Indian and Northern Affairs Canada (INAC) are trying to justify exclusion of Aboriginal Financial Institutions (AFI) and Aboriginal Capital Corporations (ACC) from accessing a private banking Loan Loss Reserve Fund (LLR), essentially demoting them to a second class lender for aboriginal institutions. However their position is weak and ignores the truth.

What’s Wrong with the INAC Assumptions

A central position in the INAC reasoning on the Loan Loss Reserve Fund selection is that AFI’s cannot administer loans over $250,000. The reality, however, is that a significant majority of Aboriginal Capital Corporations (ACCs) and private sector funded AFIs do in fact provide loans larger than $250,000.

These include

Alberta Indian Investment Corporation
Burns Lake Native Development Fund
Clarence Campeau Development Fund
Indian Business Corporation
NWT Métis-Dene Development Fund
Northern Enterprise Fund
Saskatchewan Indian Equity Fund
Tribal Wi-Chi-Way-Win Capital Corporation
Ulnooweg Development Group

etc.

Another government position is that private lending institutions are the only ones able to handle high end financing, out of the range of ACC/AFI lending. This too is a selective distortion of the truth.

In fact there have only been five loans to date by private lenders through the LLR program; only one of which has been outside the long standing AFI mandates.
The single loan was for $2 million with the remaining four being between $250,000 and $375,000.

So 80% of the loans provided under LLR Programming were within the standard AFI loan practices.

Non-Aboriginal Lending Weaknesses

More significantly, conventional lenders appear to lack an overall efficiency and accessibility in making funds available to the client base. While $15.5 million was given to the LLR program within the last year (2008-09), only a little over $3.2 million was delivered in client loans. This poor market penetration reflects both convention lenders lack of motivation and the undesirability of convention lenders to the client base. In the same period AFIs provided 1,250 loans totalling in excess of $100 million.

Aboriginal Lending is Superior to Non-Aboriginal Lending

Aboriginal managed lending has proven to be more successful than any INAC managed lending processes. The precursor to Aboriginal Financial Institutions (AFIs) was the Indian Economic Development Fund (IEDF), an Indian and Northern Affairs Canada (INAC) program delivered directly to Aboriginal people through the INAC Regional office network. IEDF provided limited loan activity and extensive write offs which reportedly averaged 25% over the life of IEDF Programming. In drastic contrast, AFI write offs have averaged 6.37% over the past 25+ years.

If anything, AFI/ACC lending is also currently superior to conventional banking within aboriginal communities. In response to AFI/ACC achievements, INAC instead wants the private non-aboriginal banks to not just have a bigger bite of the apple but virtually the whole apple. In order for this to happen, AFI’s are being selectively disadvantaged in the marketplace through offers of loan guarantees to non-aboriginal institutions. To further add insult to injury, INAC is using aboriginal money to provide this double standard.

It is difficult, if not impossible to find any true and valid justification for INAC to provide for non-aboriginal loan guarantees to private institutions, especially without full and equal provisions to AFI/ACCs, and particularly in light of the past history of the failures of INAC and non-aboriginal lending. It makes no sense to bury successful operations in favour of propping up riskier programs.