CRA And Banking Opportunities In Indian Country

Whether your institution's market area includes a piece of Indian Country or not, you can learn a lot from banking and economic development activities that are taking place now in Indian Country. Both banking activities and tribal development efforts are producing interesting and exciting results. Indian Country is being transformed and banks should be participating in the change.

The Federal Reserve System sponsored a conference, Banking Opportunities in Indian Country. This was a three-day conference dedicated to airing and sharing development and banking projects. The variety of approaches is stunning. There is a lot of creative thinking taking place.

The first panel discussion at the conference featured Native American entrepreneurs who discussed how they had identified and developed their business and Native American bankers who shared successes and challenges of banking in Indian Country.

On the business side, Cathy Keene described the evolution of her business, Ancient Ways, on the Wind River reservation in Wyoming. She began a business in taxidermy, a traditional craft, and expanded into a tanning operation to produce buckskin and rawhide. Since then, the business has grown to include the sale of Native American books and music.

Keene explained that getting the funds for business expansion involved perseverence. First, she had to obtain zoning permits from the governments of both tribes at Wind River. The location of her business on trust lands was a problem in getting bank loans.Then she actually had to get a loan. This turned out to be an 18-month process. She started with government loan programs such as USDA's Rural Development Administration but found she was barred as a federal employee (trying to no longer be a federal employee). Next, she tried the Bureau of Indian Affairs ("BIA") but that organization took too long. She finally succeeded in the private sector and got a loan from First Interstate Bank. A business owner has to be really determined to stick with such a difficult application process.

Also on the business side, but using a very different approach, is Ho-Chunk, Inc. This is a corporation organized by the Ho-Chunk tribe (formerly known as Winnebago) to conduct the tribe's economic efforts. Making a calculated decision to separate economic development from politics, the tribe created a corporation that is free to do anything in the arena of business and economic development.

Lance Morgan, president of Ho-Chunk, Inc, stated that things have become easier since their first effort. It took 18 months and 6 banks to finally get a loan for Ho-Chunk, Inc.'s first enterprise. Thereafter, the corporation was able to build on relationships and contacts to develop loan packages and commitments faster.

Now, he is finding that things are getting harder as the corporation and its projects get larger. The corporation often needs to tap into multiple resources to cover funding needs. The smaller banks quickly "max out."

The process is worth it, however. Unemployment for his tribe has dropped from 60% to 10% as a direct result of the development corporation's successful projects.

Building and maintaining relationships is a constant challenge. There is persistent turnover in both banks and tribal government. This generates a constant need for re-education. As with almost any aspect of compliance, you should never assume that things stay the same - or that people remember what they learned two years ago.

J.D. Colbert, President of the Native American Bankers Association, made an observation that every banker should take to heart: it is easy for a financial institution to say no. What isn't so easy is to look for a way to work with the applicant and to find a way to extend credit. Fundamentally, this is what CRA directs financial institutions to do - with safety and soundness in mind.

Tribally-owned Banks
The panel split on whether a tribe should organize a bank as an essential component of its development strategy. The panel was unanimous in agreeing that access to capital is essential. But they differed on how. Lance Morgan, for example, is not convinced that organizing a bank is the answer. It can tie up a significant portion of the tribe's capital and actually limit the number of development projects that the tribe can undertake. His tribe decided instead to develop partnerships with existing sources of financing.

Stephen Cornell, Director of the University of Arizona's Udall Center of Studies in Public Policy, observed that banks should be considered as one component of the larger purpose of economic development. The decision about organizing a bank should be made in the context of the full development strategy.

Indian-owned banks generally have a better understanding of the issues and challenges of safe and sound lending in Indian Country. To this end, a financial institution seeking a market in Indian Country could do well to partner with an Indian-owned financial institution. As an alternative, a financial institution seeking opportunities on a reservation should develop a consistent working relationship with the members of the tribe working on economic development. If Native Americans or a reservation comprise enough customers or area to be part of the institution's strategic plan or CRA goals, a tribal member should be on your board of directors.

Community development financial institutions ("CDFIs") are a clear opportunity in many reservation situations. CDFIs also represent an opportunity for CRA investment and partnering for technical assistance for mainstream financial institutions.

When financial institutions are working on relationships with tribes, they should be clear on the differences between working with the tribe and working with individuals who are members of the tribe.

Financial institutions should have a solid working relationship with the tribe in order to be successful conducting business on the reservation and with the tribe's members. The relationship to the tribe serves as the foundation to legal, economic, and political remedies should they be needed.

Making loans to individual tribal members should be done based on underwriting of that individual's qualifications. The institution may also find it appropriate to take into account the legal relationship with the tribal council to the extent that it is relevant for purposes of creditor remedies.

Predatory Lending
In many ways, Indian Country is not that different from the rest of the country. Concerns about predatory lending are no exception. Several speakers cited statistics showing a pattern of shockingly high interest rates paid by Native Americans for loans. Rebecca Adamson, President of the First Nations Development Institute, stated that 80% of the tribes they surveyed had experiences with predatory lending. Tribal members, they found, paid up to 20% for their mortgages. This is effectively a pawn shop rate.

To the extent that the entrance of regulated financial institutions drives out predatory lenders, there is a clear need for these institutions in Indian Country.

As in the rest of the country
The concerns about predatory lending generate increased pressure on financial institutions to participate actively in sub-prime and under-served markets. Identifying these needs and providing responsive banking services is a core component of a good CRA program.

ACTION STEPS

Look at the projects discussed in this article and look for ideas you can use in your CRA program.
If a reservation is included in your assessment area, learn as much as you can about the tribe, its politics, its culture, and its economic needs and goals. Then meet with tribal leaders to discuss ways your institution can make those goals a reality.
Learn from the problems raised by the speakers at this conference. Consider how those problems may affect people in your market.
Take a hard look at the need for financial education in your community, whether or not it includes Native Americans. People with financial education make good customers.