By Gary Davis
Economic self-determination lies at the core of tribal sovereignty. Unfortunately, attacks on tribal sovereignty have left far too many tribes with far too little viable economic development options or opportunities. Geographic isolation, access to capital and workforce development issues are all at the forefront as barriers to economic progress for many tribes.
Enter tribal online lending. What you might not know is that some tribes are already major players in the rapidly growing online lending industry. In this sector, tribal lending enterprises (TLEs) now represent 10 percent of a $20 billion industry. In the first five years of tribal online lending alone, TLEs have provided consumers $4 billion in loans, a growth rate that exceeds that of Indian gaming in the same time frame. A report cited by the U.S. Department of the Treasury estimates online lending will top $1 trillion in origination volume by 2050.
Done correctly, online lending and financial services truly represents the most significant economic development opportunity for Indian Country since the onset of Indian Gaming. With minimum barriers to entry, online financial services is an industry where virtually every tribe could participate. While the success of other avenues of economic development require large capital outlays, tribal lending operations can be established at a fraction of the cost. Furthermore, geographic location has no bearing on the consumer: a loan generated on a remote reservation is the same as a loan originating from Wall Street.
However, misconceptions about tribal lending abound. Several high-profile cases involving dubious payday lending operations partnering with tribes with little tribal involvement or benefit in what has been dubbed “rent-a-tribe” operations have skewed the public perception of what tribal online lending truly represents. We believe there is a right and wrong way for tribes to engage consumers in the online lending space.
Native American Financial Services Association (NAFSA) members offer small dollar, short term installment loans. There is a difference: installment loans are not payday loans. Installment loans typically are paid back in small increments over the course of six months to a year. Part of each payment goes to the principal and interest, similar to a conventional car loan or home mortgage. Installment loans comprised an estimated $7 billion of the $27 billion small dollar loan industry in 2016.
While installment loans are essentially structured like shorter-term conventional loans with higher interest rates to account for greater risk, payday loans are intended to be repaid in full on the borrower’s next payday with interest. Payday loans are often structured in a way that makes it nearly impossible to repay the debt on time, allowing the payday lender to trap the borrower in a cycle of debt through renewals and fees. There is a clear difference between tribal installment lending and payday lending, and NAFSA is working hard to change the public perception of what tribal lending is and the very real opportunity for Indian Country that it truly represents.
Filling the Community Investment Void
Nearly 90 million Americans are either unbanked, meaning no one in the household has a bank account, or underbanked, meaning the person has a bank account but is unable to fulfill all credit needs with traditional bank products and services. For almost one-third of all Americans, access to sufficient, respected credit sources is a constant struggle.
In 1977, the Community Reinvestment Act became law to combat this very issue. But it has failed. Since 2009, 93 percent of bank branch closures occurred in zip codes below the median American household income.
A 2013 report noted that the 23 largest banks in New York City, with deposits totaling more than $590 billion combined, invested less than 2 percent of their assets in a way that benefitted low- and moderate-income residents. Alternative financial services (AFS) exist to meet the needs of those left behind by traditional banking. AFS was an estimated $144 billion industry in 2016. Millions of Americans each year rely on AFS for emergencies, special purchases, and small business expansion. This is an often unknown, but very real fact here in America.
Tribal online lenders have stepped up to fill the void left by banks and even credit card companies.
Onward and Upward
The future for tribes in online financial services is one that is unrivaled anywhere else in Indian Country. Many TLEs have taken steps to assume full control of their lending operations or have acquired their initial operational partners in a very short amount of time. Further, as financial technology (fintech) evolves, tribes are uniquely situated to be leaders in providing consumers online access to a variety of financial products, including insurance, home loans, car loans and business financial solutions. However, these innovations are a new frontier for the financial services industry as a whole—not just Indian Country.
Just like any new industry or new business start up there are always challenges which await those seeking new opportunities. Yet, tribes must be bold in their economic endeavours especially in the online lending sector which enjoys proof in concept and stands on the very same sovereign tribal economic structure and premise as that of Indian gaming.
As tribal economic development evolves, so will the attacks on sovereignty. We must be prepared to deploy all measures necessary in order to protect it—and we will. The facts are clear and the economic benefits of tribal online lending are already a reality for many tribes across Indian Country.
What is unique in tribal online lending is there need be no land placed into trust, no tribal disadvantaged status proven, no grant written nor any of the other normal bureaucratic hoops that Indian Country so often has to jump through to engage in high level economic opportunity.
Technology has leveled the playing field and placed before us an opportunity to engage in sustainable economic development, which has already yielded a tremendous amount of self-sufficiency for tribes that otherwise would not be prosperous. Tribal self determination is being deployed and Indian Country is innovating and leading in the financial services sector. This makes good on what the great Oglala Lakota Chief, Crazy Horse, once said, “Weak hearts to the rear, strong hearts to the front.” ♦