Cost of Living

No land? No loan. Why it can be hard to borrow money from a bank if you live on reserve

It can be much harder for First Nations people living on reserve to get a bank loan. Because they don't legally own the land they live on, they can't use it as collateral.

Reserve land can't be used as collateral, which leads traditional banks to shy away from lending

Rancher LouAnn Solway, who grew up on Siksika First Nation in Alberta, turned to the Indian Business Corporation for a loan after she was turned down by various banks in her efforts to expand her business. (Trevor Solway)

LouAnn Solway's love of ranching runs deep. She grew up on Siksika First Nation, about 100 kilometres east of Calgary, and learned how to care for cattle from her father and grandfather.

"I was always supposed to be around cattle, feeding them, watering them and fixin' fences and, you know, making sure all the babies were born," she said in an interview with CBC Radio's Cost of Living.

Solway learned not only about cows, but also horses — used in herding and managing the cattle — and how to be frugal when it comes to animal care. "It was a lot of being creative and self-sustaining."

Solway started off with about 10 head of cattle, inherited from her dad. When she wanted to expand her business, she approached several banks, looking for a loan of between $150,000 and $200,000 — and they all turned her down.

"They all came up with the same thing … you know, 'Sorry,'" Solway said.

The problem she, like many others in similar situations, had run up against was this: First Nations people living on reserve don't legally own the land they live on, as specified by the Indian Act.

Solway's ranch is on the Siksika Nation's reserve. The land is owned by the Crown, and under federal regulations, the bank can't seize it — or the cattle — in the event of a loan default.

To the banks, "it wasn't good collateral," she said, of her land and cattle. "And a lot of times, it was they didn't have a special program in their banks that served Indigenous projects like mine."

Solway said she found it particularly discouraging, because growing up, she often heard non-Indigenous ranching classmates talk about their families going to the bank and getting loans easily.

"And I couldn't see where I was different. Hell, I still pay the way they pay," she said. "But I had to go to a separate entity that's not even a bank."

Solway eventually got a loan through the Calgary-based Indian Business Corporation, an Aboriginal Financial Institution (AFI) that is Indigenous-run and community-based.

That struggle to secure financing is one that Shannin Metatawabin knows well. 

Metatawabin, who is CEO of the National Aboriginal Capital Corporations Association (NACCA), which represents AFIs across Canada, says the problem has deep roots.

"[Colonial powers] basically removed us, gave us an Indian Act that required that we are wards of the state. So we don't even retain any ownership of any land whatsoever," he said.

"So there is no way that a bank can take collateral on that. So there's no generational wealth that you can create. Because in order to create generational wealth, you need access to land, so you can build some equity." 

A man in a grey jacket stands at a podium.
Shannin Metatawabin is from Fort Albany First Nation. He is the CEO of the National Aboriginal Capital Corporations Association, a group representing Aboriginal Financial Institutions across Canada. (Cody Burston)

Why the 'perfect' loan is impossible

Michael LeBourdais is the former chief of the Whispering Pines-Clinton Indian Band in Kamloops, B.C., and the chairperson of the Tulo Centre of Indigenous Economics.

He, too, is a rancher, and knows first-hand the problem of trying to obtain a loan. 

"It's very, very disparaging to First Nations just trying to get a credit card, just trying to start a small business, just trying to keep a cow-calf-cattle operation going," he said.

"We've never owned new equipment. All of our equipment is used … because we have to pay cash for it."

LeBourdais explains that for people who don't have collateral, such as a First Nations rancher on reserve, the bank might require that the loan be backed 100 per cent — what's known as a "perfect" loan.

"You need literally to have bonds, to have stocks, to have gold or something sitting in a safe that the bank feels comfortable that they can snatch up and grab if the loan goes sideways," LeBourdais said.

Michael LeBourdais, a rancher and former chief of the Whispering Pines-Clinton Indian Band in the Shuswap Nation near Kamloops, B.C., is seen here speaking with former B.C. premier Christy Clark. (Darryl Dick/The Canadian Press)

At least one bank specifically cited that challenge.

In a statement to Cost of Living, BMO said that "in the case of someone [whose] collateral is located on a First Nation, the lender needs to understand the limitations and restrictions of the Indian Act, in particular the challenges centred around Section 89." 

The Indian Act, established in 1876 and amended several times, is the law the federal government uses to govern First Nations people in Canada. It is widely criticized for its regressive policies; former prime minister Paul Martin has called it "racist."

Section 89 of the act prohibits the seizure of property held by a First Nations person or band on a reserve by anyone other than an Indigenous person, a First Nations person or a band. That means, in effect, a bank cannot use property there as collateral.

Meanwhile, all five major Canadian banks tout Indigenous banking services on their websites. 

Tom Wallis, senior director of public affairs at CIBC, told CBC in a statement that "as every business is different, lending and credit options will vary."

"While getting a business loan is complex, we welcome Indigenous entrepreneurs to discuss their banking needs with our business and commercial banking advisors. We are committed to finding solutions to the best of our ability," he wrote. 

In a statement to Cost of Living, TD wrote: "TD's Indigenous Banking Group, with regional managers located across Canada, works in collaboration with Indigenous peoples, as well as their governments, businesses and residents to help find the best banking solutions to meet their unique needs while cultivating strong allyship with their communities."

When being known helps you get a loan

Aboriginal Financial Institutions have filled a gap by lending to Indigenous people across Canada, including First Nations people on reserve.

There are 58 AFIs across Canada, including the Louis Riel Capital Corporation (LRCC) in Winnipeg, the Tewatohnhi'saktha Business Loan Fund in Kahnawake, Que., and Ulnooweg Development Group in the Maritimes. 

According to Metatawabin, AFIs have provided 50,000 loans to First Nations, Métis and Inuit, amounting to $3 billion of funding since AFIs started lending about three decades ago. 

NACCA has recorded a 97.7 per cent repayment rate for those loans.

AFIs charge between eight and 12 per cent interest, which is higher than a traditional bank loan. Metatawabin said AFIs operate something like a co-operative, and have historically offered small loans, in the $250,000 to $500,000 range.

Because AFIs are locally administered and are part of their communities, First Nations members in the region will often be on an institution's board of directors, said Metatawabin.

"So these officials are able to give business loans based on, sure, due diligence and business case, but they also go by social understanding of who's who and who's family."

LouAnn Solway now manages about 125 head of cattle at her farm operation on Siksika Nation. (Trevor Solway)

That was Solway's experience with an AFI. She recalls sitting down with the loan officer and starting to give him her history. "He said, 'No, I know your family. Your family is known for [ranching] and you're a good applicant,'" she said.

Instead, he then asked her about her dreams, and Solway told him she wanted to live a ranching life, like her father and grandfather.

That more compassionate approach is what distinguishes working with an AFI, Metatawabin says.

"They're able to work with families if they're having difficulties. There's ups and downs with any business, but [AFIs are] able to utilize that and understand that they have to be kind, be flexible and work with the entrepreneur," he said.

Last year, NACCA launched the Indigenous Growth Fund, a partnership with the federal government, Crown corporations and private partners to provide $150 million in capital to AFIs so they can provide bigger loans to clients.

The first loan — $10 million — went to the Nuu-Chah-Nulth Economic Development Corporation on Vancouver Island in April, which enabled the corporation to offer a client a $2-million loan to purchase a resort. 

Unleashing 'stranded capital'

LeBourdais would like to see Canada move to allow First Nations people on reserve to hold land privately, in a title system. "It will unleash the stranded capital that is land on an Indian reserve," he said.

He knows the move is controversial, and that some fear that such private property could be sold to non-Indigenous people.

"I need people to understand that if we get to own it once, that's more than … what occurred in the last 152 years. We don't own our reserves."

No matter what, Indigenous people are seeking change, and a way to ensure a good life for the future, said Metatawabin. 

"If Canada is looking for prosperity, they have to include Indigenous [people] going forward. Because now you have people like me, who know our place and our role — and we're not going to take no for an answer," said Metatawabin.

"We're going to want to ensure that our kids are not in the same situation going forward."

With the AFI's help, LouAnn Solway was able to grow her herd to about 150 head of cattle. 

She now sees herself passing on the teachings of her father and grandfather to her nieces and nephews. As she recalls telling her loan officer: "My heart is to be out there [on the land] and to carry on what I know and what I like doing." 


Interviews produced by Jennifer Keene, with files from Danielle Nerman.

ABOUT THE AUTHOR

Andrea Bellemare is a reporter and producer with CBC Radio. She helped launch the new CBC Kitchener-Waterloo radio station in 2013 and worked as a producer there for half a decade, reported for CBC Montreal, produced radio documentaries for CBC Radio and covered disinformation for CBC News. She has also reported for the wire service Agence France-Presse.

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