Indigenous and Northern Affairs Committee on May 5th, 2015

[The Chair, Conservative, Blake Richards]

We'll call the meeting to order. Welcome this morning to the 39th meeting of the Standing Committee on Aboriginal Affairs and Northern Development. In our study on access to capital, we have with us today, from the National Aboriginal Capital Corporations Association, Francine Whiteduck, chief executive officer, and Kevin Schindelka, director of corporate development. Also with us, from the First Nations Bank of Canada, is Keith Martell, chairman and chief executive officer.

Welcome to all of you this morning. We will give both organizations 10 minutes each to make opening remarks, as I am sure you are well aware. Then we will turn to questions from members.

First is the National Aboriginal Capital Corporations Association. Ms. Whiteduck, the floor is yours.

[Francine Whiteduck, Chief Executive Officer, National Aboriginal Capital Corporations Association]

Thank you.

[Witness speaks in Algonquin]

I'm from Kitigan Zibi. It's nice to be in the territory to present to you. My name is Francine Whiteduck. I am the CEO of the National Aboriginal Capital Corporations Association. Attending with me today is Kevin Schindelka, our director of corporate development. As you may know, NACCA supports a network of 58 aboriginal financial institutions that provide developmental loans and support services to aboriginal small businesses. Within the continuum of lenders that provide loans to aboriginal people, AFIs have a deep reach to communities across the country, are experts in risk assessment, and are highly focused and dedicated to meeting the developmental lending needs.

The AFIs have played a very significant role in Canada. They deploy capital to businesses and entrepreneurs efficiently. They have also played a huge role in creating an investment environment while contributing to building the financial literacy and planning required for the consumer and individual entrepreneurs in the aboriginal communities. They have also ensured that institutional capacity is growing, including the formation of expertise from the private and SME sector.

The AFI network has grown into a significant development loan lending force in Canada and has provided over $2 billion in loans to businesses owned by first nation, Métis, and Inuit people since the time the AFIs were formed in the early 1980s. Despite reaching this milestone, and even though in each of the last five years over $100 million in loans were advanced to aboriginal entrepreneurs, creating and maintaining approximately 3,800 full-time jobs in our communities and in the Canadian economy, the capital needs of aboriginal small business remain great.

AFIs have supports, and they deliver robust entrepreneurship programs and services effectively. In 2014-15, NACCA successfully rolled out the aboriginal development lending assistance program, a NACCA-designed initiative to enhance AFI sustainability. This initiative provides assistance to qualified AFIs to absorb the costs of capital shortfall tied to developmental lending, as well as pre- and post-loan care cost. Ultimately, this means that there is more money available for aboriginal businesses.

In 2016, NACCA will deliver additional equity products to AFIs that will enable them to provide equity, quasi-equity, and business support services for business development and for securing additional third party debt financing. While the equity programs continue to support businesses, the reduction of client equity programs over the last two decades will no doubt have a serious negative impact on the overall growth of the SME sector because of the increased cost of capital that results. The SME sector has proven to be the engine of development to create the jobs that are needed in Canada, and particularly in our communities. The reduced investment to grow the entrepreneurial sector comes at a time when the population of our community, as you know, is expanding.

While I raise this concern, there are some bright spots to note concerning the role aboriginal women play in the development of our communities and the economic contributions they make. Close to 30% of the equity contribution loans in 2014 throughout the network were provided to aboriginal women entrepreneurs. We are encouraged by the 2016 budget announcement of a proposed action plan for women entrepreneurs to help women business owners grow their business and succeed. Indeed, the AFIs, with their deep reach across communities, are positioned to foster greater entrepreneurial activity through partnerships, supports, and leverage, and we look forward to supporting women.

First, in thinking about our needs, we have to think about a dedicated fund to SMEs. We note that there is a need to restore, enhance, and innovate a dedicated SME fund to support aboriginal SME growth across our communities to strengthen entrepreneurship and business start-ups and expansions, as this will provide the jobs that are part of the solution for building healthy aboriginal communities and a thriving private sector, which will really lead to the changes we want to see in the communities.

Second, we also think there's a need to commit to a federal-wide solution to secure and ensure that aboriginal financial institutions obtain the resources and the debt and equity capital that is required for these institutions to continue building our communities. We are looking at new models.

In 2016, NACCA and our federal partner, Aboriginal and Northern Affairs Development Canada, will explore options for private sector investment that enables AFIs to access affordable low-cost capital. The AFI track record is vital for building new models of capital attraction. AFI repayment efficiency rates are at 95%, and a growing number of AFI loan portfolios can provide the adequate collective security that private investors demand. Most importantly, the aboriginal financial institutions demonstrate the ability to manage risk in the aboriginal communities. This creates the confidence that is necessary to attract private sector investment.

We are currently establishing the parameters required for a capital attraction tool, including the anticipated guarantees that would be necessary, the securitization requirements, and identifying the extent of a federal government role required to create a successful model to engage the private sector. The anticipated capital attraction model will be flexible and, while security and return on investment are certainly on the minds of private and institutional investors, there are other capital-raising opportunities related to emerging innovative finance solutions for impact investment.

Aboriginal people seek to use investment capital to drive positive social and environmental impacts. Clients of AFIs share stories about what it means to be able to provide for their families and to grow second- and third-generation businesses. This is what is important to our community. The types of lending that AFIs create provide positive benefits far beyond business results and include immeasurable improvements in the aboriginal people's quality of life. That's why I spoke of a dedicated fund. We have to really look at investing and increasing that.

Community members see success and recognize what is possible. Parents talk to their children, open their minds to opportunities and their creativity, and allow them to see their future potential. That's what SME development really is about.

I would categorically state that the AFIs have been in the forefront of social impact financing in Canada for many years before it became as well known as it is today. AFIs have measured the social outcomes of development and lending and linked these to financial returns.

In the aboriginal community, I know that there's a lack of financial wealth, but there is potential and there is no shortage of innovative ideas. AFIs bridge this gap by making capital available to entrepreneurs who will build success in their respective communities. This is what we think about when we think about the SME sector and the role that AFIs have played in our communities, not only in the past but going into the future.

Thank you for inviting NACCA to speak today. We look forward to all of these developments.

Meegwetch.

[The Chair, Conservative, Blake Richards]

Thank you very much.

We'll move now to First Nations Bank of Canada and Mr. Martell.

The floor is yours for the next 10 minutes for your opening remarks.

[Keith Martell, Chairman and Chief Executive Officer, First Nations Bank of Canada]

Thank you.

Good morning. It's a pleasure to appear before your committee today.

As the leader of an aboriginal-owned chartered bank that primarily focuses on Inuit, Métis, and first nations customers across the country, I have significant experience on the topic being discussed today. I also bring with me the perspective of a person with close and ongoing relationships and connections to life on reserve. I was born on a reserve, and I have a significant portion of my family still living on the Waterhen Lake First Nation in northern Saskatchewan.

The problem with access to capital for aboriginal communities is really rooted in the history of failed intervention by non-aboriginal governments and the negative impact of Canada's aboriginal policy, which have sidelined economic development for aboriginal people. The results of these failed policies are ongoing challenges like the Indian Act, the lack of basic financial services to many people in remote and small first nations, and an undereducated and underemployed aboriginal population. But besides these aboriginal-specific issues, we also have to consider even the basic challenges faced by any Canadian small business, which are not unique to aboriginal people.

In our discussion, we'll address many of these complex issues, I'm sure. I'll focus my opening remarks on the need to focus on a broad spectrum of financing solutions to address the problem of access to capital for aboriginal people. I will also raise concerns about focusing on a panacea, a one-size-fits-all solution, and I will highlight the significant progress that I have seen through a few recent examples that we have been involved in.

To my first point, capital, although usually denominated in dollars, doesn't come in only one form. Capital markets have developed over many years and have designed forms of capital that address the needs of both lenders and borrowers. Capital is designed to meet the purposes for which it is being used. Structuring a capital transaction must consider critical issues like the capacity of the borrower to service the debt and the need to track and monitor repayment.

The cost of capital is a factor that is very much dependent on all these issues. Simple yet fundamental issues, such as the terms of the debt matching the life of the asset being purchased, are critical. That's why you don't see car loans amortized over 30 years, and why you typically don't see public infrastructure debt for water and sewers financed over five years. The useful life of the assets being purchased needs to be a close match to the term of the loan.

What does this mean for aboriginal people? Well, for too many years, the only form of capital to finance anything, from infrastructure to economic development, was transfers from other governments. Aboriginal people lost the capacity to raise their own capital, and everything they financed was subject to the priorities and timelines of other governments.

Before the mid-1980s, even when financing business development, whether community-owned or individually owned, the only source of capital was typically government grants or government-managed borrowing. For example, in Saskatchewan in the early 1980s, the federal government ran a first nations economic development loan and grant program. Loans typically were being made for political purposes instead of business purposes by bureaucrats with no knowledge of the community's priorities. With no support services for these growing small businesses, the loan loss ratio for this program was 80%. Eighty cents of every dollar loaned was written off and never repaid, and few sustainable businesses were developed.

Then the first nations of Saskatchewan created the Saskatchewan Indian Equity Foundation, the first aboriginal capital corporation and a member of NACCA, and they sought to turn around the experience. They were armed with community knowledge, a sense of ownership of the fund, and some business support services for the entrepreneur. They turned around the program and achieved a loan loss ratio of 1.5% by the early 1990s. I am sure my colleagues at NACCA will explain further in the questions and answers some of the successes of the aboriginal capital corporations.

Leading from the creation of these aboriginal capital corporations, aboriginal-focused financial institutions, such as the First Nations Bank, a federally regulated, tax-paying chartered bank, and the Peace Hills Trust, a federally regulated, tax-paying trust company, were created. Both of these organizations focused on commercial lending for the growing aboriginal sector of the economy, and soon other mainstream chartered banks started to concentrate on the growing aboriginal business sector. Today, a very competitive environment exists to meet the commercial banking needs of the aboriginal economy.

As larger aboriginal business ventures started to grow and develop, many also started to use a variety of financing options, including structured debt, financing through bonds, share capital, both private and public, and complex business structures with non-aboriginal partners and investors. While it's still developing and is not nearly as advanced as other sectors of the economy, we are starting to see a much healthier continuum of capital structures that are providing the right capital in the right form, and at the right price and conditions, to meet the needs of the aboriginal communities.

My second point is a warning that some financing options have somehow become a panacea to address all problems in all situations for aboriginal people, and the fundamental realities of financing and the continuum of financing options required have been forgotten.

For example, the First Nations Fiscal Management Act was created to enable first nations of Canada that have government-like sources of revenue from taxation, royalties, or land leases to leverage these government-like revenues with long-term bond financing for infrastructure. The institutions created by the First Nations Fiscal Management Act were developed to address this issue, and I still firmly believe that these institutions, which were designed to help leverage government-like revenue into government-like financing, are needed and are an important part of the financing continuum I noted in my first point.

However, sometime after the First Nations Fiscal Management Act institutions were created, their mandate was expanded, and they are now aggressively attempting to lump all other revenues, including revenue from business enterprises owned by first nations, into their lending models. These other revenues are often not government-like revenues, and the FNFA indicates that they can include everything from first nations' interests in forestry, oil and gas, and hydro, to convenience stores, hotels, and gaming operations.

The FNFA, with the support of Canada, is effectively institutionalizing commercial borrowing of its member first nations for commercial purposes, with the support of Government of Canada grants and contributions. While the objective of the FNFA was originally to securitize government-like revenue, in fact most of the revenue used to leverage its first bond issue was commercial revenue. Also, much of the amount borrowed was used to repay existing debt with commercial banks, not to finance new projects that were unable to attract capital.

The FNFA also is quoted as saying at this and other committees that some of its members saved large amounts of money by borrowing through FNFA, and in one example it claimed that a first nation is “saving $140,000 per month” in debt service through using FNFA borrowings. When you look more closely at this and do the math, you'll see that the savings are mostly due to the fact that the community refinanced existing loans with amortization periods of over 5 and 10 years with the loan from the FNFA, which was amortized over 30 years. In fact, most of the savings come from a reduction in principal paid in any given year.

One further problem in this example is that while the loan is being amortized over 30 years, the interest rate on the bond from the FNFA is set for only 10 years. If in 10 years interest rates are higher than the current all-time lows, there will be a significant amount of principal still to repay at a much higher interest rate. In fact, in amortizing a loan over a much longer period, the true debt service costs, which are the interest you pay, are actually much greater.

What the FNFA is proposing by lumping government revenues with commercial revenues for borrowing purposes is like a for-profit commercial business teaming up with a province or a city to float a 30-year bond. This simply is not done in any other sector of the economy. The danger in this amalgamation is also that the underlying risk of all the entities grouped together in one bond issue is not reflected in the borrowing rate, the term of the loan, or the conditions of the loan. The default risk of some of the participants in the pool is much greater than that of others. With the FNFA borrowers having joint and several liability for the bond, the good credit in the pool may end up paying for the bad.

If defaults happen in the FNFA borrowing pool, two things will occur. First, it will become infinitely more difficult for even the best-rated first nations credit to get bond financing. Second, everyone who ends up carrying the cost of losses in the pool is going to look for someone to blame, and the federal government, without any independent advice from financing experts and with many warnings from bankers like me, will end up being in the middle of that cleanup. This will make it infinitely harder to get federal government participation in any future financing for aboriginal economic development.

Lastly, I want to advise the committee that when it comes to financing commercial enterprises of aboriginal communities by commercial banks, a lot is being done, and institutionalizing all first nations financial services is not a good idea. Our bank was created to address a niche in the market for a bank that was focused on aboriginal communities. A vast majority of our shareholders are aboriginal organizations, and a vast majority of the loans, deposits, and cash management services we provide are in the aboriginal market. While I think we have an advantage because of our focus and ownership, other banks now are very competitive in serving this market, and most banks have teams that are also focused on this market and are now providing a much better level of service to aboriginal customers.

There are also many large and successful first nations commercial developments that have independently raised, properly priced, and structured bond financing. ln the last two years I have personally been involved in three large-bond structured finance deals: one for a first nations purchase of an interest in a hydro dam project, one for a hydro transmission line owned 25% by a first nations group, and one for a hotel gaming facility.

These developments attracted institutional financing at rates sometimes lower than the rate the FNFA is offering on their bond and for terms of 25, 15, and 8 years. In all those circumstances, the rates, the terms, and the conditions of these three developments were competitively quoted by institutional investors and banks, based on the underlying business and the conditions required to protect the bondholders and the first nations borrowers.

I hope my presentation was helpful, and I hope the recommendations of this committee take a balanced and informed approach on this issue that won't create new and larger problems for the future social and economic advancement of aboriginal people.

I look forward to your questions.

[The Chair, Conservative, Blake Richards]

Thank you very much for your presentations.

We will move right to those questions now.

First up, we have Ms. Hughes for seven minutes.

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

Thank you very much, Chair.

Thank you for being here.

Ms. Whiteduck, we had the past CEO, Ms. Pelletier, before us a while back. I think it was on June 3, 2014. I see that your presentation relates to some of the issues that she also brought up. She didn't have a lot of time, unfortunately, because we were going to votes and we knew the bell was going to ring, so people had to condense their presentations.

During her presentation, she talked about the fact that you were looking at “satisfactory resolution of broadening access to sustainable lending, increasing AFI network capacity, and expanding client services that [would] better position AFIs to put forth the fourth pillar”. She talked about a pilot program and said:

Right now we're working on a pilot program that will serve as proof of concept for the pilot, with emphasis being placed on securing capital from aboriginal sources including AFIs with high liquidity, aboriginal financial institutions, and aboriginal trusts.

I'm just wondering if you are able to elaborate on that at all. Has there been any movement, and how has it been working?

[Francine Whiteduck]

We have made a lot of movement. We worked with Deloitte this year to do an independent study of the liquidity and the needs of the AFIs in the network, and to look at how we could structure this capital-attraction tool. We've come up with some notional ideas, and there were some underlying assumptions around what Lucy had presented regarding how the AFI network can support a capital-attraction tool.

We're just finishing up the study with Deloitte now, and we're beginning to have discussions with some private investors in the marketplace on what this tool might look like, whether it is attractive to them, the interest rate they require, and the issues they see with the model we have identified.

We also had some key findings, especially around the assumption that there was this very high level of liquidity in the system, which has proven not to be the case. I think Kevin will speak to this a little more, because he participated in the study.

Kevin, can you explain that a little more?

[Kevin Schindelka, Director, Corporate Development, National Aboriginal Capital Corporations Association]

As of March 31, 2014, there were a number of AFIs identified in the group and they require capital of $78 million to properly position themselves to deal with the private sector. Some of them, such as the First Nations Bank and the Peace Hills Trust, which Keith mentioned, have already gone to institutions and have levered assets to get additional capital to put out in loans.

When you consider the fact that they've had to go out and borrow funds—there's a $78-million deficit position—that includes a liquidity requirement, and in this industry, it is usually a six-month supply of loans, of capital. This includes that six-month supply.

Some other AFIs have surplus capital. We found in the Deloitte undertaking that we can't necessarily take their surplus and give it to the ones that are in a deficit position. They're all private focused capital corporations or AFIs that deal specifically with a certain geographical area or a heritage group. You can't take nickels from one piggy bank and just plunk them into another.

So there is a need to raise capital and, as Francine said, the work with Deloitte indicated that it's quite an undertaking to balance. As this unfolds or develops, it will become clearer what kind of support and assistance we're going to need.

[Francine Whiteduck]

One thing we saw there was that there was an assumption that there was a lot of liquidity in the system, and the interviews with the AFIs have proven that it's not nearly as high as everybody was touting before. It's actually quite small. That was one of the underlying assumptions that made the tool attractive, so now we really need to take a look at what that means.

In the study, we were not clear when we started out in regard to the private sector looking at how much equity the network itself would put into this investment pool in putting some skin in the game. While we thought it might not be a big factor, as the discussions wore on and we started to talk to private investors, it became a factor that was identified. That was a bit of a revelation to us, because we weren't expecting it to be. We thought that with the security, with the overall pool, that would be sufficient, but people look for more skin in the game from the AFIs than we originally thought. We're going to have to look at how we address that.

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

Thank you.

[The Chair, Conservative, Blake Richards]

We will move now to Mr. Dreeshen for the next seven minutes.

[Earl Dreeshen, Conservative, Red Deer, AB]

Thank you very much, Mr. Chair.

Thank you to the witnesses for being here today and giving us an interesting perspective.

Ms. Whiteduck, I'd first of all like to speak with you. Among the things you spoke of, you talked about financial literacy. Again, that is something that is so important. I'm a former math teacher, and one key thing that I always felt a student should know when they left school was how to manage their money and look after themselves and their families. It's extremely important. I wonder whether you'd comment a little on how that works, but I'd also like to go to a couple of other points.

You spoke about how NACCA in 2016 will be taking a look at equity and quasi-equity and third party lending opportunities, but of course you're saying that the increased cost of capital is a concern. Can you take a look at that?

You talked also about the role of aboriginal women and how they're taking up a large portion of the activity that is there. I wondering if you could deal with that.

You also spoke about commitment to a “federal-wide” model for debt equity, about taking a look at where it is right now and what you feel about it, based on the type of equity that you have in the communities and that maybe not everybody looks at.

Could you comment on those points?

[Francine Whiteduck]

With respect to financial literacy, I mentioned that the AFIs have played a role. As we look at their development over time, we can see that AFIs were greatly involved in our communities in the education process regarding financial literacy. When they started in the early 1980s, they really were the ones that were talking about the need to separate business and politics and to really look at separating the business sector from the political sector and at governance and everything that is required. It has been and continues to be a long-term process.

The AFIs are recognized as a source of knowledge in the communities and certainly have played the role of creating a more financially literate community with respect to business development. There is a need to go further. We have to get it across to all sectors of our community, particularly to young people in the schools. Keith and I were at that policy forum last week and talking about financial literacy. One point Keith made was that it's a question not only of financial literacy but of literacy in general. We really need to start addressing the education of our people in the communities in a very broad way and specifically looking at financial literacy.

The AFIs work in the communities. There are 58 of of them covering almost all of Canada. They are the ones working with the SMEs, the small and medium-sized enterprises, with the business owners, to get those concepts well established in the community. From there, it grows. They have played that role for a long time, and I think they have not been recognized in terms of the work they have done. They will continue to play that role, and they are getting more sophisticated in the type of lending that is required. As our business community grows, literacy increases. It's a long-term process, as education is.

Kevin will speak to equity and the quasi-equity, but first I want to talk a bit about the women. I've worked with women for several years, mostly in APEC projects. The changes that women make in the communities and bring to the communities, when they have that support, are outstanding.

It's the same in our community. I think there is a bigger role that they could be playing. We actually provide about 30% equity for women, and as we work with them to define how they play a role, not only in their own businesses but in understanding the family structures and the impact they have, it includes the financial literacy aspect and the caring for all of the community. As we build and create more businesses, we'll see an expansion there. The problem is that we have a limited amount of capital, and we can only do so much because it's limited. I think we haven't reached out to a great number of women and other potential entrepreneurs who can serve as catalysts in the community. But certainly, they contribute immensely to economic development in our communities.

Maybe you could speak to the equity and quasi-equity, Kevin.

[Kevin Schindelka]

In AFIs' dealings with aboriginal clients, they will often attribute a value to the business planning and research that people put into a business concept, but in terms of the equity the clients need to invest in their business to make it possible to give them even an AFI loan, that can be difficult to achieve for someone on reserve, in particular one that has limited resources, and who has a family that doesn't have assets or resources to provide them either.

Federal programming has been instrumental in providing a piece of equity that helps people get started. It started, I think, with the CCAB strategy in the late 1980s or 1990s. CCAB's strategy looked at the challenges of getting into business on reserve and said, “You will need access to debt capital, and in order to get that capital, you'll need to have some equity programming.” They developed some programming that was very well thought out, useful, and beneficial, and that has spawned a lot of the AFI loans and even some in the conventional sector. That has appeased or reduced some of the costs of capital that they incur.

[Earl Dreeshen, Conservative, Red Deer, AB]

So then is that one of the reasons why you—

[The Chair, Conservative, Blake Richards]

Mr. Dreeshen, I'm sorry, we'll have to stop you there. I did want to leave a little time for the witnesses to finish their responses, but we are over time. Maybe you'll have another chance.

Ms. Bennett, we have you next for the next seven minutes.

[Carolyn Bennett, Liberal, St. Paul's, ON]

Thanks very much, Chair.

Thank you for what you do.

I did sense from you, Mr. Martell, a certain “do no harm” caution in terms of the role of government. I guess you were cautioning the committee not to dive in and make a whole bunch of recommendations that haven't been completely thought through from the bottom-up perspective of what happens on the ground when certain things are put forward. Even in terms of Ms. Whiteduck's suggestion of an SME fund, or the concerns I heard expressed about the FNFA, I think we will be hearing from witnesses about how we can do a better job of getting people credit ratings and trying to do something.

If you were writing this report, what would the recommendations look like?

[Keith Martell]

As I mentioned, I think you really have to consider the continuum. You have two points on a continuum of aboriginal economic development here today. NACCA and its members are developmental lenders. They deal with start-ups. They deal with providing not commercial bankable loans but equity loans to people who are in the start-up phase.

Frankly, the reason that the Saskatchewan Indian Equity Foundation, which is an aboriginal capital corporation, created the First Nations Bank was that they started to see their success leading to contributing customers to commercial banks, and they felt it was important to create the next level in the continuum, which was the First Nations Bank, which is a commercial lending institution. We don't do developmental loans, but I think we bridge the gap between developmental loans and where a business entrepreneur and an aboriginal- focused business will go to get their next level of support.

I think your recommendation has to consider that continuum. To simply say that “we need to create a government program to lend to every first nation in this structure” is going to eliminate all the kinds of capital that are the right kind of capital at the right price and in the right circumstances that every aboriginal business needs. It just puts everybody into the same boat, frankly, and again tied at the hip to government. That's the problem we've had in the past. All the solutions were government driven, and there was no private sector involvement in creating sustainable solutions for aboriginal communities. I would just warn you to not get back into that same boat and try to see if it floats this time.

[Francine Whiteduck]

Certainly, there is a continuum of lenders out there. Keith spoke of it in terms of the AFIs. It's developmental loan, so it's high risk. We're dealing with entrepreneurs who are learning. They've had little or low experience in running a business. They don't have credit. Also, they're start-ups, which, like anywhere, makes them all risky. When you couple that with some of the issues you see on reserve, and even off reserve, for that matter, that really becomes a high-risk loan that we have to work with entrepreneurs to stabilize. That's why capacity building is so important.

The goal of the AFI network is to move those borrowers along this continuum at some time. The price for a developmental loan is higher. There's a charge to it. It really is unfortunate that we have some of the poorest people in a place as rich as Canada paying those high charges on the capital costs to develop businesses that are going to support their communities.

But that's the model we've had to work with. We've made it work. The AFIs have made it work. But we don't want to keep people there. At some point, you want to move them along that continuum. That takes time. It takes a recognition that we are in a developmental phase in aboriginal communities in Canada. That's the role the AFI has played. That's where they segment into this ongoing continuum.

In terms of the AFIs, they've become a little more sophisticated in their lending after 20 years. Their lending was typically limited to $250,000 in loans. Their lending is starting to get a little more complex and a little more sophisticated, so you're going to have some growth there. If you look at aboriginal communities across Canada, you'll see that the needs in terms of developmental lending are great. We see that requirement being there for some time until there's a much more integrated economy within the aboriginal community and the Canadian economy. I think that's happening and we're seeing some successes there in the bigger projects, but it still is going to take some time.

[Carolyn Bennett, Liberal, St. Paul's, ON]

You've said that there's only so much capital and that there could be an SME fund. How would you do that? Who would run it? What would it look like?

[Francine Whiteduck]

The reason I talk about a dedicated fund is that right now the capital is all thrown in there and there's nothing dedicated. It's discretionary. Because a lot of the funding we get is from Aboriginal Affairs, it's discretionary.

If somebody needs to build an infrastructure project in a community, and if the need is great and they manage to get in and convince somebody of this need, the capital that may have been destined for an SME development goes away. I think we've experienced that in some of the programming we have this year in the aboriginal business financing programming. We were talking about a higher level, and somehow a part of that money got put towards something else.

We need to stop that. If we want to have success in the SME sector, we really need to focus on developing it and on guarding some of those resources to assist the developmental components.

[Carolyn Bennett, Liberal, St. Paul's, ON]

Am I hearing from you, Keith, that you think the private sector could be enticed to help with that if there were training and safeguards? That it shouldn't just be government?

[The Chair, Conservative, Blake Richards]

I'll have to ask for that response to be quite brief. We have reached the end of our time.

[Keith Martell]

Briefly, some level of developmental lending is always tough and it's difficult for the private sector. For the same reason that the Atlantic Development Corporation and Western Economic Diversification Canada are government programs, that's effectively what the aboriginal developmental lending really is as well. Some of it's difficult for the private sector to do. It's not a for-profit business.

[The Chair, Conservative, Blake Richards]

Thank you very much.

The next seven minutes belong to Mr. Barlow.

The floor is yours.