Native Americans have gradually moved toward greater autonomy after over a century of oppression by the U.S. government. For American Indians living on reservations, the poverty and mortality rates rival those of many Third World countries, three times that of all other Americans.
Three unique challenges that differentiate Native tribes from other high-poverty groups in the U.S. are their legal status, intergenerational poverty, and having their land held in trust by the federal government – which restricts using it for collateral. Most banks still believe that the risk factor is too high and the profit is too low for them to provide personal, business, or mortgage loans to reservations’ residents. In non-reservation Native communities, there are no local financial institutions, accessing credit is doubtful, and predatory lenders are problematic.
A bank’s resistance to lending money to residents of a Native community is principally due to legal challenges related to foreclosure, jurisdiction, courts, and sovereignty/treaty issues, all significant challenges to entrepreneurship and economic development. But, Native community leaders who have been using CDFIs to develop financial institutions to serve their populations have helped tribal members.
Lessons learned from non-profit institutions certified as CDFIs by the CDFI Fund demonstrate real-world examples of community banking providers who have done something interesting:
Citizen Potawatomi Community Development Corporation. The Citizen Potawatomi Nation’s headquarters is in Shawnee, Oklahoma, approximately 48 miles from Oklahoma City. Lessons learned include the fact that back-end technical support is as important as the guidance of an investment professional when closing a loan. Cindy Logsdon, CPCDC Loan Officer, stated, “We need to stay in contact, and the more assistance we can offer, the more successful they can be. It can be hard to provide that after the loan is closed, but it is very, very important.” Another lesson learned is that IDA programs can impact people’s lives by improving self-confidence and self-sufficiency.
Lac Courte Oreilles Federal Credit Union. The LCOFCU serves the Lac Courte Oreilles Band of Lake Superior Chippewa Indian Reservation. St. Paul, Minnesota, the closest city, is 139 miles away; Green Bay and Madison, both in Wisconsin, are over 275 miles away. Significant lessons learned were the need to work with the Native community to provide financial education, and the need to build a customer base. The staff at LCOFCU realized that few community members had the skills required to take out a loan. Financial education and credit counseling were a significant part of the CDFIs work. They needed to cover basic information with the applicants, such as explaining income-to-debt ratio. And, one of the barriers was psychological. Many of the clients had never used a bank before. Another lesson learned was that the “low stakes” loans were important stepping-stones to becoming creditworthy, and allowed people to understand how to use credit responsibly. Payroll deductions ensured that people had a low default rate. Reporting payments on those loans to the credit agencies helped clients establish or repair credit, which later made them eligible for home loans.
Native CDFIs represent unique economic development models that can address the economic, legal, physical, and social infrastructural issues that challenge Native communities, by offering innovative financing and development services. Research suggests these institutions have managed to overcome significant barriers to investing efficaciously in Native community change.
Ref: Investing in Native Community Change: Understanding the Role of Community Development Financial Institutions, by Sarah Dewees, First Nations Development Institute; and Stewart Sarkozy-Banoczy, Oweesta