Evidence of meeting #39 for Indigenous and Northern Affairs in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was business.
A recording is available from Parliament.
Conservative
Kyle Seeback Conservative Brampton West, ON
Would you say that your screening of people who qualify is more or less or equally as stringent as for those going to a bank? Or is it less—
Chairman and Chief Executive Officer, First Nations Bank of Canada
No. It's different.
Conservative
Kyle Seeback Conservative Brampton West, ON
I know it's different. It has to be. But would you say they're comparable?
Director, Corporate Development, National Aboriginal Capital Corporations Association
Not really.
Chairman and Chief Executive Officer, First Nations Bank of Canada
They're similar.
Conservative
Kyle Seeback Conservative Brampton West, ON
They're similar? So let's just go off on a tangent here. If a first nation business had equity and applied for a loan from a bank or applied for one of the programs, do you think the acceptance would be reasonably similar? I'm just trying to see—
Chief Executive Officer, National Aboriginal Capital Corporations Association
I doubt it, because I think the banks look at things such as the experience that you're bringing to the organization, the—
Conservative
Kyle Seeback Conservative Brampton West, ON
I'm trying to see if you're like the lender of last resort.
Chief Executive Officer, National Aboriginal Capital Corporations Association
We are a lender of last resort.
Chairman and Chief Executive Officer, First Nations Bank of Canada
They are.
For example, if we get a loan that is marginal to qualify for our purposes, we may actually partner on some of those loans with an AFI. There are aboriginal capital corporations, for example, that we work with to bridge a client who is almost out of their system and almost into ours.
Chairman and Chief Executive Officer, First Nations Bank of Canada
They may put in a little more of the risk capital and we may do the commercial loan and together it works. But our whole attempt, between the AFIs and ourselves, is to keep moving that business up the chain.
Conservative
Kyle Seeback Conservative Brampton West, ON
I want to quickly go back to one of the comments you made in your statement, Mr. Martell. I found it very interesting. I recall that Ernie Daniels, when we had him here on March 12, was talking about Membertou First Nation saving—I'm trying to find it here, and I had it and now I've lost it—$140,000 a month.
Conservative
The Chair Conservative Blake Richards
Unfortunately, Mr. Seeback, in your effort to find the information you required, we have run out of time. Maybe we'll have another minute or two for you later.
Ms. Hughes, the next five minutes are yours.
NDP
Carol Hughes NDP Algoma—Manitoulin—Kapuskasing, ON
Thank you very much.
I certainly think the First Nations Land Management Act is working fairly well for many first nations. I think the concern we've seen with the program is that not everybody has been able to buy into it at this point. I believe that's what my colleague was talking about with some of the concerns he had.
There's quite a bit that I want to discuss, but I don't think I'm going to have a lot of time.
Andrew Beynon, who is the acting assistant deputy minister for lands and economic development, was before us on February 24, 2015. He mentioned that “it may be useful to explore ways to strengthen the network of aboriginal financial institutions, including ways to promote their self-sufficiency, introduce additional capital, and have them act as a continuing source of financial literacy for aboriginal businesses and communities”. In his remarks, he went on to say, “Pending the Department's findings, the Committee may wish to learn more about Indigenous Business Australia and its applicability for Aboriginal access to capital in the Canadian context.”
Do you have some comments to make about Indigenous Business Australia and how that compares with us? Are there some things we can learn and consider? Do you feel that there's a way for the government to strengthen the network of aboriginal financing in promoting the self-sufficiency of introducing additional capital?
Chairman and Chief Executive Officer, First Nations Bank of Canada
We have spoken to representatives in a number of programs and aboriginal development organizations in other countries. Although we always have something to learn from other countries, the circumstances are always different.
Frankly, my experience of Australia is that a lot of their programs are sort of where our programs were in the seventies with first nations here in Canada, so it's hard to make a comparison. With respect to a lot of the representatives you talk to from aboriginal governments in Australia, you end up talking to a bureaucrat, frankly, so it's like the Indian agent situation.
It's hard to make comparisons even though they're doing some things that are more innovative than what we have here. Their structure around their aboriginal groups is quite significantly different from ours today.
NDP
Carol Hughes NDP Algoma—Manitoulin—Kapuskasing, ON
But he did indicate as well how we can “strengthen the network of aboriginal financing institutions” and how we can “promote self-sufficiency“. Based on the fact that he's made those comments, I'm just wondering if there some recommendations that you would like to see going forward to the government as to how we can do that—because you are the key players.
Chief Executive Officer, National Aboriginal Capital Corporations Association
One of the things we are starting to look at this year in a much more significant way than we have in the past is really the standards accreditation within the AFI network itself. We're looking at really increasing the capacities there and focusing on how they look at risk.
You could talk about some of the standards we use, Kevin.
Director, Corporate Development, National Aboriginal Capital Corporations Association
This goes back to a question about the difference between an AFI and a conventional institution in approaching a deal. A conventional institution has a lower level of risk tolerance than an AFI because they have the cost of funds in addition to the cost of capital—or it becomes part of the cost of capital—while AFIs don't have a cost of funds at this point. They aren't borrowing. They're able to take on a greater level of risk than a conventional institution can.
Also, rather than being developmental, if a client doesn't have the on-tap knowledge to run a particular business but the concept is good, they will coach and mentor the client through the business development process. They're developing entrepreneurs and businesses or assisting in developing them. Our counterparts or peers in the conventional industry can't afford to do that. It's just too costly.
Conservative
Conservative
Kyle Seeback Conservative Brampton West, ON
I found what I was looking for. It was “$140,000 per month with...financing through the capital markets as compared to their previous loans through banks as retail” consumers, which was “enough savings to build one new house each month”. That was a summary of the transcript of what we heard from Mr. Daniels.
You seem to be suggesting that this isn't the sort of miracle that I perceived it to be when I was sitting at the committee and was quite impressed by it. Explain to me in a little more detail what you see as the problem with what they did, because I thought it was very innovative for them to be taking different streams of revenue and effectively leveraging them into something else. They were hoping that they could put more revenue streams into that, such as licensing and other stuff.
You seem to think this is not a good idea. Why is that?
Chairman and Chief Executive Officer, First Nations Bank of Canada
It works for municipal governments, provincial governments, and the federal government to take government-like revenues and use government bonds to finance infrastructure. That's what the fiscal institutions were created for, and they still have a place and a role to play in that part of the continuum.
What they have started to do, though, is take, as you said, commercial revenue—revenues from forestry leases and oil and gas and corner stores and bingo halls—and fold it into the bonds they're issuing. The problem with that is.... We're a commercial lender, and we do that every day all day long, and when you look at those kinds of businesses, you look at the capacity to repay, at the risk, and at the term of the loan. As I mentioned, the term is very important.
Effectively, what the FNFA is doing is rolling all of those revenues into one bond that is amortized over 30 years. In the example you gave, they talk about saving $140,000 a month, but when you actually put it into a spreadsheet and calculate it, a majority of their savings is coming from not paying the principal back.
Conservative
Chairman and Chief Executive Officer, First Nations Bank of Canada
If you take five-year and ten-year loans and refinance them as 30-year loans and spread payment out over 30 years, your actual cost of borrowing, which is your interest, is really much greater. It's like taking—
Conservative
Kyle Seeback Conservative Brampton West, ON
Right. It's like taking a mortgage on your house that's a 30-year mortgage.