Indigenous and Northern Affairs Committee on May 5th, 2015

[John Barlow, Conservative, Macleod, AB]

Thank you very much.

I appreciate all of you being here today. This is a very important issue and it's great to have your feedback.

Ms. Whiteduck, I want to start with you, if that's okay.

I know that Mr. Dreeshen touched on this a bit, but in another committee we are in the process of completing a study on women's entrepreneurship and leadership in business. I found it interesting that one of the stats we had on it was that almost 40% of small businesses are either completely owned or partially owned by women. In High River, one of the towns in my riding, 80% of the small businesses are owned by women. We're seeing a real trend. They are catching up and surpassing as small business owners.

You mentioned that about 30% of the loans you've given out have been to women. Is this a new trend? Can you say what has sparked this energizing of that part of the business sector?

[Francine Whiteduck]

First of all, way back in the early eighties, they did start tracking how many loans were going to aboriginal women and to youth and taking a look at how we were having an impact. Along with the Canadian trend itself, aboriginal women are following that, although they're behind it.

As I said earlier, aboriginal women play important roles in our community. Very often, their businesses are also family businesses. They engage the husband, the son, or the daughter. Aboriginal women are some of the most resourceful people you will find; they've managed our communities in the state that they are in.

They are participating. In terms of the statistics, some of the issues that women face are different in our communities and for women in general. Addressing those will give them the supports they need. The biggest one—and I think the biggest one that is weighing on aboriginal women in our communities—is that they take care of so much. The load on them is extreme. Typically, when you look at women in general, they run the household, they do a lot of other things, and they're running their business.

I think that first of all because it's very cultural, the women in aboriginal communities have stepped up to play this role they have in leadership in the communities. They are stepping up to that now, learning business, and acting on it. Really, for women, it's about how they contribute to their families. The impact there is big. It's huge. It goes down to the kids. It goes down and it creates the education you need, and as we follow the statistics relative to the Canadian economy, certainly there's a much bigger role in our communities just because of the level of development that is required.

[John Barlow, Conservative, Macleod, AB]

There's the other part of that, which we learned about quite extensively. It's nice to hear you mention that we have $700 million in this year's budget for women entrepreneurs, which is fantastic, but part of that funding and part of that program is mentorship, which we found was very important.

With respect to some of these financial programs, and not just those specifically for women, are there business support programs as part of that? Once they do get a loan, is mentorship available? Are financial literacy programs available not only to get them going but to help them be a long-term success? Kevin is shaking his head, so maybe....

[Francine Whiteduck]

Yes, we have the aboriginal capacity development program, ACD—there are a lot of acronyms in this world—that is available with training in and for the AFIs where they require supports. Some of the AFIs have some mentorship programs that provide the care that is needed for the aboriginal business they may have funded. There are other programs as well. They may not be women-specific, but certainly the care is there.

[John Barlow, Conservative, Macleod, AB]

Thank you.

Do I have a minute?

Mr. Martell, I'm going to switch to you. I may have misunderstood you, but you said near the end of your presentation that commercial banks and commercial financial institutions are starting to get a little more involved. Is that right?

[Keith Martell]

They're very involved.

We deal with many first nations all across Canada. About 90% of our loan portfolio is to aboriginal groups and first nations individuals, and we compete regularly with all the big banks whenever we go to an opportunity. They're all there and they're being quite competitive on price and service.

[John Barlow, Conservative, Macleod, AB]

I'm new to the committee, so this may have been addressed in the past, but what is the difference between what a first nations financial institution can offer compared to a commercial bank? What are some of the differences?

[Keith Martell]

The AFIs are represented by NACCA and are developmental lenders. As Francine said—and she can speak to it better than I—these are for smaller, developmental loans.

Commercial loans are typically what you'd see from existing chartered banks. They need to be on commercial terms and purposes and the ability to repay. They're not equity loans. They're commercial loans. What we provide is that commercial banking, and not only the loans. We also provide deposit services and cash management services. All the kinds of things that make a business run is what the commercial banks and, frankly, our bank offer to first nations aboriginal communities.

[John Barlow, Conservative, Macleod, AB]

What is the challenge for first nations businesses and communities to access commercial banks? Is land ownership an issue, that collateral...?

[Keith Martell]

There are a lot of issues. The Indian Act and the collateral issues there are part of the challenge.

Banks like ours and other banks figure out ways to deal with that. Instead of looking at physical security of an asset on reserve, we look for cashflow security. We're really cashflow lenders. That's what a lot of banks in a lot of parts of the world do, and that's really what we have to do on reserve.

Frankly, the bigger challenge is the developmental nature of a lot of aboriginal business. Even aboriginal communities' first nations governments are just developing their capacity to support, service, and attract capital, and that's probably our biggest challenge.

[John Barlow, Conservative, Macleod, AB]

At the end of your comments, your—

[The Chair, Conservative, Blake Richards]

Mr. Barlow, your time has essentially elapsed.

Thank you.

That concludes our first round of questioning. We'll now move into our second round. Members will have five minutes for each portion of this round. I'll just point out to the witnesses that some members may choose to ask questions or make their remarks in French, our other official language.

Next we have Madam Quach for five minutes.

[Anne Minh-Thu Quach, NDP, Beauharnois—Salaberry, QC]

Thank you, Mr. Chair.

I thank the witnesses for having come here to discuss first nations funding with us.

Mr. Martell, you talked about the difficulty of accessing capital and basic services in remote areas. You also spoke about all of the obstacles in the Indian Act.

Can you tell us what those obstacles are and what consequences they have on indigenous populations?

[Keith Martell]

The largest barrier under the Indian Act is the inability of a financial institution like ours to take security of a physical asset on reserve. Typically, if we were doing a vehicle loan for a grader in a northern non-aboriginal community, for example, we could take a chattel mortgage on that security. If the loan wasn't repaid, we could effectively take that asset back and use the proceeds to repay the loan.

With the Indian Act, we're precluded from taking physical security of physical assets on reserve. Effectively, instead of us being able to take a chattel mortgage on that grader, we have to use innovative things. For example, we have to take the assignment of the contracts that the individual might have with that grader, frankly, because we can't take the physical asset. A lot of first nations will waive that right, frankly, but it is still a barrier for many first nations communities.

That's part of the challenge under the Indian Act. We just have to find ways to get around that detail, but it does create some apprehension from some financial institutions in doing business on reserve.

As far as the remote locations go, it's like every small community. Even in the prairies, frankly, we're seeing that in a lot of small towns the financial institutions are closing and moving to larger centres.

In a lot of the aboriginal communities we deal with, people have difficulty getting just basic financial services, such as a bank account. For example, the government requires banks to get two pieces of picture ID.

Also, in a meeting last week, I mentioned one of the huge barriers. One of the pieces of government-issued identification that a lot of first nations people have is a status card. The Department of Indian Affairs has a policy of one status card per year, so if you lose your card, you effectively have to go for the remainder of the year without that piece of identification, which may make it difficult for you to even get a bank account.

Those are little niches in the system that cause difficulty for an aboriginal person in getting access to banking.

[Anne Minh-Thu Quach, NDP, Beauharnois—Salaberry, QC]

Thank you.

Both you and Ms. Whiteduck spoke about the difficulty of obtaining long-term capital and about the fact that this was mostly startup capital.

What can the federal government do to support aboriginal financial institutions that want to help develop businesses?

[Francine Whiteduck]

Yes, certainly. There is a lot that the federal government can do and that it has contributed to in the past.

I mentioned the equity issue: it's just not there in the community. They don't have the assets that you would find in the non-aboriginal community for people wanting to start up a business. Or if they do have assets, that's all they have. It's very hard to pledge something that is required. Some of the programs have been helpful in recognizing the issues that are faced by people without the pledge and the security. The aboriginal business financing program that we're looking at this year allows us to address some of those issues.

In terms of long-term development, because of the nature of supporting businesses that are high risks, that tend to have a higher failure rate, and that have no credit or proven track records.... These things have to grow. Businesses don't just grow and become successful overnight. It's hard to make those cashflows attractive very quickly. It's something that has to be grown over time. To put that kind of pressure on any business that is a start-up makes it difficult for the business. To me, it's really about longer times, longer incubation periods, for those businesses that are start-ups.

Also, for so much of the aboriginal community, we've been compelled to be successful right off the bat. We haven't had a chance to fail. Or we're judged severely. There were some things I heard about in my travels when I was working at APEC. If you make risk capital available, allow people to fail, and recognize that there are going to be some failures along the way....

Samsung, I think, was the company that tried to grow their products, and what they found was that there was no innovation. That innovation wasn't happening because the fear of failure was so hard to deal with. When they recognized the problem and actually added some capital that allowed people to fail, the innovation expanded considerably. We have to think about that, particularly in aboriginal communities, where so often we can't seem to fail without being judged so intensely.

[The Chair, Conservative, Blake Richards]

Now we'll move to Mr. Seeback for the next five minutes.

[Kyle Seeback, Conservative, Brampton West, ON]

Thank you, Chair.

Ms. Whiteduck, how are AFIs capitalized? Are they capitalized the same as a schedule I bank—based on deposit ratios—or no?

[Francine Whiteduck]

No.

[Kyle Seeback, Conservative, Brampton West, ON]

How are they capitalized?

[Francine Whiteduck]

Do you want to take this, Kevin?

Kevin has been around since day one, so....

[Kevin Schindelka]

There are three kinds of AFIs: aboriginal capital corporations that were capitalized by Industry Canada and Aboriginal Affairs; aboriginal community futures development centres that are capitalized by Industry Canada through regional agencies; and aboriginal developmental lenders that were capitalized by either the private sector or by provincial governments, which are now starting to capitalize some of them.

[Kyle Seeback, Conservative, Brampton West, ON]

So very few are capitalized based on private money or deposits.

[Kevin Schindelka]

Very few: there are no deposits.

[Kyle Seeback, Conservative, Brampton West, ON]

So they're not based on.... What are the lending ratios? Is it just whatever the money they have?