous is expected to double, from 15 to 30% by 2040.
- Developing Indigenous focused financial services for Indigenous communities has boosted the efficiency of lending and lowered loan loss ratios from about 80% when such programs were managed by the federal government to 1.5% now.
Governments in Canada need to provide better educational opportunities for bright Indigenous people to boost the Indigenous economy. Education is a fundamental requirement for economic inclusion and Canada has not yet fully met the proper standard of education when it comes to its First Nations, particularly those in remote, northern locations.
How is Canada’s traditional banking sector falling short in terms of servicing Indigenous businesses, entrepreneurs and people? Why is it important for Canada to have a Schedule I, federally regulated bank that is independently controlled by Indigenous stakeholders?
For many years, Indigenous peoples, First Nations, Métis and Inuit people, have not typically been involved in the mainstream Canadian economy to the same extent as the wider population because of social dependency, lack of economic power and control. A number of things have often made it difficult for Indigenous people to interact with traditional banks. These include Indian Act issues, where they live, where they do business, their lack of experience, and their lack of equity.
A case in point is that many traditional banks have rules that require security on a physical asset to secure a loan. This has made it very difficult for businesses on reserves to get the capital they needbecause under the Indian Act, it is difficult to take security on assets located on a reserve. For example, if a traditional lender is lending to a small business that is going to buy a truck that will normally be located on a First Nation, under Section 89 of the Indian Act the lender cannot take security on that truck. Even when a business is off reserve, these traditional lending rules can be a problem.
So, while traditional banks often have Indigenous banking units set up to focus on Indigenous commercial lending in the Indigenous market, this is usually just a sideline for them and not a primary focus of their business. That makes it difficult for them to be effective. There needs to be a deep understanding of the needs of Indigenous communities. And this lack of awareness has lead to a dearth of banking options for Indigenous clients looking to grow their communities or businesses.
“Many traditional banks have rules that require security on a physical asset to secure a loan. This has made it very difficult for businesses on reserves to get the capital they need.”
Given this lack of focus on the Indigenous market, there was a niche: a growing and vibrant economy which was underserved by the existing lenders. The Saskatchewan Indian Equity Foundation (SIEF), was created to try to solve the challenge of putting equity dollars into the hands of folks in First Nations communities. SIEF, our parent company, was the first Aboriginal capital corporation in Canada. When SIEF was created, there were entrepreneurs and even First Nations that could not get a loan for even such basic things as buying their own school buses. This meant that, prior to the early 1980s, most of the businesses serving First Nations were owned by non-Indigenous people who would come onto the reserves to do that business and then leave.
Subsequently, other capital corporations were created across the country and a national association, the National Aboriginal Capital Corporations Association (NACCA), was created to support them. Prior to all of that, it was the federal government that would typically lend directly to Indigenous entrepreneurs on First Nations for business development. But Ottawa was really terrible at it. They had a loan loss ratio of more than 80%. That means that for every dollar they lent out, 80 cents would be lost. That wasn’t good for either Canada or First Nations businesses. It meant none of them were really that successful. When SIEF was created, they lent to First Nations entrepreneurs and also provided business support services. That included things like helping people write business plans and manage their cash flows. By the early 1990s, after they had been around for 10 years, SIEF’s loan loss ratio was 1.5%, virtually the same as a commercial loan loss ratio.
That’s why SIEF created First Nations Bank of Canada (FNBC). They saw they were doing more and more lending that really should be done by a commercial bank. So, we thought a federally-regulated bank controlled by Indigenous people could focus on their interests. FNBC is now 23 years old. We have a little over $600 million in assets, our loan portfolio grows at a compound annual rate over 10%, 90% of our business volume is focused on Indigenous customers, and 83% of our shares are owned by indigenous groups across the country.
What gaps are holding Indigenous communities and their members from achieving their full potential in Canada’s present and future economy?
Firstly, there is often a lack of access to capital for new businesses and entrepreneurs, and this has a number of sources. First of all, traditional banks, including First Nations Bank, do not typically tend to lend to brand new entrepreneurs with no equity and not capacity to prove their ability to service debt. On top of that are the issue of Section 89 of the Indian Act, the remoteness of the communities, and the lack of understanding of how business is done in First Nations communities. All this leads to challenges regarding access to capital and the consequences for new and developing Indigenous businesses and entrepreneurs.
“We have to resolve the issues relating to self-government so that First Nations governments understand where and how they fit into the equation. Then everybody can get more effective work done on economic inclusion.”
Secondly, the best thing governments can do to advance the Indigenous economy in Canada is to get education right. This is so important because education is a basic fundamental of economic inclusion that gives people the opportunity to do anything and there are so many bright Indigenous people and youth. If we can just get education right there is vast amounts of talent in Indigenous Canada that will contribute to growing our future economy – we just need to get education right so those individuals have an equal opportunity to become part of it. If we continue to not fully meet the education standards that we expect in Canada for First Nations, Inuit and Métis people – especially in remote or north locations – we are not going to see any significant economic activity come out of those regions.
One of the issues that have to be addressed to get education right is the challenge we have in Canada related to intergovernmental affairs. We have constant fights over jurisdiction – whether something is a First Nations, federal, Inuit, provincial or territorial responsibility. We have to resolve the issues relating to self-government so that First Nations governments understand where and how they fit into the equation. Then everybody can get more effective work done on economic inclusion.When all parties are just fighting about who controls what, that is not very productive.
“We must get Indigenous education right – it is the very first thing. And it is not an economic change but it is a requirement for an economic change.”
As an indigenous businessperson who runs a business that is highly dependent on the indigenous economy, I always say that I do not care which level of government takes responsibility for educating Indigenous youth – but somebody must educate them. We are having to deal with potential employees who are 25 years old who do not have a decent grade 12 education.
This lack of education, opportunity and foresight is why we lose people to social issues – because the future is bleak for these people. So we must get Indigenous education right – it is the very first thing. And it is not an economic change but it is a requirement for an economic change.
How would you define reconciliation in an economic context?
Canada’s oldest chartered bank was founded in 1817 by eight merchants from Montreal who signed articles of incorporation to form the Bank of Montreal. Those eight Canadians were all new immigrants. They all made their money in the fur trade and they wanted a Bank of Montreal because they wanted a bank that was not controlled by Europeans – a bank that would recognize the Canadian economy and act in their best interest. Indigenous people, who were the backbone of the fur trade, did not really benefit from the economic development opportunities brought by the fur trade at all – in many ways it led to the downfall of many of their communities. If those Indigenous suppliers and transporters had benefited from the fur trade the way they should have, they would also have been creating their own bank in 1817 to bank the results of their economic inclusion. So the truth that all Canadians have to recognize is that 179 years later, the First Nations are still grasping for a basic foothold in the economy.
“Reconciliation is about getting over the fact that First Nations people have been excluded from the economy and the social fabric of Canada, and getting them included as soon as possible.”
Now, what does reconciliation mean in today’s context? Reconciliation is just about getting us to the point where we are self-determining First Nations People. People should not say “Why do the First Nations need their own bank?” They should say “It is great that First Nations have their own bank. It is a taxpaying, profitable business that focuses on a niche market that nobody else services” – that is reconciliation.
Reconciliation is about getting over the fact that First Nations people have been excluded from the economy and the social fabric of Canada, and getting them included as soon as possible.This comes in small and big ways. Simply hiring Indigenous people and giving them a first job is a good example. The businesses that have been successful in Saskatoon have figured out that if there is a way they can access the Indigenous youth workers living in local communities, they do not have to hire foreign workers, which can bring about it’s own challenges and cost more. That is reconciliation. It gets Indigenous people included in the economy that should have been included since first contact with Europeans.
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Positions now exist within corporate Canada that did not exist 10 years ago that usually have the word “Indigenous” or “Aboriginal” in them. Is this a positive trend showing that Canadian organizations are now trying to better engage Indigenous communities or is this purely opportunistic?
It’s very positive as long as it’s done the right way. I am on the board of a mining company that has a significant amount of production and operations in Saskatchewan, where the population is currently about 15% Indigenous. That community is projected to grow to 30% of the provincial population by about 2040, so we need to have Indigenous people as both employees and community supporters.
Engaging the Indigenous community fully, provides companies with not only professionals and trades people but also helps create the businesses which will become part of their supply chain and help develop the Indigenous workforce.For example, some Indigenous-owned mining support companies have 80% of their staff comprised of Indigenous people. That means they are training good people in a safe workforce supporting mining and those people will work for those suppliers or may work directly for the mining company in the future. The Indigenous company is better off, the Indigenous workers are better off, and the large non-Indigenous companies and the economy as a whole are better off. A win-win-win situation
“Engaging the Indigenous community fully, provides companies with not only professionals and trades people but also helps create the businesses which will become part of their supply chain and help develop the Indigenous workforce.”
The company I am on the board of has also started asking our non-Indigenous suppliers about their Indigenous strategies. That kind of moral persuasion by a large company has a lot of impact on the sector and has resulted in more First Nations entrepreneurs and more First Nations economic development corporations becoming active in the mining support and supply sector.
What would you say to those who point out that the Indigenous community is not that big in Canada and who wonder why, from a purely economic perspective, it is such an important opportunity?
The Indigenous population in Toronto might be less than 1% but if you look at northern Saskatchewan, where the largest uranium deposits in the world are, it is about 80% Indigenous. So, it just makes economic sense to have those communities working for you, have them being your suppliers and getting that community support that gives companies the social license to do business. It’s the same in the oil and gas sector and in forestry in many parts of the country were Canada’s wealth is created.
When Indigenous people are not engaged in the workforce, they become a cost to our social programs and that increases the cost of doing business for everybody. It is far better for Indigenous people to be working for companies than to be socially dependent on the tax revenue those companies generate. Indigenous people also want to be engaged in the workforce, they want a better standard of living and the independence that good employment brings.
“Indigenous communities are growing quickly. By 2040, about a third of the population of Saskatchewan will be Indigenous. It is estimated that in 30 years, the Indigenous economy will be worth about $100 billion.”
Indigenous communities are growing quickly. By 2040, about a third of the population of Saskatchewan will be Indigenous. It is estimated that in 30 years, the Indigenous economy will be worth about $100 billion. If you look at where First Nations are located, the amount of land that is under their control or influence, the amount of resources that come out of the regions that are highly represented by Indigenous people, I think the target of $100 billion would not be overly ambitious.
But that economy must be built with Indigenous inclusion. First Nations people cannot just be on the sidelines of a new diamond mine or a new nickel deposit development on their land. They have to part of it; they have to be the project’s suppliers, employees, engineers – they have to be at all levels. Today, they mostly are not. This is primarily because of a lack of education, which leads to a lack of opportunities for them to be employed and involved. This must change for Indigenous communities and individuals to be fully involved in the development of Canada’s future economy.
Part of the Indigenous Economic Development Series presented by