Loan plan irks aboriginal group

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Alan Park is challenging federal loan guarantees for mainstream financial institutions lending to aboriginal businesses.

About 15 years after the federal government provided a $200-million stake to about 50 aboriginal capital corporations, they have turned that into a book of business worth about $1.4 billion.

Since 1993, Tribal Wi-Chi-Way-Win Capital Corp. (TWCC), the largest of three aboriginal capital corporations (ACCs) operating in the province, has reinvested its original $7-million stake about five times and now manages a $34-million loan portfolio.

But as Alan Park, the chief executive officer of TWCC said, that has been accomplished through the school of hard knocks.

That is why Park is beside himself over a program quietly introduced last year by Indian and Northern Affairs Canada (INAC) that has provided close to $15 million in loss guarantees for loans to aboriginal businesses. Four mainstream financial institutions across the country are participating, including Assiniboine Credit Union, which received $2.8 million.

TWCC is in the process of filing an application in the Federal Court of Canada for a judicial review of the program as well as formal complaints with the federal Treasury Board and Auditor General.

Among other things, TWCC claims that the federal government has not engaged in sufficient consultation with the aboriginal community.

"It's like building a two-lane highway through Peguis and not talking to the people of Peguis first," Park said.

But more than that, Park and others see it as further example of double standards used when it comes to financial dealing with aboriginal and First Nations enterprises.

"We have been beating our brains out for 20 years now," he said, referring to the high transaction costs associated with many aboriginal business loans. "The credit unions can make these loans by choice and now they have a risk-free golden brick road."

The idea behind the ACCs was to provide market-rate loans to aboriginal-owned businesses, who were woefully underserved by mainstream financial institutions for all sorts of reasons.

Not the least of those is because of section 89 of the Indian Act, which says that non-aboriginal-owned banks or companies cannot use reserve lands or property as security for loans.

That continues to keep traditional lenders away and ultimately has contributed to the dismal rate of economic development on many First Nations.

An INAC spokeswoman said she could not comment on TWCC's legal action but said the new Loan Loss Provision Initiative was designed to encourage more lending in areas where financing has traditionally been difficult.

But over the years the ACCs have emerged as a bona fide success story.

Steve Morse, the chief operating officer of the National Aboriginal Capital Corporation Association, said its members have a very respectable loan loss rate of about seven per cent. It has recently been reported that a national, mainstream small business loan loss program has generated a loss rate of about 40 per cent over the past 10 years.

Morse said businesses the ACCs lend money to have a 58 per cent success rate, compared to a national rate of about 33 per cent.

Granted, TWCC and the other ACCs received their initial funding from the federal government along with about three years worth of subsidies for administrative costs. But from then on they have been on their own.

In TWCC's case, it has created some additional revenue-generating businesses -- a call centre and personal finance service offering -- to help off-set the high costs of doing small loans to aboriginal agricultural enterprises, convenience stores and other small businesses.

But TWCC has no access to any kind of loan loss guarantees of any kind.

"It has not been a bed of roses," he said. "We have had our challenges."

Randa Stewart, a spokeswoman for Assiniboine Credit Union, said the program seemed to fit with its interests and commitments to the aboriginal community and its intentions are to try even more loans to aboriginal businesses.

Park said he has nothing against the Assiniboine Credit Union, but he does not think the federal government's new program is in keeping with the overall efforts in enhancing aboriginal economic development.

"The profits on the loans and the fees they will charge will go to ACU's members and out of the community like it always has," he said. "Our loans get turned over and lent back out. That is economic development."

martin.cash@freepress.mb.ca

Republished from the Winnipeg Free Press print edition January 7, 2010 B4