What might a future ideal situation look like, in which Indigenous communities secure fair and equitable access to banking and financial services? It might be that one of Australia’s major banks recognises that there are very real commercial opportunities in pursuing a business plan to corner the Indigenous money market. It then:
pursues a strategy involving the establishment of a series of branches which provide face-to-face services in Indigenous communities;
actively employs and trains Indigenous people in its workforce;
develops housing loans accessible to individual families resident on Aboriginal reserves;
provides financial and budget management training to its customers;
funds scholarships for Indigenous people to gain tertiary qualifications; and
takes loan applications from individuals over the fax machine.
And of course it makes a sound commercial return on its investments.
Concurrently, government regulators recognise that any long-term success in reducing welfare dependence is directly linked to facilitating equitable access to banking services for low-income earners, and providing incentives to build assets. Government institutes regulations and provides direct incentives to the banks to provide loan funds and services to low-income earners.
We might say that such a scenario is merely a fantasy. The bad news is that in Australia, at present, it is a fantasy; the good news is that in Canada and the USA it is not.
When visiting Toronto in 2000 I met with Ron Jamieson, a Mohawk man, who is Vice President of Aboriginal Banking at the Bank of Montreal, and previously chaired the Royal Commission on Economic Matters Affecting Aboriginal People in Canada. When Jamieson joined the bank in October 1992 the value of its commercial loan business with aboriginal communities amounted to C$10 million. Today, some eight years later that same commercial loan business has grown to C$1 billion, with the bank holding a further C$1 billion in trust for First Nations communities. The bank has, over the same period, increased from 121 to 600 the number of its indigenous employees, opened 16 Aboriginal Banking centres, and established an alliance with Canada Post that has resulted in first time access to banking services for 20 remote communities (Bank of Montreal 1999).
The Bank of Montreal has also concluded innovative On Reserve Housing Loan Program agreements with 12 First Nations communities, enabling member families to borrow funds for the construction, renovation and purchase of owner-occupied housing. The default repayment rates for its First Nations customers are below those for its wider community customers (Bank of Montreal 1999).
This bank is not a lone player. Other major Canadian banks are actively chasing the indigenous dollar. They are also designing and delivering financial education and training courses for First Nations communities and funding scholarships for indigenous students. The banks believe these investments are essential in order to build long-term trust and credibility (Royal Bank Financial Group 2000).
Both the Canadian Bankers Association and the Canadian Federal government have also assumed important leadership positions in promoting equitable access to banking services for First Nations. For example governments, business and First Nations are active in creatively utilising existing tax incentives to promote economic and business opportunities on indigenous lands. This has resulted in the development and wide distribution of a comprehensive guide, Frequently Asked Questions: Understanding the Regulatory Environment for On-Reserve Lending (Minister of Public Works and Government Services Canada 1999) developed jointly by the banks, the First Nations and the Canadian Government.
All these initiatives contrast markedly with the Australian trend. In Canada, the banks are actively employing and training more indigenous people, opening up more branches (including in remote communities) and making a commercial return.
In the USA, there is recognition that achieving reductions in welfare dependence, and designing initiatives aimed at encouraging asset accumulation amongst the poor, are inextricably linked to people’s ability to access banking and financial services (Gensler 2000; Stegman 2000; Summers 2000). Key government agencies such as the US Treasury and regulators such as the Federal and State Reserves play a central role in ensuring low- and moderate-income earners have equitable access to affordable credit and appropriate services (Stegman 2000; Summers 2000). Driven partly by the phenomenal growth from the 1980s in ‘fringe banking’ services, such as commercial cheque-cashing outlets and pawnshops, which charge exorbitant fees (Caskey 1996), the Federal government has sought to strengthen the provisions of the Community Reinvestment Act 1977 (CRA) and provide direct savings incentives to low- and moderate-income earners.
This policy has also been reflected in the decision of the US Treasury to provide significant resources to community-based groups to educate low-income earners about the benefits of having a bank account, managing household finances, and building assets (US Department of the Treasury 2000a). In order to assist welfare recipients to make the transition from cheque to electronic payments, the US Treasury has also negotiated arrangements with the banks that have led to the establishment of low-fee-paying accounts for low-income earners and has directly funded an expansion in access to automatic teller machines (ATMs) in poorly serviced areas (Summers 2000).
Another important initiative of the US Treasury has been to establish the Community Development Financial Institutions Fund (CDFI). The CDFI is a statutory corporation wholly owned by the US Treasury. It was created in 1994 under a bipartisan US Congress initiative to expand the availability of credit, investment capital and financial services in distressed urban, rural and Native American communities.
The CDFI seeks to stimulate the creation and expansion of community development financial institutions and to provide incentives to traditional banks and credit unions to invest in CDFIs (US Department of the Treasury 2000b). Since 1994 the fund has certified over 406 funds across the USA, including 22 that specifically service Native American, Alaskan and Hawaiian communities. CDFIs include community development banks, credit unions, venture capital funds and micro-enterprise loan funds (US Department of the Treasury 2000b).
CDFIs are defined as specialised financial institutions that work in market niches that provide a wide range of financial products and services to low-income earners, for needs ranging from community facilities to business loans and housing renovations. In addition these institutions provide services to help ensure credit is used effectively, including counselling and financial budget training. The CDFI fund provides small infusions of capital to institutions that serve distressed communities and low-income individuals. It also conducts a Bank Enterprise Award to encourage major banks by way of incentives to increase their lending and provision of services to low-income communities. These incentives to the private sector, amounting to a combined total of US$90 million, have leveraged more than US$1.8 billion of investment and lending by banks to projects in low-income communities—a ratio of 20 to 1 (US Department of the Treasury 1999).
These initiatives are centrally linked to the Federal CRA which awards the banks credits based on their performance on lending, investment and the provision of services to low- and moderate-income earners. Banks must have at least a satisfactory credit rating to gain regulatory approval to merge, or to acquire another depository institution, or to open or close a branch (Litan et al. 2000). The CRA’s regulations were strengthened under the Clinton administration in 1993 and were retained in the context of the Federal Financial Services Modernisation Act 1999. This legislation prohibits banks from commencing newly authorised activities, such as expanding into securities and insurance, without a satisfactory CRA rating (Litan et al. 2000).
A practical example of the impact of the CRA occurred on the Navajo Reservation in Arizona in 1998. Citibank was in the process of selling its branch network to the Norwest Bank. The Navajo complained to the Federal government that Citibank had failed to fulfil their CRA obligations to service the geographic areas surrounding its Arizona branches. At the time there were only two ATMs anywhere in the entire Navajo Nation area, with many residents having to drive up to 160 kilometers to cash or deposit a cheque.
In response to this complaint, the relevant regulatory authority blocked the Norwest acquisition until it agreed to build four additional branches and install two extra ATMs on Navajo land. Norwest agreed. The location of the new branches, and the training of Navajo staff to run them, occurred with the full co-operation and involvement of the local Tribal government (US Department of the Treasury 2000c).
A recent independent evaluation of the impact of the CRA prepared for the US Treasury concluded that in 1998, mortgage lending to low-income earners by CRA-regulated institutions stood at $135 billion, up from $75 billion in 1993—an 80 per cent increase. This increase is also reflected in other loans approved over the same period to borrowers, which have risen in total number by over 45 per cent (Litan et al. 2000).
Congress has also required the US Department of the Treasury, through the CDFI, to investigate and make recommendations to Congress and the President on the elimination of barriers to private sector lending and investment on Native American reservations. This study has been conducted through a series of 13 workshops covering ten regions throughout the USA. It brought together Native American Tribal governments, and private and public sector representatives to jointly identify barriers to financing and lending, and strategies to overcome them (US Department of the Treasury 2000c).
In addition to the workshops, over 1000 financial institutions and Tribal governments have been surveyed via a detailed questionnaire. Both these exercises have identified a number of misconceptions and misunderstandings between financial institutions and Tribal governments, and have resulted in locally based initiatives built around developing mutual understanding and strong relationships. In practical terms they include partnerships to develop and deliver financial literacy programs, on-reserve home lending programs, and increased awareness of the CRA provisions. The findings of the study and recommendations of this report will be submitted to Congress and the President during 2001.
One of the best-kept secrets of welfare reform in the USA has been the widespread adoption of measures to allow savings and asset-building by the poor (Sherraden et al. 2000; Stegman 1999). The most innovative development involves the provision of Individual Development Accounts (IDAs). A key feature of IDAs is that a community group, foundation or government matches every dollar saved by an individual. Participation is conditional upon the saver’s completion of a financial education program.
Withdrawals from IDAs are limited to specific purposes, including deposits for housing purchase, self education, buying a business, and buying or repairing a car for work or for family emergencies. These programs have mushroomed throughout the USA, in tandem with welfare reform. Detailed evaluations have confirmed that IDAs are being effectively taken up by low-income earners, and particularly by women (Sherraden et al. 2000). Specific Youth IDAs have also been established that provide up to a three-to-one dollar match for similar purposes (Stegman 1999).
The Federal government’s decision to devolve responsibility for the Temporary Assistance for Needy Families (TANF) program to Tribal governments has also included provisions that enable Indian Tribal governments to apply these monies as matching IDA funds, therefore encouraging the active accumulation of savings (US Department of the Treasury 2000b).