A look at how two financial entities help tribes fuel economic development
By Andrea Richard
The financial lending industry is wide open in Indian Country, and it is rife with potential and prosperity for tribes. For those tribal members with minimal assets, turning to traditional lenders for capital is typically not an option. That’s where the rise of alternative financial services comes into play. The Native American Financial Services Association (NAFSA) and Indian Land Capital are two organizations devoted to tribal financial needs and responsible lending practices.
Formed in 2012, NAFSA represents an array of Native-owned fianancial services providers, thus giving aspiring Native American entrepreneurs access to capital that otherwise wouldn’t be available. NAFSA advocates for tribal sovereignty and tribal financial independence, and its members provide online micro installment loans, a space that is projected for growth.
“I think financial services is the future of Indian Country,” says Gary Davis, executive director of NAFSA. “I don’t say that lightly or without much thought by our team and by all of those tribes that are involved in this space, but I do not know of anything that has as much growth potential as this space does in any other sector of economic development in Indian Country.”
Indian Country financial services firms often help consumers meet the need for small loans. Micro loans are expected to grow to $1 trillion by 2050, according to the U.S. Treasury. A 2014 study by the American Financial Services Association found that 80 percent of installment loans amount to $2,000 or less.
“It’s really hard to have an economy without American Indian-owned businesses,” Davis says. “We need those to grow and flourish within the boundaries of our reservations, which are some of the most difficult areas in the United States to start and begin a business.”
In addition to Davis, TBJ recently spoke to other leaders at NAFSA and Indian Land Capital.
Online Installment Loans Maintain Financial Health
“What we are looking to grow this space into each year is more and more revenue generation by a sector that has had incredible growth in just a five- or six-year span,” Davis says. “It’s trending at the same pace as gaming did in its early days.
“The beautiful thing about this is that our projections show this sector will exceed gaming. This is revenue with less than 30 tribes involved in this space, [imagine] what it would mean if 40, 50, 60, 100 tribes began to get involved. It would be phenomenal. And saturation of the market is a long way off in the business. There is plenty of opportunity here. That’s one story of what [we’re] doing to create a whole new economic sector in Indian Country.”
The Default Rate is Surprisingly low
Davis says that he’s seen a default rate of 10 percent, which he describes as incredible given the high-risk, unsecured nature of these loans. “I think that is a testament to how sophisticated our tribal lending entities have become in creating algorithms and using technology and innovation to make sure their businesses operate effectively and efficiently in avoiding liability and risks.
“I think we are beginning to tell a story about how Indian Country really has opportunity in the financial services space in ways that it may have never even imagined.”
NAFSA has Stringent Best Practices for Members
Blake Trueblood, chief of staff at NAFSA says that, “All of our members are compliant with federal laws that apply to this space. Before anyone becomes a member or continues to be a member, they have to certify that they are compliant with NAFSA’s best practices. And that extends to their vendors, as well. We hold our members’ feet to the fire in that if you are going to have a third party who is operating a part of your business, then they need to be compliant to these best practices as well.”
NAFSA Advocates for Installment Loans
“None of our NAFSA members do payday lending. We have a stringent best practice that absolutely advocates against payday lending,” Davis says. “Now, there are tribes that do payday lending. Our members do installment lending, and they are very much two different things.”
Indian Land Capital
Indian Land Capital Company (ILCC), helps fuel economic development in Indian Country through nontraditional lending, with a focus on land acquisition and tribal needs. ILCC was formed by the Indian Land Tenure Foundation and Native American Community Development Corporation in 2005. Cris Stainbrook (Oglala Lakota) and the late Elouise Cobell (Blackfeet), a banker, activist and a 2016 recipient of the Presidential Medal of Freedom, served as founding directors. The organization serves tribes or tribally-owned entities in acquiring land, often found adjacent to their reservations or within the boundaries.
Due to the associated costs of the underwriting process, ILCC does not loan monies to individuals; the loans it does provide must be a minimum of $350,000. The organization has raised $8.5 million in capital through a private equity fund made up of non-tribal investors such as Bank of America, Wells Fargo Bank, Ford Foundation, among others. CEO and President of Indian Land Capital Company, Rjay Brunkow (Turtle Mountain Band of Chippewa Indians), says he is in talks with tribal investors to join the equity fund.
Unlike other financial institutions, ILCC does not require the land to be used as collateral. Instead, Indian Land Capital follows a “full faith and credit” lending model. Brunkow says none of ILCC’s borrowers has defaulted, a testament to the organization’s vetting process and goodwill across Indian Country.
nontraditional lending supports Tribal Needs
When a non-Indian company wants to acquire land or start a project, they have to pledge that land as collateral in order to obtain financing. This means that if the company doesn’t make its payments, the bank takes the land, sells it on the open market, keeps the money and says, “That’s what you owe us.” ILCC doesn’t operate that way.
“There are three main reasons why we don’t take land as collateral,” Brunkow says. “The most important one, is that we recognize the sovereignty of the tribe and we deal with them as a nation. So when Wells Fargo, for instance, lends money to a county or a municipality, they do it on what is called a ‘full faith and credit’ basis, meaning that they take a general obligation from the county and the county says, ‘We’ll make our payments, and if we don’t we’ll raise taxes or do whatever we have to do to make the payments. And the bank says, ‘Good enough.’ We do the same thing with tribes as most lending entities would never consider doing that.”
Streamlined process Means Less red tape
“You can’t look at a tribe as a corporation,” Brunkow says. “We know through our experience how to drill down into those financials and make a quick determination as to whether, for instance, the tribe has $30,000 a month in proposed debt. We are efficient at figuring out whether that $30,000 is going to be an issue for the tribe to come up with every month. We are skilled at determining streams of repayment and making lending decisions.” ♦