Driving growth
Indigenous banking a bright spot as capital flows into communities
TORONTO — From complex energy-sector investments to infrastructure projects and businesses, the increase of capital flowing into Canada’s Indigenous communities represents a bright spot for the country’s big banks.
Deposit levels and loan demand in Indigenous communities are higher than ever while projects seeking financing from banks have evolved, said Dale Sturges, Royal Bank of Canada’s national director of Indigenous banking.
“The types of loans that we are being asked to support are much more complex and larger in size than they’ve ever been before,” he said.
RBC has seen total volume growth in loans and deposits within its commercial Indigenous segment of 18 per cent from December 2017 to December 2018, the bank added.
Many financial institutions such as the Bank of Montreal, Royal Bank of Canada and the Canadian Imperial Bank of Commerce have invested time and energy into the fast-growing segment, establishing on-reserve branches and dedicated business arms over the years.
Capital and income in Indigenous communities have risen alongside the rise of landclaim
settlements, bankers say.
“Typically, we would have seen maybe 10 years ago, loan requests to support infrastructure or small economic development projects within a community,” said Sturges. “And now, we would be seeing very substantial requests for loans ... Building in the oil patch for example, a lot of activity that is related to the energy sector.”
The total amount of personal and business income within Canadian Indigenous communities totalled about $33 billion in 2016, nearly triple from $12 billion in 2001, said Brent Mainprize, a professor at the University of Victoria’s Gustavson School of Business who teaches entrepreneurship and Aboriginal economic development.
“If you just think of the purchasing power of Indigenous people and Indigenous businesses, it’s really growing very fast,” Mainprize said. “A lot of things are driving the growth. One is that Indigenous people are getting back their rightful resources in a way that is enabling them to start to fully participate in the economic environment, in a way that probably hasn’t been that easy in the past.”
Claims with the federal government are being settled at a “much faster pace than ever before,” said Sturges. But Indigenous communities are also negotiating leasehold agreements and impact benefit agreements which are also generating income, he added.
In turn, the bank has seen “quite significant” growth on the deposit side among Indigenous groups due to the transfer of wealth, he added.
Another factor is an increase in procurement policies which prioritize sourcing services and supplies from Indigenous businesses, said Alicia Dubois, CIBC’S market vice-president of Indigenous Markets. In turn, new Indigenous ventures are popping up to respond to the demand, she added.
“There’s a recognition for large institutions, and that includes CIBC, that diversity within the supply chain makes for a very healthy robust economy,” she said. “Engaging Indigenous businesses as part of the supply chain is another means for there to be significant economic growth within the Indigenous economy.”
Indigenous communities have long expressed a desire to increase their economic participation, but it is only in the past few years that banks are seeing large proposals that are workable, Sturges said.
One complicating factor involves the process banks use to lend to customers, which aren’t easily applied in Indigenous communities.
Most lending is asset-based, where a home or land is used as a loan’s collateral. That works in parts of Canada where the Land Titles Act applies, but Indigenous communities are subject to land ownership rules under the Indian Act which do not allow for the ability to borrow against their homes.
Circumstances vary depending on whether communities are involved in treaty process or title cases, but in a band council system an individual is typically provided housing from the band, said Mainprize. That may provide a certificate of ownership, but it doesn’t allow the bank to take the title if the person defaults on their loan.
“That becomes problematic. Even though you are living in a house, the bank doesn’t necessarily have the authority to get control of that property if they need to. So that’s really a challenge,” said Mainprize.
Given that 80 per cent of entrepreneurs tap into wealth associated with a home or property to fund their ventures, that inability to borrow against their home is a disadvantage, he said.
“Through our history, we made it impossible for Indigenous groups to actually have something they could pledge ... That conspired against success from even being possible,” Sturges said.