Thank you, Madam Chair.
Committee members, thank you very much for your time this morning.
My presentation is going to focus on up-front safeguards. The First Nations Fiscal Management Act is a modern-day equivalent to what provinces and municipalities have enjoyed for a long time.
Chartered banks, when they lend money, lend it based on a collateral approach. The problem with collateral is that it is a post-problem solution. In other words, something occurs to a first nations budget, either through overspending or a default on a loan, and then the collateral comes on.
When the First Nations Fiscal Management Act was created, it was the result of a desire that first nation chiefs, councils, and members set up a solution whereby safeguards would be put in place before problems occurred. My presentation is going to focus on what we've established by way of up-front safeguards, so that intervention is not needed and economic growth can occur.
Our mandate under the First Nations Fiscal Management Act is to create a structure that allows first nations communities from coast to coast to voluntarily put up their hand and get scheduled according to the act. When that occurs, they have to knock on Harold's door first. There's a process before they can become a member and there's a process for acquiring loans. The reason for this is that we borrow as a pool. Right now there are 207 or 211 first nations, depending on how many are pending, and that's fully one-third of the first nations across Canada who say they would like to use this model. The approach is that every first nation that joins has to meet the same high-jump requirements. They have to meet certain financial ratios and economic ratios; they have to have budget, finance, and audit committees; and they have to maintain surpluses, or close to surpluses, as we monitor them each year.
There's a process to becoming a member. This is a holistic approach. We don't just provide a loan and hope it gets repaid. It's a holistic approach to take communities and improve their internal capacity, to monitor them, and to provide safeguards on loans going forward.
We do not work in a vacuum at FNFA. All of our processes are vetted by rating agencies prior to loans going out. You've probably heard of Moody's and Standard & Poor's. The loans are vetted by our own legal counsel, who has to give an opinion on the loans. They are vetted by our banking syndicate's legal counsel. The banking syndicate is the six chartered banks and the capital markets divisions of those banks. The loans are also vetted by investors.
We have a whole process with checks and balances prior to our board's even putting up their hand and having a unanimous vote on whether a loan goes out. That's what I mean by a holistic approach. We make sure everything is okay and then give a loan. We do not take collateral, by the way. We focus on up-front safeguards and work from there. It's a different approach, but it's a modern-day approach.
We have mechanisms to establish safeguards to prevent loan defaults. Our board is made up of chiefs or councillors from seven different provinces, and they must be unanimous in both accepting a member and in approving a loan. Having a unanimous board requirement means that up-front safeguards must be very strong.
We have over 200 first nations. There's very strong support in the west. The idea was centred in the west originally and fluctuated through there. Since 2012 , when first nations were allowed to use their own revenue sources to support loans, growth has been from Alberta eastward. We now operate in 8 out of 10 provinces—we have none in Newfoundland, and none in P.E.I. We have one territory in the Northwest Territories. So it's fairly well distributed.
The acceptance of the First Nations Fiscal Management Act is increasing, not only in terms of numbers—69 in 2012, and 207 at the end of 2016—but also in terms of the rate of increase, which is growing. This is presenting us not only with a happy story but also with challenges on our staff to accommodate as they line up in front of the door.
Page 6 has a breakdown of our loans right across Canada since 2014. The first nations we have lent to have used their own monies. I want to make sure that's clear. These are not monies from Canada that have been leveraged into loan; these are their own-source monies. Where they have needed community priorities to be completed, they have looked at their budgets and worked with us to make sure their own monies can support these loans going forward.
Page 7 is a summary of what they've done with the monies we have lent. As of right now, we have lent $343 million. There's another $77 million pending, and that's in the last two and a half years. There have been 71 new houses built and 30 remediated, and that's with their own monies. They have built a new school rather than wait for Canada to find the cash, pay as you go. They've built wellness centres, recreation centres, administration buildings, paved roads, etc.
With a lot of these communities, if you look at them today, as a result of their own monies being leveraged through the First Nations Fiscal Management Act, they're starting to look like towns. That's the whole goal of this.
The other objective is economic development. Where they're seeing economic projects they can participate in, they are also borrowing for those purposes. We have done five green energy projects: run of river, solar, and wind projects. Mashteuiatsh in Quebec has participated in the largest wind project in Canada, and we lent money for that about four months ago. The projects are not just for infrastructure or buildings, but also for economic development, which then can be leveraged into future loans.
There was also a purchase of land. When we lend for land, there are no restrictions on the community. They can go straight into putting it into reserve status. If a bank lends, they put a collateral against it and it is tied up. It cannot be added to reserve. That's one of the reasons we do not take collateral. There are safeguards in place, but there are also benefits in place.
On page 9, if you ask where the first nations get their monies to leverage, each province has revenue-sharing agreements with the communities within their provincial boundaries. We contacted each of those provinces a number of years ago and asked if they would be willing to work with us to set up a structure for loans that would help prevent loan defaults. Each of those provinces put up their hands and said yes, we will, because the monies will then be spent back in their provinces for their projects.
It's a simple program. Where the first nation used to receive money directly from the provinces, the provinces have agreed to take those monies. The first nation has sent them a letter requesting that they do that and transfer those monies directly into a trust account. That trust account is run by a Canada-wide organization called Computershare, and Computershare does two simple things with the monies. They ask FNFA what is required to pay the loan—this is an upfront safeguard—and we get the money to cover the loan payment. The balance within 48 hours is transferred back to the first nation to spend it however they want under their budget. It is called a revenue intercept approach. It was agreed to by Bay Street and Wall Street; it was agreed to by investors, and it was agreed to by first nations.
Now with regard to the benefit of that, if you go to page 10, these types of revenues that are intercepted can now be leveraged. FNFA sends a letter to each chief and council that outlines, based on each community's revenue streams, what amount they can borrow. That letter is like a line of credit. Chief and council then know under the safeguards upfront that they can spend to meet community priorities up to their borrowing capacity. This allows them not just to do one year at a time, but to do multi-year planning and multi-year projects.
Page 11 is a summary of what this looks like. I have one more page after this. Right now, the provinces—and some little bit from Canada—send $70 million into the trust account. We keep about $11 million of that. The other $59 million goes back to the community to spend how they want, but when you have a coverage ratio of 7.14 times—in other words, seven times more money being intercepted than needed to pay the loan—that upfront safeguard of revenue intercept means no loan defaults.
We have been operating loans for five years now and have never had to call upon Harold's shop for help.
On the last page, we lend at below the bank prime rate. By having these safeguards up front, we do not have a profit motive. Our loans are actually a rates below what the banks' best customers get at prime.
We also have long-term programs that allow the loans to match the maturity of the assets. You have a process whereby the loan is being paid over the asset life. This is a modern-day solution, but one set up to meet the needs of first nations to allow them to grow and also to ensure that there are no problems once the loan is given.
Thank you, Madam Chair.