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Aboriginal financial leaders are hoping that an agreement signed on July 20 will lead to an increase in the amount of money available for Aboriginal business loans.
The signing ceremony was held in a meeting room at the Charlottetown Civic Centre while the Assembly of First Nations' annual general meeting was in progress in the main hall.
Dan Brant is the chief executive officer of the National Aboriginal Capital Corporation Association (NACCA), an association of the 57 Aboriginal financial institutions (AFIs.) Brant presided over the signing ceremony that featured NACCA vice-chair and chairman of the Northwest Territories Metis Dene Development Fund, Jake Heron, and the senior Vice-president of the Canadian Imperial Bank of Commerce's (CIBC) small business group in Toronto, Rob Patterson.
Brant extended an invitation to all five of Canada's major banks last December. He was looking for assistance from a
senior financial institution to create a loan syndication pool (LSP) of about $20 million that all AFIs could draw from. Dan Brant said CIBC was the only bank that responded with enthusiasm.
He said studies have shown there is a huge need for more capital for Aboriginal businesses that often are not able to borrow because Section 89 of the Indian Act does not allow on-reserve assets to be used as collateral. Brant said the July 20 agreement of intent to build a larger pool of money is an important first step.
"It's responding to a huge debt capital imbalance between Aboriginal and mainstream small business sectors," he said of the agreement. "It will result in the expansion of existing Aboriginal businesses and this then will create more jobs. The Micro-Economic Monitor [an Industry Canada economic analysis publication] reported in July 1998 that the number of self-employed Aboriginal people grew two-and-a-half times faster than the national average between 1981 and 1996. I think this is a trend that we see continuing and hopefully one that we will be able to respond to."
Heron noted the historical significance of the date.
"On this day, July 20, 1969, man took the first small steps for man and a giant leap for mankind as Neil Armstrong walked on the moon," he said. "The signing of this initiative with CIBC may not be as momentous as that occasion; however, it's comparable for us as the first step where we forge ahead to develop a strong relationship with a financial institution that has proven to be one of Canada's pillars. We believe it is a commitment to meeting the financial needs of Aboriginal people."
Loans to on-reserve entities are difficult to secure because of the Indian Act provisions against seizing property when loans are defaulted. One key cause of poor economic conditions on reserves is that First Nation residents do not have the same access to capital as most Canadians.
But getting one of Canada's major financial players on-side will add a lot of credibility to the AFIs and make it easier to attract money to the loan pool, Brant said. He and Heron were enthusiastic in their praise for the bank, saying CIBC's willingness to take on a difficult project will be of great assistance to Aboriginal business.
Patterson said the bank sees a lot of opportunities in the project. "The new AFI loan syndication pool will help ensure that Aboriginal businesses have access to the capital that will help them succeed by providing funding to businesses with borrowing needs of greater than $250,000. An individual AFI could not lend the amount of money, but with the LSP these types of loans will now be possible," he said. The extra capital, he said, will enable Aboriginal businesses to expand and create thousands of jobs.
Brant said the AFIs' loan loss rate over 10 years has been just five per cent. Keeping the losses from default down has meant that lenders must keep a much closer eye on things. But the low loss rate is a point in the AFIs' favor and CIBC's decision to get involved wil only help, he said. "This commitment for a senior-level institution will increase the confidence of investors," he said.
Over the last 15 years, AFIs have made 25,000 loans totalling $958 million. It's expected the total will top one billion this fiscal year.
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