    [Senate Hearing 107-991]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 107-991

                      CAPITAL INVESTMENT IN INDIAN COUNTRY

    =======================================================================

                                    HEARING

                                   before the

                     SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

                                     of the

                                  COMMITTEE ON
                       BANKING,HOUSING,AND URBAN AFFAIRS
                              UNITED STATES SENATE

                          ONE HUNDRED SEVENTH CONGRESS

                                 SECOND SESSION

                                       ON

    CAPITAL INVESTMENTS IN TRIBAL COMMUNITIES, FOCUSING ON EXPANDING TRIBAL
      LAND HOMEOWNERSHIP, OVERCOMING BARRIERS TO CAPITAL ACCESS ON TRIBAL
        LANDS, AND RELATED FINDINGS OF THE NATIVE AMERICAN LENDING STUDY

                                   __________

                                  JUNE 6, 2002

                                   __________

      Printed for the use of the Committee on Banking, Housing, and Urban
                                    Affairs

    90-371              U.S. GOVERNMENT PRINTING OFFICE
                                WASHINGTON : 2003
    ____________________________________________________________________________
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                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      PAUL S. SARBANES, Maryland, Chairman

    CHRISTOPHER J. DODD, Connecticut     PHIL GRAMM, Texas
    TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
    JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
    CHARLES E. SCHUMER, New York         WAYNE ALLARD, Colorado
    EVAN BAYH, Indiana                   MICHAEL B. ENZI, Wyoming
    ZELL MILLER, Georgia                 CHUCK HAGEL, Nebraska
    THOMAS R. CARPER, Delaware           RICK SANTORUM, Pennsylvania
    DEBBIE STABENOW, Michigan            JIM BUNNING, Kentucky
    JON S. CORZINE, New Jersey           MIKE CRAPO, Idaho
    DANIEL K. AKAKA, Hawaii              JOHN ENSIGN, Nevada

               Steven B. Harris, Staff Director and Chief Counsel

                 Wayne A. Abernathy, Republican Staff Director

                      Martin J. Gruenberg, Senior Counsel

                        Daris Meeks, Republican Counsel

       Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator

                           George E. Whittle, Editor

                                     ______

                     Subcommittee on Financial Institutions

                      TIM JOHNSON, South Dakota, Chairman

                    ROBERT F. BENNETT, Utah, Ranking Member

    ZELL MILLER, Georgia                 JOHN ENSIGN, Nevada
    THOMAS R. CARPER, Delaware           RICHARD C. SHELBY, Alabama
    DEBBIE STABENOW, Michigan            WAYNE ALLARD, Colorado
    CHRISTOPHER J. DODD, Connecticut     RICK SANTORUM, Pennsylvania
    JACK REED, Rhode Island              JIM BUNNING, Kentucky
    EVAN BAYH, Indiana                   MIKE CRAPO, Idaho
    JON S. CORZINE, New Jersey

                        Naomi G. Camper, Staff Director

                 Michael Nielsen, Republican Professional Staff

                                      (ii)
    ?

                                C O N T E N T S

                                  ----------

                             THURSDAY, JUNE 6, 2002

                                                                       Page

    Opening statement of Senator Johnson.............................     1
        Prepared statement...........................................    32

    Opening statements, comments, or prepared statements of:
        Senator Sabarnes.............................................     3
        Senator Carper...............................................    15

                                   WITNESSES

    Franklin D. Raines, Chairman and Chief Executive Officer, Fannie
      Mae............................................................     5
        Prepared statement...........................................    33
    Rodger J. Boyd, Special Assistant to the Director, Community
      Development Financial Institution Fund, U.S. Department of the
      Treasury.......................................................    15
        Prepared statement...........................................    38
    J.D. Colbert, President, North American Native Bankers
      Association....................................................    18
        Prepared statement...........................................    45
    William V. Fischer, President, American State Bank, Pierre, South
      Dakota.........................................................    20
        Prepared statement...........................................    46
    Michael B. Jandreau, Chairman, Lower Burle Sioux Tribe, South
      Dakota.........................................................    22
        Prepared statement...........................................    48
    Elsie Meeks, Executive Director, First Nations Oweesta
      Corporation....................................................    23
        Prepared statement...........................................    50

                  Additional Material Supplied for the Record

    Letter submitted by John Yellow Bird Steele, President, Oglala
      Sioux Tribe to Senator Johnson, dated May 31, 2002.............    53
    Statement of the Coalition for Indian Housing and Development....    58

                                     (iii)

                      CAPITAL INVESTMENT IN INDIAN COUNTRY

                                  ----------

                             THURSDAY, JUNE 6, 2002

                                   U.S. Senate,
      Committee on Banking, Housing, and Urban Affairs,
                         Subcommittee on Financial Institutions
                                                        Washington, DC.

        The Subcommittee met at 10:02 a.m. in room SD-538 of the
    Dirksen Senate Office Building, Tim Johnson (Chairman of the
    Subcommittee) presiding.

                OPENING STATEMENT OF SENATOR TIM JOHNSON

        Senator Johnson. The hearing will come to order.
        Today, we are holding a hearing on Capital Investment in
    Indian Country. I want to thank all of the witnesses in
    attendance at today's hearing for providing testimony on the
    critically important issue of bringing more capital investment
    to Indian Country. Also, I am encouraged by the number of
    people in the audience who obviously have an interest in what
    we are doing. In particular, I would like to thank, and note,
    that John Steele, President of the Oglala Sioux Tribe in South
    Dakota is here today. President Steele is testifying this
    afternoon before the Senate Energy and Natural Resources
    Subcommittee on Water and Power, and I am pleased that he is
    able to join us here this morning for this important Banking
    Subcommittee hearing.
        In spite of the recent economic downturn and some
    uncertainty in the capital markets, most Americans can look
    forward to continued prosperity. However, an important segment
    of the population--about 2.7 million Native American and Native
    Hawaiian people living in the United States--have never fully
    shared in America's wealth and economic growth. In order to
    resolve this disparity and create meaningful and sustainable
    economic growth, we need to continue to look at innovative
    strategies and draw, not only on the resources of Federal and
    State governments, but also private capital markets.
        Part of the reason that I wanted to hold this hearing under
    the auspices of the Financial Institutions Subcommittee is to
    emphasize the importance of access to private sources of
    capital. I wanted this hearing to be less focused on Government
    subsidies, although they are important, and more focused on the
    role that private financial intermediaries can have in creating
    and sustaining a viable economic infrastructure on Indian
    Lands.
        Consider the following statistics. According to the U.S.
    Department of Commerce, unemployment rates on Indian Lands in
    the continental United States range up to 80 percent, compared
    to 5.6 percent for the United States as a whole. Census data
    also show that the poverty rate for Native Americans during the
    late 1990's was 26 percent, compared to a national average of
    12 percent. In fact, overall, Native American household income
    is only three-quarters of the national average.
        This disparity is particularly evident in my home State of
    South Dakota, where Native Americans represent over 8 percent
    of our State's population. While the overall State economy is
    relatively strong with, for example, a low 3.1 percent
    unemployment rate, the Native American population continues to
    suffer. South Dakota counties with Indian reservations are
    ranked by the U.S. Census Bureau as among the most impoverished
    anywhere in the United States.
        In light of this unacceptable economic disparity, I believe
    it is important to address this issue in a comprehensive
    manner. And at this hearing, we will consider such issues as
    mechanisms for providing small business capital, means for
    fostering the growth of Native American-owned financial
    intermediaries, incentives for
    financial institutions to provide services on Indian Lands,
    ways to encourage personal savings, and vehicles for improving
    financial literacy.
        In essence, the purpose of this hearing is to explore what
    this Committee can do to facilitate and expand the private-
    sector economy in Indian Country. To accomplish this, tribes
    and enrolled members in the reservations must have access to
    private capital and the wherewithal to put it to good use.
        Presently, I am working with my colleagues in Congress on
    an array of initiatives to promote capital investment in Indian
    Country, including the Native American Small Business Act that
    creates a statutory Office of Native American Affairs and
    establishes a related assistance program, reauthorizing the
    Native American Housing Assistance and Self-Determination Act
    to allow low-income housing tax credits to work more
    effectively with block grants, cosponsoring the Indian
    Financing Act amendments which will create a secondary market
    for small business loans, sponsoring the Indian School
    Construction Act, which establishes a pilot program under which
    eligible Indian tribes have the authority to issue bonds to
    fund construction. Also, one provision in the American Indian
    Welfare Reform Act expands tribal authority to issue tax-
    exempt private activity bonds for residential rental
    properties, qualified mortgage bonds and, in some
    circumstances, enterprise zone businesses. I am a proponent of
    broadening the availability of individual development accounts,
    or IDA's. And, finally, I want to mention the Wakpa Sica
    initiative, which a number of us are working hard to make a
    reality, including, notably, two of today's witnesses, Chairman
    Michael Jandreau and Bill Fischer of South Dakota. One of Wakpa
    Sica's goals is to improve the court system on the reservation
    to facilitate private-sector lending.
        There is a great deal more that can be considered and I
    look forward to hearing any thoughts and ideas from the
    distinguished panels that we have here today.
        I have one more thought, however. And that is the concept
    of tribal sovereignty needs to remain central to the integrity
    of the reservations, and we must do everything that we can to
    protect that tribal sovereignty. I am concerned about the
    viability of sovereignty in the long run, if we do not succeed
    in laying the groundwork for a viable private-sector economy on
    Indian Lands through initiatives such as the ones that we are
    going to discuss today.
        I am pleased that the Chairman of the Senate Banking
    Committee can be with us this morning. I know that he is under
    a great deal of pressure with conflicting obligations that he
    is going to have to attend to. But I think it speaks to the
    significance of the issues that we are dealing with today that
    Senator Sarbanes would be here.
        And I would recognize the Chairman for any opening
    statement that he might have.

                 STATEMENT OF SENATOR PAUL S. SARBANES

        Senator Sarbanes. Thank you very much, Senator Johnson.
        First, I want to commend Senator Johnson for holding this
    hearing on what I consider to be a very important topic of
    capital investment in Indian Country.
        In fact, one of the top priorities of this Committee under
    my leadership has been the challenge of bringing all Americans
    into the financial mainstream. And I thank Senator Johnson for
    continuing that effort and focusing attention on the
    initiatives being undertaken by the Government, financial
    institutions, and others, to address the historic and
    geographic barriers that leave large segments of the Native
    American population outside of the financial mainstream.
        We want to address this problem. And Senator Johnson's
    initiative in launching these hearings is extremely important
    in trying to accomplish that objective.
        We actually have learned from a series of hearings at the
    Full Committee level that access to capital and credit are
    essential for Americans seeking to fully participate in our
    increasingly complex financial services system.
        Native American communities have been particularly impacted
    by the lack of access to wealth-building capital and equity
    investments. Rural Native Americans suffer high rates of
    poverty and homelessness. They have a severe shortage of decent
    housing, as well as very low homeownership and small business
    ownership rates.
        Now these ownerships, both of homes and businesses, serve
    to stabilize communities and to fuel economic growth all across
    our country. It is important that we address, as Senator
    Johnson is doing with this hearing, the situation on Indian
    Lands.
        Native Americans that do gain access to credit often pay
    exorbitant rates and fees charged by predatory lenders, which
    is an issue that this Committee has paid increasing attention
    to.
        Federal initiatives, such as the Community Development
    Financial Institutions Fund, the low-income housing tax credit,
    laws such as the Community Reinvestment Act, have encouraged
    partnerships between Government, financial institutions,
    investors, and nonprofit organizations. And they have resulted
    in improvements in many Native American communities. However,
    much more work needs to be done.
        For instance, we need to encourage more banks to locate on
    or near Native American reservations. We need innovative
    financing techniques to make mortgage lending easier on Indian
    Lands, incentives to encourage more business development, many
    of the things which Senator Johnson mentioned in his opening
    statement which he is working on in the Congress.
        Now, a comprehensive study conducted by the Department of
    the Treasury's Community Development Financial Institutions
    Fund, the report of the Native American Lending Study, has
    identified many of the key barriers to accessing capital and
    equity investment on Indian Lands.
        We think this study should prove useful as policymakers,
    financial institutions, investors and others continue to seek
    solutions to the special problems of underserved Native
    American communities.
        I want to express my appreciation to the witnesses who have
    agreed to appear here today. I know they bring a wealth of
    knowledge to today's hearings and I am very pleased that Frank
    Raines is here because it is my understanding that Fannie Mae
    has made a significant commitment in terms of investment to
    help Native Americans become homeowners on tribal lands, and I
    look forward to hearing about that.
        But, again, I close by commending Senator Johnson for his
    leadership and his commitment to this issue and to our general
    objective here in the Subcommittee of bringing more Americans
    right into the economic mainstream of American life.
        Thank you very much.
        Senator Johnson. Thank you, Senator Sarbanes.
        Our first panel consists of Mr. Frank Raines, Chairman and
    CEO of Fannie Mae. Mr. Raines has been a friend to Senator
    Daschle and myself, and South Dakota, and has shown his
    sensitivity to the problems we have in rural parts of America
    by his personal visit to South Dakota and the establishment of
    a Fannie Mae office in our very small State, which has done
    remarkable work.
        I appreciate, Mr. Raines, your participation in today's
    hearing. I also want to express my appreciation for the work
    being done in my home State by Bob Simpson, Director of Fannie
    Mae's partnership office in South Dakota. In particular, I am
    encouraged to hear about the work that he has been doing with
    Roger Campbell, Executive Director of the Oglala Sioux Tribe
    Partnership for Housing, to build new, affordable housing stock
    in the Pine Ridge Indian Reservation.
        Mr. Raines has been Chairman and CEO of Fannie Mae since
    1999. Prior to that, he distinguished himself as Director of
    the Office of Management and Budget during the Clinton
    Administration.
        His career has spanned the public and private sector,
    giving him a unique perspective on public and private sector
    collaboration, a perspective that is invaluable in helping to
    address the Nation's housing needs.
        Welcome, Frank, to the Committee today and thank you for
    your willingness to participate in this important hearing.

                    STATEMENT OF FRANKLIN D. RAINES

            CHAIRMAN AND CHIEF EXECUTIVE OFFICER, FANNIE MAE

        Mr. Raines. Thank you very much, Chairman Johnson and
    Senator Sarbanes for this opportunity to allow me to describe
    Fannie Mae's efforts to expand homeownership among Native
    Americans and on tribal lands.
        I have submitted written testimony for the record, which I
    would like to summarize this morning.
        Senator Johnson. Your testimony will be placed in the
    record.
        Mr. Raines. Thank you. And also, thank you for
    accommodating me in allowing me to go first in the panels
    today.
        Fannie Mae's mission is to expand homeownership, with a
    special focus on helping underserved Americans overcome their
    unique barriers. Our role among financial institutions which
    sets us apart is that we provide private capital to all
    communities at all times under all economic conditions at the
    lowest rates in the market. By expanding homeownership, Fannie
    Mae can help to strengthen families, communities, the economy,
    and the Nation as a whole.
        June is National Homeownership Month. It is a time to
    celebrate the American Dream. But also to rededicate ourselves
    to those who have been denied the Dream. And Native Americans
    face some of the toughest barriers to homeownership of all.
        Their homeownership rate, which estimates range from 33
    percent to 55 percent, not only is significantly below the 68
    percent national average, but many of the homes are barely
    livable. And according to a 1999 estimate by the Treasury and
    HUD, while about 38,000 families on tribal lands had enough
    income to qualify for a mortgage, only 471 actually had a
    mortgage.
        Poverty and unemployment create significant barriers to
    Native Americans obtaining conventional credit. So do the
    regulatory and legal complexities of lending on Native American
    lands. It is a rough irony when the very laws that protect
    Native American lands actually prevent Native Americans from
    benefiting fully from that land. Fannie Mae can help resolve
    this paradox. By expanding homeownership for Native Americans,
    we can not only provide these families with better housing, but
    also the power to raise capital, accumulate wealth, and build a
    more secure financial future.
        The solutions are not simple. Expanding Native American
    homeownership begins with listening to and responding to tribal
    leaders and members. And we need the best ideas and cooperation
    of the public, private, and nonprofit sectors.
        So let me thank this Committee for your leadership on this
    matter, and also recognize the work of the Housing Subcommittee
    in general, and that of Senators Reed and Allard in particular,
    for advancing the cause of housing.
        Let me underscore Fannie Mae's commitment to work with
    Congress, Native American tribes, the Bureau of Indian Affairs,
    HUD, and USDA, as well as mortgage lenders and other housing
    leaders, to increase homeownership opportunities for Native
    Americans.
        Fannie Mae has also learned a great deal from working with
    the speakers on the next panel, Chairman Jandreau and Elsie
    Meeks. In fact, it was in cooperation with Elsie Meeks that
    Fannie Mae has made a 5-year, $3 million commitment to the Pine
    Ridge Reservation. Under our Pine Ridge plan, for example, we
    have invested $250,000 in venture capital to develop 14 single-
    family homes and $100,000 to help create a revolving loan fund
    for more new home construction. We have also invested $500,000
    in the Lakota Fund, the community development financial
    institution that is helping to create small business loans and
    new jobs at Pine Ridge, the first step in creating new
    homeowners.
        Fannie Mae's approach to serving the Native American
    community is broad, multifaceted, and comprehensive. And let me
    describe the full range of our efforts so far.
        Our first formal effort with tribal communities began in
    1994, with our trillion-dollar commitment, our pledge to
    provide $1 trillion to help 10 million underserved Americans to
    own or rent a home.
        As part of this plan, we created our Native American
    Housing Initiative and made a commitment to purchase HUD- and
    USDA-guaranteed mortgages on tribal lands. Then in 2000, we
    launched a more formal strategy as part of our new $2 trillion
    American Dream commitment to serve 18 million underserved
    families.
        As part of this plan, we pledge to provide at least $350
    million to serve 4,600 Native American families. Through these
    commitments, over the past 4 years, Fannie Mae has provided
    over $6 billion for over 50,000 Native American families. And
    we have provided over $174 million to serve 1,900 families
    specifically on reservation and trust land.
        We also set a goal to establish partnerships with at least
    one hundred tribes on tribal and trust lands. These
    partnerships are crucial. Since Fannie Mae does not originate
    mortgages, we need to help mortgage lenders understand and
    overcome the hurdles to lending on tribal lands.
        Our tribal partnerships provide this knowledge, and in the
    first quarter of this year, we surpassed our goal establishing
    113 partnerships across the country.
        What we have learned from our partners is that we need more
    than just capital and commitment to make a difference for
    Native American homeownership. We also need to tear down the
    barriers that keep our housing capital from reaching and
    benefiting Native Americans.
        And let me describe these barriers and what we are doing
    about them.
        First, we address the shortage of affordable housing on
    tribal lands. We are working with tribes to finance new housing
    construction using low-income housing tax credit investments,
    collateralize revenue bonds, and HUD-guaranteed loans. Our
    investments in the low-income housing tax credits alone have
    helped create 156 new units of housing last year and we have
    another 232 units in the pipeline this year. We have also
    developed a secondary market option for HUD-guaranteed
    development loans to ensure a ready source of liquidity for
    these loans.
        Second, we work to overcome financing barriers. We are
    working with lenders to tailor mortgage products for tribal
    members who lack the resources or background to qualify for
    traditional financing. We have also designed legal documents
    and agreements to help tribes establish the formal financial
    infrastructure to support mortgage lending on trust and
    restricted land. Through these initiatives, we can now offer
    our special community lending products on tribal lands. These
    reduce the cash needed for the downpayment and closing costs
    and ease income requirements and loan-to-value ratios. These
    products also work with tribally provided homebuyer education,
    downpayment assistance, and intervention for borrowers who
    might get behind. To deliver our lending products, we now have
    relationships with 60 mortgage lenders to serve tribal lands,
    including Countrywide Home Loans, First Mortgage Company, J.P.
    Morgan Chase, Wachovia Corporation, and Washington Mutual.
    These lenders should be applauded for their efforts to reach
    and serve tribal lands.
        Third, we work to overcome the legal barriers. Trust land
    is inalienable. It is generally subject to the jurisdiction and
    laws of the tribe, which is protected by sovereign immunity.
    Tribal sovereignty generally entails the right to govern,
    adjudicate disputes, and be immune from lawsuits. While some
    tribes have fully developed commercial codes, others maintain a
    tribal council or executive body as a legal enforcement
    mechanism. And some smaller tribes have no court system at all.
    As a result, mortgage lenders have had concerns about enforcing
    obligations on sovereign lands, and market data to determine
    property values is scarce. The legal complexities of
    sovereignty diminish market values, and contracts cannot be
    enforced without the approval of the Federal Bureau of Indian
    Affairs. Addressing such legal impediments is not easy, since
    each tribe is sovereign and acts independently. Recognizing
    these difficulties, Fannie Mae has worked closely with
    individual tribes throughout the country to accommodate the
    differences in legal regimes in a manner that supports mortgage
    lending on their lands, while acknowledging and supporting
    tribal court jurisdiction over such lending. Recently, Fannie
    Mae modified its legal policies to eliminate our requirement
    that tribes make limited waivers of their sovereign immunity.
    We also will provide for the mutual consent to tribal court
    jurisdiction over conventional lending.
        Fourth, we work to share best practices. Each tribe may
    have unique housing needs and solutions. But as a nationwide
    leader in affordable housing, Fannie Mae has the opportunity to
    help tribal communities share their knowledge and experience
    with others.
        We are working to create an open dialogue between
    individual tribes in an attempt to gain greater understanding
    of each tribe and the challenges it faces. We recently made a
    major investment and created an ongoing dialogue with tribes
    and lenders through our Native American Business Council, which
    will work to expand our capacity to make tangible investments
    that increase affordable housing opportunities on Native
    American lands. This past April, we convened the Northern Great
    Plains Native Housing Summit. We brought housing officials from
    18 Native American tribes in the Northern Great Plains together
    with representatives from the North Dakota Indian Affairs
    Commission and the North Dakota Housing Finance Authority, the
    South Dakota Tribal Affairs Commission, and the USDA Rural
    Development Agency, in addition to the Federal Reserve Bank, in
    Minneapolis, and the National American Indian Housing Council.
        Finally, we need to overcome the information barriers. Many
    Native Americans have little experience with banking, credit
    reporting, and loan qualification process and standards, and
    must obtain credit through nontraditional means. And many are
    not aware of how to qualify for the safest and the cheapest
    financing available to them. As a result, Native Americans have
    the highest conventional loan denial rate of any ethic group--
    over 43 percent. As you might imagine, Native Americans are
    particularly vulnerable to predatory lending, which locks
    borrowers into a financial crisis. One survey found that 68
    percent of Native Americans reported paying predatory rates for
    installment loans.
        Improving financial literacy can help. Separate and apart
    from my position as the head of Fannie Mae, I serve as Chairman
    of the Fannie Mae Foundation, which is solely funded by Fannie
    Mae, and the foundation is focused on how best to provide
    financial education to Native American communities.
        Most recently, the Fannie Mae Foundation has joined with
    the First Nations Development Institute to develop a financial
    literacy curriculum specifically tailored for Native Americans,
    one that embraces native traditions and values.
        Since publication, the foundation has distributed over
    18,000 copies of the curriculum and has sponsored train-the-
    trainer workshops in 30 different tribal communities.
        These efforts are just the beginning of what we can and
    will do, and there is a long way to go. But with Fannie Mae's
    capital, commitment, and partnerships with lenders, tribal
    communities, and national leaders such as the Members of this
    Subcommittee, as well as the efforts of nonprofits like the
    Fannie Mae Foundation, we will make even greater progress
    toward tearing down the barriers and expanding homeownership,
    and all of its blessings to the Native American community.
        I look forward to working with you and once again, let me
    thank you, Chairman Johnson, and Senator Sarbanes, for the
    leadership that you have shown.
        Thank you for the opportunity to be here today to discuss
    perhaps one of the most critically important issues facing
    homeownership in the Nation.
        And I would be happy to answer any questions that you might
    have.
        Senator Johnson. Thank you, Mr. Raines. It is an excellent
    statement.
        I think that you touched on a key point in making reference
    to trust lands. There are certain benefits that come from trust
    status of land, obviously. But, also, there have been
    historically some problems, in the sense that housing on that
    trust land then is not so easily collateralized for non-Indian
    financial institutions to lend for construction or improvement
    of that housing.
        You indicated that you have worked with individual tribes
    to get around those issues. I would assume that the Federal
    Government could probably do more in terms of upgrading the
    resources available for tribal judicial systems, as well as
    improvement of codes.
        But is there anything more that we should be doing to
    facilitate the collateralization of lending into Indian
    Country, particularly where there is trust land involved, that
    respects the sovereignty of the tribe, and yet, at the same
    time, is realistic for purposes of our nontribal lenders that
    want to be involved?
        Mr. Raines. Well, this is a major development issue around
    the world. The experience around the world is that if people
    cannot
    either own land or have the ability to borrow against that
    land, then investment doesn't follow. And so, this is a
    critical issue on trust lands.
        I think you mentioned one area where the Federal Government
    can be helpful, and that is support for judicial systems within
    tribes. As they develop a clear commercial code and clear
    systems for adjudicating commercial disputes, then I think more
    lenders will follow our lead and respect these courts as a
    means to adjudicate their contracts. So assistance in that area
    to establish these codes and court systems I think would be
    helpful.
        Also, the Bureau of Indian Affairs has an important role in
    the protection of trust lands and they are an integral party to
    all mortgage transactions. We have to get from them a land
    title certificate that, in order to know who owns the land and
    to enforce any contract, there has to be approval of that
    contract ahead of time.
    Facilitating that process and making it easier, and
    streamlining that would go a long way to encouraging additional
    lending on tribal lands.
        The important issue here is to allow the individual
    homeowner to obtain a mortgage without putting the tribal land
    in any danger of moving out of Native American hands.
        And I believe if we work on this, particularly at the tribe
    level, that we can resolve it. But it will require enormous
    resources to assist the tribes in doing that and the
    cooperation of the Bureau in permitting a higher volume of
    transactions to occur.
        Senator Johnson. How should we measure our efforts to bring
    housing opportunities to Indian Country?
        I understand that there are disparities in mortgage-lending
    reporting involving subprime and manufactured housing loans. I
    wonder if you could elaborate a bit on these disparities and
    indicate to us how Fannie Mae measures the success of its
    efforts in Indian Country.
        Mr. Raines. The numbers that we have come from the HMDA
    data collected through the Fed. That data has many problems,
    but the least reliable is that in nonmetropolitan areas, in
    rural areas where most of the tribes are located.
        So, we really do not have a good base of information. And
    if we can improve the reporting in those areas, I think that
    would go a long way.
        We at Fannie Mae, we look to ensure that the families are
    obtaining credit that they qualify for and the lowest-cost
    credit for which they qualify. And when we see statistics such
    as I recited that so many families on tribal and trust lands
    have the income to qualify for a mortgage, but, nevertheless,
    have not been able to obtain one, that to us is a measure of
    our lack of success in our target.
        But as well, the percentage of lending that comes from
    nontra-
    ditional sources on these lands is also troubling because it is

    typically higher cost. And that higher cost lending acts like a

    tax on these families. Where they are paying more for credit
    than they need to pay, that is really stripping wealth out of
    these communities.
        And so, we need to get more conventional lenders doing
    business within the Native American community so that the only
    source of credit is not high-cost, subprime lenders or vendor
    financing, which in some cases leaves people impoverished
    because if they bought a manufactured home, and that home has
    depreciated the moment it has left the lot of the dealer, and
    it doesn't last as long as the loan, that is not a healthy
    process as well. An enormous amount of work needs to be done on
    the manufactured housing side, not just for Native Americans,
    but for many people who live in rural areas where manufactured
    housing is housing. There is no other significant housing
    construction going on.
        We are working in both these areas, but having the two
    tests--are people getting the credit for which they qualify,
    and are they getting the lowest-cost credit for which they
    qualify?
        Senator Johnson. Do the mortgages that Fannie Mae acquires
    for Native American homeowners count toward the affordable
    housing goals that HUD establishes for you?
        Mr. Raines. The affordable housing goals are focused
    primarily on income levels and location. And if the Native
    American family falls below the median income, then it would
    qualify. If they did not have income at that level, then it
    would not.
        Again, it depends locationally, whether or not it falls
    within the areas that HUD has designated.
        So some do, and indeed, I assume that most would qualify on
    the income side given the very low-income levels that we find
    among Native Americans.
        Senator Johnson. Thank you, Mr. Raines.
        Senator Sarbanes.
        Senator Sarbanes. Well, Mr. Chairman, I do not have a
    question to ask Frank Raines, but I do want to make this
    observation.
        I am very struck by the innovative and imaginative thinking
    that Fannie Mae has brought to this situation. As I understand
    it, you have been able to work out an approach that gets around
    the sovereign immunity, or accepts the sovereign immunity
    situation and then works out a way of dealing with that in
    order to go ahead and extend credit.
        And I commend you for that because many have looked at that
    and said, ``well, we are just not going to bother,'' and
    obviously, there are ways to do that and you have found such a
    way.
        I do think that this emphasis on trying to develop tribal
    court jurisdictions is important so you do have a commercial
    code in which disputes can be resolved.
        But clearly, Fannie Mae has been out ahead of most
    everybody I think in this regard. And it seems to me that you
    are establishing some very important precedents on how we might
    be able to move forward to address these very serious concerns.
        I just wanted to register that for the record.
        Mr. Raines. Thank you, Senator Sarbanes.
        We found on these issues that there are no easy solutions.
    One of the benefits of our partnership offices is that we have
    people on the ground now who really can work on these problems
    individually. And we are now working with over a hundred
    different tribes to try to resolve them because each tribe is
    different. So the efforts to say there is a magic solution, we
    found does not work, that we really have to work with each
    tribe.
        But the benefits are so astounding. When you see, as I saw
    at Pine Ridge, new homes going up, it is not just that those
    families got new homes, but the aspiration of others, that they
    too could have a new home because they look and say, ``well,
    gee, I have known them my whole life and I think I could do
    that, too.''
        You get this multiplier effect going. And so, it is worth
    it to put in the time and the effort to try to craft solutions,
    as hard as they may be. But if we can craft them, then our
    lenders can follow behind us. We simply decided that no one
    else is going to put in that time and effort, so we had to do
    that. But our goal then is to encourage more and more lenders
    to come in and then we will get even more creativity and we
    will get their efforts and their commitment. And working with
    the tribes who I think are focusing more and more on the
    importance of homeownership as part of their overall
    development strategy, it has been very encouraging. So, we are
    looking forward to making enormous progress over this decade
    where we have committed over $300 million to the effort.
        Senator Johnson. Mr. Raines, would you elaborate just a bit
    on what is unique about lending to Native American lands versus
    your lending or the mortgages you purchase, for low-income
    people in general? What is unique? We have talked a little bit
    about the trust land situation. But are there lessons to be
    learned about getting low-income people into their own housing
    and upgrading their housing, that are applicable to Indian
    Country? And are there other issues that are just so unique to
    Indian Country, that there are no lessons to be learned?
        Mr. Raines. Many of the lessons we know because the same
    problems affect Native Americans that affect other Americans.
        Income level is the single largest determinant of the
    ability to own your own home and the economic opportunities on
    reservations have not generally been good. So, the ability to
    get a job that can pay sufficiently to be able to afford and
    own standard housing is a problem.
        Native Americans face that because the income levels are
    quite low. But that is a problem that is shared with others.
    Doing homeownership and housing generally in rural areas is
    difficult, and doing lending there is difficult, in part,
    because it is hard to find what are the comparables? How much
    is the house worth, because there just are not that many houses
    that you can look to.
        And if you do not have a vibrant housing market, you can
    get wide variations in the appraised value of the property. And
    if the contract value is one thing and the appraised value is
    another because the only transaction was a transaction that
    occurred two towns over or three miles away, you often have
    difficulties in rural lending because of that.
        Also, Native Americans suffer again similar problems to
    others in rural areas because banking infrastructures have not
    been there. Having sufficient competition for their business
    with community banking has been difficult, although we are
    making progress there as well as Native American banks are now
    beginning to expand and coordinate their own efforts.
        Those things affect Native Americans in the same way that
    they affect other Americans. The impact, though, is much more
    grave because the economic condition of Native Americans is not
    as high.
        The special problems that relate to the tribal lands are
    particularly devastating because the unique thing about the
    United States is that we have such a highly developed property
    loss system, that it allows us to have competition for home
    mortgages anywhere in the country.
        Fannie Mae, for example, if we are in any community in the
    country, on an automated basis, we can appraise that house. We
    can approve the borrower through our technology, and we know
    what the legal rights are of the contract that we have entered
    into because it has been well tested throughout the system.
        That has helped the United States to have the best mortgage
    system in the world. Many of the features of our property
    system do not exist elsewhere.
        Indeed, there is an economist who has written a book
    called, ``The Mystery of Capital,'' named DeSoto, who says this
    is the key difference between development in the United States
    and in the northern capitalist countries, and those of people
    elsewhere in the world--the lack of a formal property system on
    which you can rely and where people know their property is
    protected, and then they can borrow against it if they want to
    start a machine shop or start a small business, they can build
    equity. For the average American, they have far more money in
    their home than they have in the stock market.
        This legal system has been a bulwark for the rest of the
    country. It is just developing in Indian Country because there
    just has not been the need for the formal property systems that
    has been the case outside.
        That is why it is so critical to develop that, to eliminate
    that barrier, because that is the most radically different
    circumstance. And that is why it is so hard for lenders and
    others to apply their normal systems here.
        And that is why we have dedicated ourselves to building up
    those systems, and I think it is going to affect not just
    homeownership. I believe it will open the spigot to capital
    generally.
        When we find a methodology by which the sovereignty is
    respected and in which that respect for sovereignty leads to an
    assurance as to the legal outcome on contracts, I think that
    will open up the spigot of capital on tribal lands.
        Homeownership is a good place to start. And if we can make
    it work here, it will help in other parts of economic
    development.
        Senator Johnson. Well, I think that point is well taken.
    Our tribes and individual tribal members tend to have land as
    one of their key assets. But it has also been one that they
    have not been able to leverage for purposes of additional
    investment. And that has had catastrophic consequences.
        The thrust of our hearing today has to do with the
    capitalization and the development of private sector in Indian
    Country. But I think that leading off with you and Fannie Mae
    and a focus on what are we doing about housing, is I think very
    appropriate.
        Because as you note, for most Americans, their chief source
    of economic growth, of prosperity, is the equity that they
    acquire in their home, which then may be used for other spin-
    off purposes.
        In Indian Country, all too often, there are no beauty
    shops, barber shops, shoe repair, coffee shops, and the kinds
    of small businesses that you would expect a population of that
    size to sustain for a number of reasons, but among them being a
    lack of capital to get started.
        And I think that if we could make great progress on the
    housing side, I think not only will it result in significant
    improvement in the quality of life of a lot of people, but it
    also will be the spark or the foundation, I believe, for
    expanded private economic activity that will at least begin to
    take hold in Indian Country, which I believe is so essential if
    we are going to break this cycle of dependency and exclusive
    reliance on Government programs.
        So, I think it was very appropriate that we led off this
    hearing today with your testimony and what Fannie Mae is doing.
    I thank you for being here today.
        Senator Sarbanes, do you have anything further?
        Senator Sarbanes. [Nods in the negative.]
        Senator Johnson. Thank you. I know that you have great
    demands on your time. We will be in continuing contact with you
    and your people at Fannie Mae.
        Mr. Raines. Thank you very much.
        Senator Johnson. Thank you, Frank.
        Our second panel--and I would caution that we are
    anticipating a vote at around 11:00 a.m. And so, we may have to
    take some time off and come back again.
        But our second panel consists of: Mr. Rodger Boyd, who is
    currently Special Assistant to the Director of the Community
    Development Financial Institutions Fund, Department of the
    Treasury. He designed, directed, and managed the Fund's Native
    American lending study, which he will discuss today. He also
    initiated the Fund's Native American Technical Assistance and
    Training Program to encourage the establishment of financial
    institutions on Indian Lands.
        Previously, he had held positions in the offices of
    Commissioner of Indian Affairs, Bureau of Indian Affairs,
    Assistant Secretary of Indian Affairs, Department of the
    Interior, and has worked for Members in the U.S. Congress.
        Working for the Navajo Nation, he established and directed
    the tribe's governmental affairs office in Washington, DC and
    was Executive Director for the Division of Economic
    Development.
        And we thank Mr. Boyd for joining us.
        Mr. J.D. Colbert is a founder of the North American Native
    Bankers Association and serves as the Association's President
    and Executive Director. He has had a long and extensive
    background in banking and Indian finance issues.
        Mr. Colbert's special expertise is as the Chief Executive
    Officer and Director of Independent Community Banks. His
    expertise covers asset quality, bank investments, interest rate
    risk management, Community Reinvestment Act, bank holding
    company issues, marketing, and tribal minority banking
    opportunities.
        Mr. Colbert has been a speaker on banking issues at
    conferences sponsored by the Office of the Comptroller of the
    Currency, the Federal Deposit Insurance Corporation, the
    Oklahoma Bankers Association, the American Bankers Association,
    and numerous Indian economic development conferences.
        Mr. Bill Fischer is President of American State Bank of
    Pierre, South Dakota, and Chairman of the ASB Bank Holding
    Company.
        Mr. Fischer has been President of American State Bank since
    1983, and Chairman of the ASB Bank Holding Company since 1988.
    He has extensive experience lending in Indian Country. He has
    been involved in numerous business and community activities in
    Pierre. These include serving as board member for the South
    Dakota Chamber of Commerce and Industry, serving as Treasurer
    of the South Dakota Health Education Facilities Authority, as
    well as serving as a board member in the Wakpa Sica Historic
    Society.
        Mr. Fischer is a long-time friend and confidante to both
    Senator Daschle and me and we very much appreciate that.
        Mr. Mike Jandreau is Chairman of the Lower Brule Sioux
    Tribal Council. He has been a rancher since the 1960's,
    involved in tribal politics since 1972. He has been Chairman of
    the Tribal Council for most of the past 29 years, and has been
    agent for economic and social change for the tribe through
    development projects such as the Lower Brule Employment
    Enterprises, the tribe's farm corporation, the Lower Brule
    propane plant, and the Golden Buffalo Casino.
        Mike has done an extraordinary job. He is an example of
    tribal leadership continuity for the Lower Brule, and it has
    been enormously beneficial to that particular tribe.
        Ms. Elsie Meeks is Executive Director of the First Nations
    Oweesta Corporation. First Nations is a national financing in-
    termediary that offers technical assistance and capital to
    assist native communities, establish community development
    financial
    institutions.
        Previously, she was active in the development of the Lakota
    Fund, a nationally known small business and micro enterprise
    loan fund located on the Pine Ridge Indian Reservation.
        Welcome to all of you to our Subcommittee this morning.
    This is a very distinguished panel which we have the good
    fortune of having. And I would certainly recognize Chairman
    Sarbanes for any comment that he might have on this panel.
        Senator Sarbanes. Senator Johnson, I apologize to you and
    the panel, but there are a lot of conflicting engagements and I
    am going to have to excuse myself.
        But before I leave, I wanted to thank the panel for the
    very substantial and significant contribution you are making
    toward considering this issue.
        I have had a chance to look through your statements and we
    very much appreciate the obvious time and effort that went into
    preparing them.
        There is a good deal of analysis there that I think will be
    extremely helpful to us as we seek to deal with this issue
    under Senator Johnson's leadership. And I just wanted to
    register that before I excused myself.
        Mr. Jandreau, let me just say to you, I liked the way you
    put the problems and then put the solution. That is a very nice
    way to present this. And I worked through that and that is
    extremely helpful to us.
        But I apologize that I am not going to be able to stay for
    the panel, and Mr. Chairman, I again commend you for holding
    this hearing and for bringing this focus and attention to this
    important issue.
        Senator Johnson. Thank you, Senator Sarbanes. The
    statements are excellent and are being reviewed by staff,
    obviously, on both sides of the aisle on the Subcommittee and
    is invaluable to us.
        Thank you, Senator Sarbanes, for your participation.
        Senator Carper of Delaware has joined us.
        Senator Carper, do you have any remarks that you would like
    to share with us?

                  COMMENTS OF SENATOR THOMAS R. CARPER

        Senator Carper. Thank you, Mr. Chairman. We have no Indian
    housing in Delaware. We do have Indians, and they have housing,
    but it is not what we traditionally think of as Indian housing.
        I am grateful for the witnesses for being here and we look
    forward to your testimony. Thank you for pulling us all
    together.
        Senator Johnson. Thank you, Senator Carper.
        We will begin the second panel with Mr. Boyd. Again, I
    caution that we could have a vote and we may have to take a
    short recess and come back.
        But we will begin with Mr. Boyd. Your full statements will
    be placed into the record, so choose as you will to either
    summarize or to read from your statement. But be assured that
    the full statement is in fact in the record.
        Mr. Boyd.

                      STATEMENT OF RODGER J. BOYD

                   SPECIAL ASSISTANT TO THE DIRECTOR

           COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND

                    U.S. DEPARTMENT OF THE TREASURY

        Mr. Boyd. Thank you, Senator Johnson, and Members of this
    Subcommittee. I greatly appreciate the opportunity to appear
    here today to discuss some of the issues on capital investment
    in Indian Country.
        I would request that in addition to our statement being put
    into the record, that the Native American Lending Study Report*
    also be submitted.
    ---------------------------------------------------------------------------
        * This report is held in Senate Banking Committee files.
    ---------------------------------------------------------------------------
        Senator Johnson. That will be placed into the record.
        Mr. Boyd. Thank you. When Congress authorized the CDFI
    Fund, the enabling legislation required the Fund to implement
    the Native American lending study on lending and investment
    practices on Indian reservations and other lands held in trust
    in the United States. The Fund's Native American lending study
    was undertaken for the purpose of examining the barriers to
    accessing capital in Indian Country.
        I will not go into all the details of this. I would like to
    just skim over some of the major facts and findings that we had
    and to discuss briefly some of the process that we went through
    to obtain the information that we had.
        To assist us, we did 13 regional workshops throughout the
    country and worked with various stakeholders whom we sincerely
    appreciate that they took the time and the effort to spend that
    time with us over the duration of our study.
        One of the things that I think was confusing to a lot of
    people when we began to look at the issue is that they thought
    that we were just going to concentrate on housing, which is one
    of the major issues, and as was discussed by the earlier
    panelist.
        Our study also looked at, in addition to mortgage lending,
    small and large business lending, consumer loans and
    infrastructure development on Indian reservations. So it was
    pretty expansive.
        In all of our findings, we developed 17 major barriers to
    accessing capital in Indian Country. And as some examples, the
    legal infrastructure, and I think that was discussed a little
    bit earlier, such as uncertainty of tribal commercial laws and
    regulations, government, that being Federal and tribal
    operations, such as cumbersome conflicting Federal programs and
    regulations, and poor understanding by financial institutions
    of tribal sovereignty and sovereign immunity.
        There were barriers, the limited use of trust land as
    collateral, as you have pointed out, Senator, and financial and
    physical infrastructure also was a great aspect of not allowing
    greater access to capital. And that is, the limited number of
    financial institutions that exist on reservations or even near
    reservations.
        I think at one point we, in our financial survey that we
    conducted, 33 percent of tribal responses had to travel more
    than 30 miles to have any financial services near their
    reservations. And of course, there were education and cultural
    issues--the lack of knowledge of experience with the financial
    world on the part of the Native American community, and lack of
    technical assistance and resources, and some very basic
    differences between the Native American and banking cultures.
        We established in the lending study a roadmap, a platform
    in which I hope that Members of Congress can use, certainly
    that the financial institutions can use and that the Native
    American community can use.
        In the study, the way we laid it out is that we presented
    some remedies and recommendations. Certainly, those
    recommendations, very briefly, were to enhance the tribal legal
    infrastructure, strengthen tribal courts, create alternative
    collateral options for trust lands, establish a public/private
    Native American equity fund, increase the number of financial
    institutions on or near Indian Lands, develop financial
    products and services that will meet the needs of Native
    American depositors and borrowers, expand financial literacy
    education opportunities for Native Americans, and expand
    technical assistance and training.
        We also did not want to just talk about the issues and the
    problems out there because there are a number of things that
    are going on throughout the country that I think are helping to
    overcome some of these barriers.
        And in our study, what we tried to do is approach that in a
    way that would provide examples, both at the Federal level, the
    tribal level, and on financial institutions as to what was
    going on.
        The Department of Justice and the BIA as an example have a
    current funding technical assistance and training program to
    assist tribal court systems.
        There are several options for creating additional financial
    institutions. Some tribes are beginning to convert revolving
    loan funds as an example and setting them up as for-profit or
    nonprofit loan funds, and they in turn, apply for certification
    through our program, through the CDFI Fund Program, and that
    will give them greater access to capital that they can then
    leverage.
        A number of tribes have just outright purchased banks,
    which is another process. And to assist that whole process at
    the CDFI Fund, we have instituted the Native American CDFI
    Technical Assistance Program because we found that there are a
    lot of tribal people that are not quite sure what kind of
    financial institutions that they would like in the community.
        So through this technical assistance grant program, they
    can obtain grants from us to help create those financial
    strategic plans and ultimately, to create their own community-
    based financial institutions, then come back to us for further
    funding.
        Also, we found that one of the real important aspects, as I
    think the previous panelist mentioned, all the various tribes
    are different. You cannot approach this issue thinking that one
    resolution is going to resolve such a massive problem. But we
    also believe that by looking at regional concepts and regional
    approaches, is also going to be very effective.
        As an example, the Native American Development Corporation,
    located in Montana, is a corporation that is providing capital
    to Native American businesses both in Montana and Wyoming.
        The Native American Lending Group, Inc., is a nonprofit,
    multitribal CDFI in New Mexico, which is a very unique
    situation because a lot of the Pueblos are very small. They
    cannot create a good market for traditional financial
    institutions. So they have set up one CDFI to service 18
    Pueblos in northern New Mexico, and we think that that is going
    to be very effective.
        In closing, Senator, we have discovered that it is going to
    take the movement and the actions of many different
    stakeholders to make this happen. And certainly, that includes
    the Federal Government, Federal agencies, financial
    institutions, and tribal governments. And as sovereigns, they
    certainly can do many things to help create better access to
    capital.
        Senator Johnson. Thank you, Mr. Boyd.
        I would note as an aside, also, welcome to Chairman Tom
    Ranferance of the Flander Ti Sioux, who has joined us here as
    well today, and has provided extraordinary leadership for his
    particular tribe.
        I would note for the panel members that we are using a 5-
    minute clock. The Chairman is being fairly liberal about
    enforcing this, but at the same time, try to keep somewhat
    within that framework.
        Mr. Colbert.

                  STATEMENT OF J.D. COLBERT, PRESIDENT

               NORTH AMERICAN NATIVE BANKERS ASSOCIATION

        Mr. Colbert. Good morning, Chairman Johnson, and Committee
    Members. I appreciate your concern regarding capital access in
    Indian Country and I applaud your efforts to effect greater
    change.
        I am here this morning as President of the North American
    Native Bankers Association. NANBA is an association of
    commercial banks and other regulated financial institutions
    owned by Indian tribes.
        Our mission is the provision of credit, mortgage lending,
    and financial services in Indian Country. And particularly, we
    think that one of the best ways to effect that mission is to
    put tribes in control of the issues surrounding capital access
    by virtue of owning financial institutions.
        Lack of Native ownership of financial institutions
    continues to be a major impediment to greater capital access.
    This has been identified in numerous studies in the past and
    more particularly, by the fine work that Mr. Boyd and the CDFI
    Fund recently completed.
        To underscore the point in Indian Country, right now, there
    are approximately 23 regulated financial institutions in Indian
    Country that are owned by Indian tribes and/or individually
    enrolled tribal members. There are eight commercial banks owned
    by tribes, nine commercial banks owned by individual Indians,
    and about six community development credit unions. So only 23
    to serve approximately 560 Federally recognized tribes and over
    2.7 million individual Indians. Clearly, there is a great
    disparity between those numbers and the demographics of Indian
    Country.
        Presently, there is at least one piece of legislation on
    the books that could help effect change on this point. In
    August 1989, Congress enacted the Financial Institutions
    Reform, Recovery, and Enforcement Act, generally known as
    FIRREA. Section 308 of FIRREA established at least three
    salient public policy goals. One was to preserve the number of
    minority-owned financial institutions. The second was to
    promote and encourage creation of new minority-owned financial
    institutions. And three was to provide for training, technical
    assistance, and educational programs.
        As indicated by the paucity of Native-owned financial
    institutions and minority-owned institutions in general, I
    think the will of the Congress as expressed by Section 308 has
    been frustrated by the Federal bank regulatory agencies who
    have the primary responsibility for implementing this
    Congressional mandate. In fairness, there has been some recent
    positive developments on behalf of the Federal bank regulatory
    agencies. The Federal Reserve Bank of San Francisco has
    conducted various sovereign lending workshops. The FDIC
    recently adopted a revised policy statement on minority-owned
    institutions which expands the scope of their activities. And
    the Office of the Comptroller of the Currency, with NANBA's
    assistance, published ``A Tribal Guide to Bank Ownership.''
        I certainly welcome these efforts. However, they do not
    directly address what I think is the key goal of Section 308,
    which has to do with promoting and encouraging the creation of
    new minority-owned institutions. And I personally have not seen
    much, if any, effort that could be reasonably construed as
    meeting that goal on the part of the Federal bank regulatory
    agencies.
        NANBA has been active on that point. We held a conference 2
    years ago called Tribal Ownership of Banks. We had about 150
    attendees, I think something like 20-25 tribes attended. To my
    knowledge, that conference, whose goal was specifically to
    create additional Native-owned banks, to my knowledge, that is
    the only conference ever held with that goal in mind for Native
    America. And indeed, it may stand as the only conference ever
    held in the history of the United States whose goal was to see
    the formation of new, minority-owned institutions.
        I would like to see Congress provide some motivation, if
    you will, to put some teeth into Section 308, and to see that
    the Federal bank regulatory agencies actively work toward
    seeing the creation of new, minority-owned institutions. I
    think the Federal bank regulatory agencies are in a unique
    position to be a catalyst to help make that happen.
        One specific suggestion is that they might take up on the
    work, follow the work of NANBA with regard to additional
    conferences such as the one we held, to kind of help get the
    word out to Native Americans and the minority community
    generally.
        I think also the regulatory agencies are in a unique
    position to act as a catalyst to help bring together some
    mentoring opportunities between some of the Nation's larger
    banks, and some of the new ones that might be spawned in Indian
    Country.
        I also would like to address one other area briefly that
    has to do with bond financing in Indian Country. Obviously,
    Indian Country badly needs to access capital investment through
    bond financing. I think one particular way to stimulate this
    important sector of the capital markets for Indian Country is
    for Congress to consider amending the Securities Act of 1933,
    to allow Indian tribal governments the same exemption from
    registration requirements that State governments, county, and
    local jurisdictions enjoy with regard to the issuance of tax-
    exempt bonds.
        Presently, in order to access the mainstream bond markets,
    tribes are forced to go through the rather costly, time-
    consuming, and expensive registration process. Not
    surprisingly, tribes avoid this registration process and
    instead turn to the private placement markets, which generally,
    among other things, require much higher coupon rates and
    interest payments on the tribes' issuances than, as opposed to
    the regular mainstream bond market.
        And to the extent that the Congress should see fit to allow
    tribes the same exemption from registration by amending the
    1933 Securities Act, I think a couple other things would need
    to be implemented to really put some teeth into that. One would
    be to amend the Internal Revenue Code of 1986, to allow tribes
    to issue private activity bonds, in the same manner as State
    and local governments are presently able to issue private
    activity bonds. In addition, I think we would need to exempt
    tribes under certain circumstances from the so-called volume
    cap requirements of Section 146 of the Internal Revenue Code.
        I think by providing Indian tribal governments with equal
    footing as that enjoyed by State and local governments with
    respect to private activity bonds will greatly stimulate the
    flow of capital to Indian Country for a wide variety of
    purposes, of housing and small business development. Also
    granting this exemption to Indian tribes from the volume cap
    restrictions will result in tribes not having to request a
    private activity allocation from a State government who may be
    unwilling or unable to grant such allocation due to the fact
    that Indian tribal governments obviously are not a political
    subdivision of the State.
        That concludes my statement, Mr. Chairman. I would be
    pleased to entertain any questions or comments.
        Senator Johnson. Thank you, Mr. Colbert, and we will come
    back to questions at the conclusion of the entire panel's
    discussion.
        Mr. Fischer, welcome.

                    STATEMENT OF WILLIAM V. FISCHER

                     PRESIDENT, AMERICAN STATE BANK

                          PIERRE, SOUTH DAKOTA

        Mr. Fischer. Thank you. Before I give my statement, I would
    like to tell you how pleased I am to be here to address this
    long overdue, most important subject. It is imperative that we
    figure out a way to bring private-sector capital into Indian
    Country.
        Good morning, Mr. Chairman, Ranking Member, and Members of
    the Subcommittee. Thank you for the opportunity to appear here
    today. My name is William Fischer. I am President of the
    American State Bank, a $90 million independent commercial bank
    located on the Missouri River, in the center of the State. I am
    a third-generation South Dakotan. My grandfather arrived in
    South Dakota in 1884. I am here to testify from my position as
    a commercial bank in central South Dakota, Indian Country, for
    the past 36 years.
        South Dakota is not unique from other States in having
    Indian reservations located within its boundaries. We have nine
    reservations in South Dakota. Three of these reservations are
    located within my lending area.
        There have been numerous studies, some commissioned by
    Congress and other independent studies done addressing lending
    in Indian Country. Recently, there as a workshop held in Rapid
    City, South Dakota, sponsored by the U.S. Treasury on lending
    in Indian Country. Also, the FDIC, out of Kansas City, has been
    working with the Cheyenne River Sioux Tribe Reservation since
    1996, regarding lending in Indian Country. I have attached a
    letter from an individual at the Kansas City Fed to be a part
    of my testimony.
        First, let me address what I feel are some obstacles to
    lending in Indian Country. Instability of tribal reservation
    government. There are no checks and balances. Virtually all
    tribal governments are legislative, executive, and judicial
    combined, and thus, virtually no check and balance. Constant
    turnover, inexperience, and the lack of consistency in tribal
    governments. Economics, lack of financial education and
    economic knowledge. A general lack of unified tribal vision,
    planning, and business experience. Lack of understanding of
    tribal sovereignty and sovereign immunity. State and Federal
    regulations and bureaucracy. A lack of basic economics and
    credit knowledge at the enrolled members' level. Each
    reservation has its own specific laws and no degree of
    uniformity of tribes dealing with economic issues, like Uniform
    Commercial Code. The tendency to insist on tribal members to
    manage tribal businesses when the members have no experience in
    managing this type of business venture. The general tendency to
    try and run managed businesses without accurate financial
    accounting records.
        Now let me address some of the practices that the American
    State Bank has implemented to overcome some of these obstacles.
    Know the tribe or the tribal member wanting to borrow the
    money. Establish a professional relationship with an attorney
    and accountant familiar with tribal law. Follow a basic credit
    criteria--credit, capacity, and collateral--that is used
    throughout the industry. Know the tribe, its officers, its
    council, issues, and history. Realize that very few customers,
    Indian or non-Indian, are entrepreneurs and thus, should we
    lend money to such a venture, we must allocate the time and
    special attention to assisting and ensuring the venture has an
    even chance to succeed. Tribes and tribal members do not need
    more examples of failure. American State Bank has been very
    active in positioning itself in understanding the issues of
    concern on the Cheyenne River Sioux Tribe reservation. We have
    one employee, Bob Claire, who serves on the Four Bands'
    community loan fund at Cheyenne River.
        Now let me address legislative and regulatory remedies that
    I think would help facilitate flow of income in Indian Country.
    Promote tribal governing system that better separates
    legislative,
    executive, and judicial systems and thereby, provide a check
    and balance and stability. Better separation of economics from
    political decisions. Needs to be a better working relationship
    between the BIA and the tribes, working for a betterment for
    all parties involved. Promote establishment of 1-, 3-, 5-, and
    10-year economic development plans whereby necessary, hire the
    best managers to implement these plans. Managers for tribal
    business should be the very best that there are available,
    whether they are Indian or nonIndian, with built-in incentives
    to enforce successful and profitable operation. Implement a
    series of courses at high school and post-high school level to
    promote good business practices. Let us reconsider loan
    guarantees for commercial loans that are made in Indian
    Country. Let us consider tax incentives for loans to be made in
    Indian Country.
        Thank you very much for this important hearing. I am very
    pleased to try and answer any questions you might have.
        Let me conclude by quoting Bobbie Whitefeather. ``I know
    what we need to do. All the ingredients are there. We just need
    to put the pieces together. The challenge is, are tribes ready,
    is Congress ready, and the Administration willing to provide or
    create necessary, receptive environments and support to enable
    Native nations to prosper?''
        I also have handed out to Jack Taylor a statement from
    Stewart Sarkozy-Banoczy of the Four Banks Community Fund. He
    will give that to you afterwards.
        I will try and entertain and answer any questions that you
    might have.
        Thank you.
        Senator Johnson. Thank you, Mr. Fischer.
        The testimony of the first three panelists I think is
    excellent and I am looking forward to an opportunity to
    question and elaborate a bit on their testimony.
        The last two witnesses I think will be interesting as well
    because they bring on-the-ground insight as tribal members
    themselves as to capital formation and economic development in
    Indian Country.
        I am told that we have only a few minutes remaining to cast
    a vote on cloture on the supplemental appropriations bill. I
    assume that Mr. Carper would like to vote on that as well.
        I will recess this hearing momentarily to run across the
    street, cast that vote, and then return as promptly as possible
    in order to continue this hearing.
        And we will be back very soon. Bear with us. I apologize
    for this, but this is one of those things that is beyond our
    control at the
    moment.
        [Recess.]
        Senator Johnson. We are back and we will resume testimony.
    And we are about to come to Chairman Jandreau.
        Mr. Jandreau.

                    STATEMENT OF MICHAEL B. JANDREAU

            CHAIRMAN, LOWER BRULE SIOUX TRIBE, SOUTH DAKOTA

        Mr. Jandreau. Thank you, Chairman Johnson. It is with great
    appreciation that I have the opportunity to address the
    Subcommittee.
        You have my statement and I will try to summarize the
    statement because I believe that our statement will become a
    part of the record.
        Senator Johnson. Your full statement will be part of the
    record. And so, you may summarize or proceed however you
    choose.
        Mr. Jandreau. I would like to talk about some practical
    problems that affect us as tribes and individual members of
    tribes who attempt to access financing.
        I listened with great interest to the first witness as he
    spoke about the things that Fannie Mae is able to do.
        The irony of what happens, not only with Fannie Mae, but
    with Section 184 and the rest of these programs is the tribe
    becomes the underwriting authority for that whole process, that
    truly building credit is not being effectuated in enough of a
    real manner.
        Most of the programs that are there for tribes to access
    utilizing commercial industry, banking, et cetera, always
    requires the tribe to underwrite, and thereby jeopardizing or
    putting at risk the entire tribe's assets for the development
    of individual commercial industry of any magnitude. And it has
    to be of some magnitude if it is going to be sustainable.
        We need to look at those things, as Mr. Colbert pointed
    out, that are currently within the law that impede the tribes
    in their relationship with commercial industry, and allow a
    study by Indians with Congress and with people in the industry
    to be accomplished so that the real overall solutions can be
    accomplished.
        There are so many things out there that at some points we
    are able to access. At Lower Brule, we have been able to do
    things because, somehow, there is a feeling that I am not going
    to go away or die or anything. We all know that is a reality.
        It needs to be so that anyone in tribal government, any
    tribe has the same and equitable access. It cannot be just
    built on the iden-
    tification of the leadership and the idealism that respective
    tribe
    presents.
        In order to sustain ourselves and to develop our
    reservations as we truly should, the whole infrastructure has
    to be dealt with. And at the risk of plugging something we have
    been working on, the whole idea of Wakpa Sica, and that
    project, is about doing that
    effort.
        But I believe in the interim, there has to be a panel of
    Indian experts and financial, a panel of Indian political
    persons who deal with financial institutions, and people from
    Congress and the Administrations to really work on this project
    and to develop the entire solutions, because this is no easy
    answer.
        As you can see, we have tried in my testimony to identify
    some of the problems and our projected solutions.
        But we could go on with volumes and volumes of paper
    identifying those solutions. But without a comprehensive
    process to pull this all together and to say, this is what we
    are going to go forward with, I do not believe that we are
    going to accomplish very much.
        And there are some sincere people in the different
    financial processes in the Federal Government. But so many
    times, there are regulations, there is lack of capital, there
    is lack of guarantee levels, that are happening during that
    period of time to really do a lot to solve the problem overall.
        So, I guess that is my basic statement. Thank you.
        Mr. Johnson. Well, thank you, Chairman Jandreau. I want to
    acknowledge as well President John Yellowbird Steele has joined
    us here as well from the Oglala Sioux Tribe in South Dakota,
    and we are pleased to have him in attendance as well.
        Ms. Meeks, welcome.

                        STATEMENT OF ELSIE MEEKS

                           EXECUTIVE DIRECTOR

                   FIRST NATIONS OWEESTA CORPORATION

        Ms. Meeks. Thank you. I am very appreciative that you have
    invited me here and thank you for holding this hearing. I guess
    Chairman Steele is here to keep me honest.
        [Laughter.]
        I work for First Nations Oweesta Corporation now, which was
    launched by First Nations Development Institute. We were
    launched to help Native communities access financial capital
    through the development and/or expansion of community
    development financial institutions. We provide technical
    assistance and training to Native communities to start these,
    and I will call them Native CDFI's.
        Part of our effort, too, and this is just part of our
    effort, as Franklin Raines mentioned, is, along with Fannie
    Mae, we have developed a consumer financial literacy
    curriculum. It is called, Building Native Communities--
    Financial Skills for Families. We go out and do trainers of
    training sessions so that people from the communities can learn
    how to use this curriculum and provide it to their community
    members.
        So, we think that generations now have to have financial
    skills to help them make decisions about personal finance and
    credit, and that is a serious economic barrier for many Native
    communities.
        We are also the facilitator of the Native American
    Financial Literacy Coalition, and we are helping to overcome
    that barrier by supporting efforts to improve financial
    literacy and education and awareness in Indian Country.
        My experience was really with the Lakota Fund to begin
    with. And my experience and that of First Nations really has
    showed us that tribes need institutions at the local and
    regional level to help form capital and provide technical
    assistance to their members. Tribes and communities need to
    develop their own institutions, to build their own wealth, and
    to build their own management capability. And Native CDFI's can
    provide capital for a number of things, including businesses,
    land acquisition, homeownership, consumer loans, and community
    development projects, and all of these help to create a healthy
    economy. Native CDFI's can also leverage grants from
    foundations, bank loans, and other sources of capital to bring
    into their community. And most importantly, they really work to
    build the capacity of their community members to improve their
    credit and to develop and manage management experience in
    business.
        As I said before, my experience in the community
    development financial institution field began in 1985 with the
    development of the Lakota Fund, which was started by First
    Nations Development Institute, the organization I now work for.
    The Lakota Fund is a private, nonprofit, Native CDFI on the
    Pine Ridge Reservation. And I think most people are aware that
    Pine Ridge has been one of the poorest reservations in the
    Nation, and that the problems that persist there have gone on
    for many years. But despite that, the Lakota Fund is widely
    regarded as one of the most successful private-sector
    initiatives in Indian Country. And for the first 10 years that
    we were in operation, we never had one dime of Federal funding.
    This was all from private sources--foundations, socially
    responsible investors that believed that we could do the job.
        When we first started lending, 85 percent of our borrowers
    had never had a checking or savings account. Seventy-five
    percent had never had a loan and 95 percent had never been in
    business.
        We were started with the mission of small business lending.
    If anybody had told us how hard this was, we would probably
    have never done it.
        But the Lakota Fund now lends in amounts up to $200,000. We
    started at $10,000, was our limit. We have--they have--I have
    to say they because I do not work with them any longer--have a
    loan fund capital of $3\1/2\ million from foundations,
    corporations, and private investors.
        They provide training and technical assistance. They have
    loan loss rates of less than 10 percent. They have developed an
    IDA savings program, a low-income tax credit housing project.
    They operate a tribal business information center.
        Now, lending in that environment, I mean, it really begs
    the question, how could we do it when banks and other lenders
    could not seem to? And I think it can be summed up in the fact
    that we wanted to. We wanted to change our community, and that
    is what a lot of other Native CDFI's, why they get started, is
    because it really is too hard for banks to make these kinds of
    loans. These are all start-up businesses, to sometimes first-
    time borrowers.
        And so, there really needs to be a mechanism in place on
    the local level that can allow people their first access to
    credit and their first step into business. And that is what a
    lot of Native CDFI's do.
        There has been many valuable lessons learned from the
    Lakota Fund. This was not easy and we made lots of mistakes,
    honest mistakes, and a lot of missteps. But these lessons
    really have helped other Native communities develop their
    strategies around lending. And I have listed some of the
    strategies and some of the lessons learned in the written
    testimony. Chief among those is keep politics out of the
    lending decisions, and that is really important. Then just
    building good operating systems and policies and adhering to
    that. And being model organizations.
        There is a lot of other organizations now starting and a
    lot of other Native CDFI's starting. The Navaho Partnership for
    Housing, the Oglala Sioux Tribal Partnership for Housing are
    both organizations that are looking at starting--well, they are
    promoting homeownership, but out of desperation, in both cases,
    they have had to develop small CDFI's to provide some of the
    gap financing.
        The Partnership for Housing has actually made some direct
    mortgages that--it is an alternative form of flexible financing
    until these loans can get through the land issues, the
    collateral issues, and then they can be sold to conventional
    lenders.
        I want to say one thing about the role of the CDFI fund.
    Rodger Boyd addressed that here and talked about the NACTA--the
    Native American Component for Technical Assistance. I do not
    know that he said that there were 47 applications for that, and
    that is to help tribes develop CDFI's.
        I think 47 is a phenomenal figure, and that is just in the
    first round. So, I think it shows the importance of the CDFI
    fund and the NACTA program.
        There is not a single other agency that I know of that
    really helps tribes, that has focused on helping tribes set up
    CDFI's, and they are so important.
        And I want to close by giving just a brief example of an
    instance of the Oglala Sioux Partnership for Housing and the
    reasons that these CDFI's can be so important.
        They also operate a self-help housing program that up to 10
    families a year get together and build their own homes. And it
    is really just a wonderful program.
        But throughout this process, then they are trying to get
    financing, get the houses mortgages. And they have used the
    USDA Rural Development 502 loans, or tried to.
        But, for one person, a single mother. Her credit was good.
    She had always worked. She wanted to build her home on her own
    homeland. There were only four people that owned interest in
    that land. And that complicated it more.
        If it had been tribal land, it wouldn't have been nearly as
    difficult. But because of that--and really, the problem lay
    within rural development's lawyers that needed absolute
    certainty.
        And the partnership for housing was able to make that loan,
    just do their own flexible financing, because they had
    reasonable certainty that she would pay the loan back. She had
    agreements from the other family members.
        That is just one instance, but I can go on forever about
    the kinds of projects that these CDFI's have been able to do
    and the importance of the CDFI fund.
        Thank you.
        Senator Johnson. I have one question for Mr. Boyd and Mr.
    Fischer.
        You both observed that one of the things we need to be
    doing is paying some attention to the quality of the legal code
    and the legal system so that it has credibility, both on and
    off the reservation, whether it be an Indian lender or a non-
    Indian lender.
        Congress has been reluctant to impose on the tribes a
    separation of powers between the executive and judicial
    branches. The tribes are sovereign, and so that is their choice
    to make relative to that issue.
        But given your experience and watching the tribal legal
    systems develop over the years, is it your belief that getting
    the politics out of a tribal legal system and having some
    separation between the executive and the judicial system, is
    that a recommendation that you would make generally to tribes
    who are looking at ways to attract the confidence of lenders
    for investment in their reservations?
        Mr. Boyd, any comments about that?
        Mr. Boyd. Yes, Mr. Chairman. As a matter of fact, in our
    study, that was one of our recommendations. We broke down the
    recommendations into three distinct areas--making
    recommendations to tribal governments, to financial
    institutions, and to Federal agencies.
        In the recommendations to tribal governments, we clearly
    began to see and picked up throughout all the workshops that we
    did throughout the country that this is a big issue, that the
    lenders needed some kind of stability. They needed to be able
    to work with tribes in a uniform way, so that the more uniform
    commercial codes that could be developed, more consistency that
    could be developed within the tribal systems. And certainly, as
    tribal sovereigns, they have that authority and that
    jurisdiction to do it.
        So, we strongly encouraged tribes to seriously look at that
    as their contribution to lowering some of these barriers to
    accessing capital.
        Senator Johnson. Mr. Fischer, I know that you concur that
    these are decisions for the tribes themselves to make in terms
    of the nature of their legal system. But you have taken a very
    active interest in creating an environment where perhaps an
    appellate system could be created. It is obviously up to the
    tribes themselves to make those decisions. But you have paid
    some attention to legal systems in Indian Country.
        Any further elaboration on that, in your experience?
        Mr. Fischer. Senator, I truly believe that it needs to be
    separated. I think the mere fact that we are here today
    substantiates that it is not working or it is not working to
    its potential.
        I truly believe that if Indian Country is to develop to its
    highest and best use, that something has to be changed. You
    have to build some credibility into it.
        I know one of the things that has happened at Cheyenne
    River is they have incorporated the State Uniform Commercial
    Code. We do quite a bit of business up there as far as ranchers
    and farmers are concerned. It gives us comfort. But definitely,
    there are classic examples where every 2 or 4 years, depending
    on the term of the chairman and the council, everything turns
    over.
        Now, one of the unique features of Lower Brule is that
    hasn't happened. And because of that, there is quite a bit of
    credibility with creditors and outside people with regards to
    that it is going to be the same as is, or should be. On the
    other hand, we all know about the example of the Bell Farm
    situation at Rosebud that got very complicated.
        I do think that some separation, some check and balance
    needs to be incorporated. I certainly understand the
    sovereignty. But, on the other hand, if, for some reason--it
    still can all be tribal. If there is a reason that we can
    figure out a way to do it better,
    easier--and that is one of the reasons why we, or I, am a
    champion of the Wakpa Sica project with the tribal supreme
    court. I think it is long overdue and I think it will benefit
    the tribes, as well as people off the reservation. So it is a
    step.
        I think, whether it is in banking or whether it is in
    business, to survive, you have to change. And that needs to be
    done, constructive change.
        And so, I am. I am an advocate for separating, providing
    stability. And I think, as I mentioned this Sioux Supreme
    Court, Wakpa Sica's project, would be a step in the right
    direction.
        It just is not working. It may have worked at one time, as
    far as I am concerned, but it is not working now. We would like
    to go and do business with enrolled members, do business with
    tribes. On the other hand, there is a fine line between being a
    good guy and a dummy, and we need to sort. The tribes need to
    make it as comfortable for us, as well as we need to make it as
    comfortable for them.
        They have hundreds of millions of dollars of assets and all
    kinds of potential. So we are looking for ways, and we think a
    change would--I do not know what the right change is, Senator,
    but I do think something needs to be addressed.
        Senator Johnson. Very good, Mr. Fischer.
        Mr. Colbert, you made reference to various kinds of Indian-
    run or owned financial institutions. Given your observation
    over the years, are we able to draw any conclusions at this
    point about
    what kind of institution, what kind of bank, what kind of
    charter, whether it is tribally owned or individually Native
    American-owned, or whether it is a credit union versus a bank.
        Any conclusions we can draw yet, from your observation,
    about what seems to work best? Or are there no generalizations
    that can really be drawn, given our experience to this point?
        Mr. Colbert. Yes, Mr. Chairman. I think that, I personally
    see that--I would love to see the spectrum of financial
    institutions that exist in the dominant society in effect be
    replicated where appropriate in Indian Country.
        Certainly, I mentioned community development credit unions.
    Those have been successful in certain jurisdictions. Regular
    commercial banks have been successful in other jurisdictions.
        A lot of that is predicated on the readiness, willingness,
    and ableness, if you will, of the owners and organizers of
    those institutions to meet the local needs.
        Ultimately it depends, in large part, on what are the
    particular financing needs of that particular community or
    reservation, and then to begin to organize an appropriate type
    of financial institution around that need.
        And it may be, for example--we have talked about some of
    the community development financial institutions who are
    subjected to the same degree of regulation as, let us say,
    banks or S&L's might be. I think, clearly, there is a role and
    a need for those.
        So, in summary, Mr. Chairman, I would simply say that I
    think we do need a range of financial institutions, all of
    which have pros and cons to their particular type of charter or
    organization. But it really depends on what do the organizers
    want to accomplish and what market are they looking to serve?
        Senator Johnson. Very good. Chairman Jandreau, it strikes
    me, looking at the success that you have had in Lower Brule,
    that one of the things you have been able to do is to get, by
    and large, to get the politics out of the management of tribal
    businesses and enterprises in Lower Brule.
        Where you have had local talent, you have utilized local
    talent. Where that wasn't available, you have not thought twice
    about going outside the tribe and bringing in management skills
    for the various enterprises that the tribe has run.
        I wonder if you would comment about that. You have been
    chair there for many years, and obviously, there has to be an
    enormous amount of pressure on you to hire somebody's son,
    daughter, or cousin for a high position in this business or
    that enterprise going on. How have you dealt with that and kept
    your eye on the quality management of these enterprises?
        Mr. Jandreau. Basically, we have done that through the
    ability to communicate with the people that--our reservation
    community is not real large, as you know. Approximately 1,600
    members live on the reservation. And so, our ability has been
    to communicate with different groups of leadership--elders,
    other significant individuals who are in leadership roles,
    either heads of large families or things of that nature.
        One of the things that we have found is that the more
    involved that those segments of our population are with, and
    understanding what our end-goals are, and being actually a part
    of creating those end-goals, has been significant in allowing
    us to hire management, whether it is our own tribal members or
    whether it is individuals who possess the skills necessary from
    outside of our community,
    to advertise for them and to interview them and to go through
    the processes that are used nationwide, in trying to acquire
    good management.
        We will also create incentive programs for the individuals,
    whether it is tribal members or nontribal members, so that
    their end result is their productivity determines the
    expansiveness of their salary range.
        And we have found that very effective. We have found that
    has created in the hearts and minds of people a greater desire
    to get the right product accomplished.
        I would like to go back to, though, one question that I
    heard you ask Mr. Fischer. And that is in regard to the
    changing of the constitutions to allow for the separation of
    powers.
        Although I do not disagree totally with that concept, I
    believe that concept has to be done with the cultural relevance
    that is to be expressed by that particular band or tribe, being
    a very significant part of it.
        I have also found on Lower Brule in regard to both of the
    questions that you asked me and that you had asked them, that
    the success of that is depending on the education that is
    provided to the people who make the decision, and in the
    membership, and in the governing body.
        So that process, whether totally accepted or totally
    rejected, is at least understood. And that makes all the
    difference in the world.
        I guess maybe that sounds too simple.
        Senator Johnson. Well, it strikes me as the same philosophy
    as you used for your business management, that the tribe feels
    that they have a stake in it, that it was their idea and they
    are the ones who benefit from it. And the same would be true of
    any kind of legal system reorganization, that it has to come
    from within the tribe itself, I think is what you are saying,
    rather than we here in Washington are going to tell the tribe,
    regardless of their culture or traditions, how to run their
    legal system.
        I think your point is very well taken.
        Elsie, we could talk all day about your experiences. I am
    fascinated in part with your development of the Lakota Fund,
    which is another financing mechanism. We talk about banks and
    credit unions and things. But this has been another one that
    has been a success story.
        I wonder if you could tell us a little bit from your
    observations, how do you set up a fund like that and allocate
    the loans in a thoughtful, professional manner, require, I
    assume, business plans of some kind from people who do not have
    a lot of experience with business plans.
        You do not become a source of money for everybody who woke
    up one day and said, why don't I do this or that? How do you
    keep this from becoming some crony slush fund?
        And then, last, how do you guarantee these loans? How do
    you have any confidence that you will get repayment if in fact
    the business goes bad?
        Ms. Meeks. Well, those are all good questions and important
    questions, that if any Native community or tribe is going to
    set up a CDFI, they have to ask those same questions.
        Those are the exact lessons we learned at the Lakota Fund.
    I think Mike said it very well, that education is a big part of
    that. And at the Lakota Fund, we had to find ways to make loans
    and training was a big piece of that. If people did not know
    about business, we had to deal with the issue of how do we even
    help them to understand the concept of what it means to be in
    business?
        So, we provided a training program that was 10 weeks long
    that people had to go through if they would even be considered
    for a business.
        Only a Native CDFR or CDFI could do something like that.
    There had to be financing attached to it, at least the hope of
    financing. There has been the Tribal Business Information
    Centers, which are important, that I think Congress has
    addressed recently.
        But many of the tribes that I have talked to have those
    training programs, but they do not have the financing
    available. So, at the end of the business plan, there is
    nothing.
        It is very important that I tell tribes in Native
    communities
    everywhere that tribes can play a very important role in
    developing these CDFI's. They can provide financing. They can
    provide the first step, as with the Four Bands case. The
    Cheyenne River Sioux tribe actually hired a person out of their
    economic development office to set up the fund. But they
    developed a separate board.
        I always tell communities, too, that it is very important
    to get bankers on their board that have lending experience. We
    use them extensively. We quit beating up on them after we
    understood all the issues of lending.
        So it is just all those lessons. And it is just building,
    it is really building the market, building borrowers, building
    business people. We realized that is what our key purpose was,
    was that we were building a business foundation that had not
    been there before.
        It has been a long, slow process, but now we have a number
    of businesses at Pine Ridge. In fact, I look at Pine Ridge,
    despite its few problems, and there is really a lot of people
    in business in Pine Ridge, a lot of contractors, and I think a
    lot of that has come out of the culture that the Lakota Fund
    has helped build.
        Senator Johnson. I applaud the development of a chamber of
    commerce at Pine Ridge.
        Ms. Meeks. Yes, that was another key issue.
        Senator Johnson. I think that is a wonderful new
    development, of people banding together to promote
    entrepreneurship and business development.
        Well, let me say, I think that this has been a very
    valuable hearing. And I think the testimony here is going to be
    looked at with great care by my colleagues and by staff.
        I am a bit in a unique situation to be a Subcommittee
    Chairman on this Banking Committee. I also serve, of course, on
    the Indian Affairs Committee and on the Appropriations
    Committee.
        And there is no question that the Federal Government
    cannot, should not walk away from its trust and treaty
    obligations. We cannot allow that to happen.
        But, at the same time, if that is all we focus on, we will
    have made a huge mistake. The symptoms of poverty and
    unemployment will continue to bedevil us so long as we do not
    complement the Federal Government IHS and BIA programs with a
    growing, blossoming private sector, with more Native American
    entrepreneurs, with more tribally run enterprises, that is
    giving us revenue streams both for the tribe and for individual
    Native American citizens. Until that happens, we will never
    have enough subsidized housing and subsidized health care and
    subsidized this and subsidized that.
        They are all important programs, but it has to be
    complemented, I think, with a much more robust private
    capitalization and private-sector development in Indian
    Country. Otherwise, we are simply never going to get ahead of
    the curve of all the symptoms of poverty and unemployment that
    we currently suffer.
        Your testimony here today is going to be very useful to the
    U.S. Senate as we begin to rethink our relationship, in a
    Government-to-Government relationship with our tribes, honoring
    and recognizing their sovereignty, and yet, rethinking in some
    ways what needs to be done, what the full breadth of the
    relationship between America as a whole and our Native peoples
    should be.
        And so, I think that this has been a very useful hearing,
    and I thank you for taking time and the distance that you have
    traveled to join us here today.
        And so, with that, the hearing is adjourned.
        [Whereupon, at 12:05 p.m., the hearing was adjourned.]
        [Prepared statements and additional material supplied for
    the record follow:]

                   PREPARED STATEMENT OF SENATOR TIM JOHNSON

        Good morning. I would like to thank all of the witnesses in
    attendance at today's hearing for providing testimony on the important
    issue of bringing more capital investment to Indian Country. Also, I am
    encouraged by the number of people in the audience who, obviously, have
    an interest in what we are doing. In particular, I would like to note
    that John Steele, President of the Oglala Sioux Tribe in South Dakota
    is here today. President Steele is testifying this afternoon before the
    Senate Energy and Natural Resources Subcommittee on Water and Power,
    and I am pleased he is able to join us here this morning for this
    important Banking Subcommittee Hearing.
        In spite of the recent economic downturn and some uncertainty in
    the capital markets, most Americans can look forward to continued
    prosperity. However, an important segment of the population--the
    approximately 2.7 million Native American and Native Hawaiian people
    living in the United States--has never fully shared in America's
    wealth. In order to resolve this disparity and create meaningful and
    sustainable economic growth, we need to continue to look at innovative
    strategies and draw, not only on the resources of Federal and State
    governments, but also private capital markets.
        Part of the reason that I wanted to hold this hearing under the
    auspices of the Financial Institutions Subcommittee is to emphasize the
    importance of access to private sources of capital. I want this hearing
    to be less focused on Government subsidies, although these are
    important, and more focused on the role that private
    financial intermediaries can have in creating and sustaining a viable
    economic infrastructure on Indian Lands.
        Consider the following statistics. According to U.S. Department of
    Commerce census data, unemployment rates on Indian Lands in the
    continental United States range up to 80 percent, compared to 5.6
    percent for the United States as a whole. Census data also show that
    the poverty rate for Native Americans during the late 1990's was 26
    percent, compared to the national average of 12 percent. In fact,
    overall, Native American household income is only three-quarters of the
    national
    average.
        This disparity is particularly evident in my home State of South
    Dakota where Native Americans represent over 8 percent of the State's
    population. While the overall State economy is relatively strong with,
    for example, a low 3.1 percent unemployment rate, the Native American
    population continues to suffer. South Dakota counties with Indian
    Reservations are ranked by the U.S. Census Bureau as among the most
    impoverished in the United States.
        In light of this unacceptable economic disparity, I believe it is
    important to address this issue in a comprehensive manner. At the
    hearing, we will consider issues such as:

     mechanisms for providing small business capital;
     means for fostering the growth of Native American-owned
        financial intermediaries;
     incentives for financial institutions to provide services on
        Indian Lands;
     ways to encourage personal savings; and
     vehicles for improving financial literacy.

        In essence, the purpose of this hearing, is to explore what this
    Subcommittee can do to facilitate and expand the private sector economy
    in Indian Country. To accomplish this, tribes and enrolled members on
    the reservations must have access to private capital and the
    wherewithal to put it to good use.
        Presently, I am working with my colleagues in Congress on a number
    of initiatives to promote capital investment in Indian Country:

     I recently sponsored The Native American Small Business Act
        that creates a statutory Office of Native American Affairs and
        establishes related assistance programs.
     I have played an active role in reauthorizing the Native
        American Housing Assistance and Self-Determination Act and have
        sponsored a bill to allow the low-income housing tax credit to work
        more effectively with block grants provided under this program.
     I am a cosponsor of the Indian Financing Act Amendments, which
        will create a secondary market for small business loans guaranteed
        by the Department of the Interior.
     Since education is an important part of economic development,
        I have sponsored the Indian School Construction Act which
        establishes a pilot program under which eligible Indian tribes have
        the authority to issue bonds to fund the construction,
        rehabilitation, or repair of tribal schools. Bondholders receive
        tax credits.
     Also, one provision of the American Indian Welfare Reform Act
        expands tribal authority to issue tax-exempt private activity
        bonds. This would expand the use of these bonds for residential
        rental properties, qualified mortgage bonds and, in some
        circumstances, enterprise zone businesses.
     Relating more to family savings, I am a proponent of
        broadening the availability of Individual Development Accounts
        (IDA's). These accounts are savings accounts maintained by low-
        income individuals where amounts deposited by the saver are matched
        to some extent by the sponsoring organization. Funds saved in IDA's
        only can be withdrawn for education, starting a small business, or
        purchasing a home. The Savings for Working Families Act, which I
        cosponsored, would provide tax credits for organizations that
        sponsor IDA's.
     Finally, I want to mention the Wakpa Sica initiative, which a
        number of us are working hard to make a reality--including,
        notably, two of today's witnesses,
        Michael Jandreau and Bill Fischer. One of Wakpa Sica's goals is to
        improve the court system on the reservation to facilitate private
        sector lending.

        I am sure there is much more that can be considered. I look forward
    to hearing any thoughts you may have on other initiatives that can be
    undertaken to provide greater access to capital in Indian Country and
    bring about a sustainable independent economic base for the future.
        Let me add just one more thought before we hear from our
    distinguished panel of witnesses: the concept of tribal sovereignty is
    central to the integrity of the reservation, and we must do everything
    we can to protect tribal sovereignty. I am concerned about the
    viability of sovereignty in the long run if we do not succeed in laying
    the groundwork for a viable private sector economy on Indian Lands
    through initiatives like the ones we will discuss today.

                                   ----------
                    PREPARED STATEMENT OF FRANKLIN D. RAINES
                Chairman and Chief Executive Officer, Fannie Mae
                                  June 6, 2002

        Thank you, Chairman Johnson and Members of the Committee. I want to
    thank you for inviting me to testify on the state of homeownership on
    tribal lands and to commend you, Chairman Johnson, for your leadership
    on this issue. Without the attention of Members of Congress, public and
    private sector efforts to expand homeownership opportunities to the
    Native American community would not be successful.
        I am pleased to be here today to discuss Fannie Mae's commitment to
    expanding homeownership in tribal communities and the steps we are
    taking to overcome the barriers to capital access on tribal lands.
        As this Subcommittee is keenly aware, Fannie Mae's mission is to
    expand homeownership, with a special focus on helping underserved
    Americans overcome their unique barriers. Our role among financial
    institutions--and what sets us apart--is that we provide private
    capital to all communities, at all times, under all economic
    conditions, at the lowest rates in the market. Finding ways to create
    affordable housing opportunities for Native American families living on
    tribal lands is one of the toughest challenges to our mission. Native
    American families are one of the most underserved, impoverished
    minority populations in the country. Native American homeownership
    rates are substantially below the national average, ranging between 33
    percent and 55 percent,\1\ and Native Americans are six times more
    likely than any other ethnic group to live in substandard or crowded
    housing. Stubbornly high levels of poverty and unemployment are
    significant barriers to conventional credit, as is the legal complexity
    of mortgage lending on Native American lands.
    ---------------------------------------------------------------------------
        \1\ 2000 Census data put Native American and Alaskan Native
    homeownership at 55.4 percent, but other measurements list Native
    American homeownership at lower percentages; HUD and Treasury's One-
    Stop Mortgage Center Initiative's A Report to the President published
    in October 2000 puts the rate at 33 percent, and a 1997 Census survey
    found that 46 percent of Native American respondents reported owning a
    home.
    ---------------------------------------------------------------------------
        Fannie Mae has embraced this challenge, and we are committed to
    working with Congress, Native American tribes, the Bureau of Indian
    Affairs, the Department of Housing and Urban Development, the U.S.
    Department of Agriculture, mortgage lenders, and other housing leaders
    to increase mortgage financing opportunities for Native Americans. We
    believe firmly that our housing finance system can and must do more to
    ensure that Native Americans have an equal opportunity to obtain
    mortgage financing.

    Fannie Mae's Commitment to Native American
    Borrowers and Communities

        Fannie Mae's first formal effort with tribal communities began as
    part of our Trillion Dollar Commitment--a commitment to invest $1
    trillion to serve 10 million underserved families--low- and moderate-
    income families, minorities, new Americans as well as residents of
    central cities and urban areas. Through our Native American Housing
    Initiative (NAHI) we committed for the first time to purchase HUD and
    USDA guaranteed mortgages on tribal lands.
        We increased our efforts to expand housing opportunities for Native
    Americans in 2000 with Fannie Mae's American Dream Commitment--a 10-
    year, $2 trillion pledge to increase homeownership rates and serve 18
    million targeted families by 2010. This effort includes a formal
    strategy to address the unique housing needs of Native Americans, one
    element of which is a commitment to invest at least $350 million to
    serve 4,600 families and to expand our network of partnerships to
    include 100 tribes on trust and tribally restricted land.
        We are well on our way to achieving these goals. Here are some of
    our accomplishments:

     Over the past 4 years, we have helped over 50,500 Native
        American families purchase homes off trust lands, by providing more
        than $6 billion in affordable financing, and on reservation and
        trust land, we have invested over $174 million to serve over 1,900
        families;
     We have partnered with 113 tribes--exceeding our commitment to
        partner with 100 tribes;
     In 2001, we invested $81 million and purchased loans made to
        tribal members of 46 tribes, helping over 950 families, and in the
        first quarter of 2002 have continued to see expansion, with $38
        million in loans to members of 42 tribes helping over 400 families
        on reservation and trust land; and
     In 2001, we invested more than $12 million with the Enterprise
        Social Investment Corporation and the Raymond James Indian Country
        Tax Credit Fund to develop low-income housing tax credit business,
        which includes new construction for rental housing as well as
        rehabilitation of existing housing units in Native American
        communities.

    Overcoming Barriers

        While delivering these quantifiable results is necessary and
    important, it is not sufficient to achieving our goal to increase
    housing opportunities for Native Americans. Some of the most important
    work we and others have done, and will continue to do, centers on
    building trust and developing relationships that will allow us to be
    successful in these communities for the long run. That is why a
    fundamental piece of our approach to serving this community has been
    working to build a lender base that understands the challenges of
    tribal communities. The gains we have made are made possible by working
    collaboratively with tribes and lenders to understand the needs of
    these communities and to overcome some of the barriers to capital
    access--and there are many--that block the economic development of
    Native American communities.
        I would like to share with you some of the issues Fannie Mae has
    faced in our efforts to bring the American Dream of homeownership to
    first Americans, and what we are doing to meet these challenges.

    Economic and Infrastructure Barriers

        The most stubborn barrier to capital access in Indian Country is
    the lack of economic opportunity. Poverty rates are 26 percent for
    Native Americans, over double the national average of 12 percent. The
    unemployment rate for tribal communities is 50 percent. The annual
    household income of Native American households is less than $8,000.
    And, in many tribal communities, the economic base is negligible,
    leading to substandard infrastructure. Many Native American
    reservations and tribally designated lands suffer from a limited
    housing stock and a lack of road and utility infrastructure to support
    new housing.
        Against this backdrop, it is not surprising that estimates of the
    Native American homeownership rate range between 33 percent and 55
    percent, well below the national rate of 67 percent, and that Native
    Americans are pessimistic about the lending process; a 2000 survey by
    the Treasury Department found that 65 percent of tribal members viewed
    conventional home mortgages as ``difficult'' or ``very difficult'' to
    obtain. While it is not clear how many mortgages there are on Indian
    Lands that are held in trust, a joint report by Treasury and HUD found
    that in 1999 there were only 471 home mortgages on Indian Lands
    overall, even though an estimated 38,000 families residing on Indian
    Lands had sufficient income to qualify for a mortgage.
        Obviously Fannie Mae cannot single handedly overcome these
    difficulties. As Chairman Johnson and Members of this Committee
    recognize, the Federal Government must play a role in working with
    tribes to create self-sustaining economies by bringing private
    companies and tribal governments together. Fannie Mae can help by doing
    what we do best: developing the tools that expand access to
    homeownership. Homeownership is a key driver of economic growth and
    revitalization. It promotes commercial investments and infrastructure
    improvements, which in turn reinforce homeownership. By expanding
    homeownership for Native Americans, we can not only provide families
    with better housing, but also with the power to raise capital,
    accumulate wealth, and build a more secure financial future.
        Fannie Mae is taking a two-pronged approach to promoting
    homeownership in tribal communities: first, by developing the right
    products to optimize Native American access to homeownership, and
    second, by expanding housing capacity on tribal lands.
        Product Development. Fannie Mae is working with our lender partners
    to tailor lending products to meet the needs of tribal members who lack
    the resources to qualify for traditional financing. In 1999, we
    launched our Native American Conventional Lending Initiative (NACLI),
    designed to make conventional lending possible for Native Americans on
    tribal trust or otherwise restricted lands. Through this initiative,
    the full range of our low down payment mortgage product options, as
    well as specific accommodations responsive to the unique circumstances
    of Native American borrowers, are available to lenders working on
    tribal lands.
        Fannie Mae has also customized its suite of Community Lending
    mortgage products to respond to the unique needs of Native American
    communities. Our Community Lending products are designed to help
    borrowers overcome the two primary barriers to homeownership--lack of
    down payment funds and qualifying income--through lower cash
    requirements for down payment and closing, reduced qualifying income
    requirements, and higher acceptable debt-to-income and loan-to-value
    ratios than required for traditional conventional mortgages. To this
    product line we have worked with tribes to add features such as
    homebuyer education, down payment assistance programs, and intervention
    programs for borrowers who get into difficulty.
        As of the first quarter of 2002, we have established relationships
    with sixty lenders to make loans to Native Americans on tribal lands.
    Some of our major partners include Countrywide Home Loans, First
    Mortgage Company, J.P. Morgan Chase, Wachovia Corporation, and
    Washington Mutual.
        Additionally, Fannie Mae uses automated underwriting to bring our
    most flexible underwriting options to Indian Country. The Chickasaw and
    Choctaw Nation of Oklahoma and the Aluetian Housing Authority in Alaska
    have developed the capacity, using our Desktop Originator technology,
    to act as a loan origination source, expanding availability of low down
    payment loans to tribal members.
        Housing Capacity. Fannie Mae is partnering with public and private
    resources to address some of the infrastructure challenges to expanding
    housing capacity. Fannie Mae has worked with tribes to support new
    construction through investments in low-income housing tax credit
    investments, collateralized revenue bonds and HUD guaranteed Native
    American Housing and Self Determination Act (NAHSDA) Title VI loans.
    Fannie Mae LIHTC investments helped create 156 units of housing in
    2001, and we have an additional 232 units in the 2002 pipeline.
        We have also begun developing a secondary market option for
    development loans guaranteed by HUD under Title VI of NAHSDA,
    purchasing the only loan yet sold in the secondary mortgage market--a
    $412,000 loan supporting the Pojoaque Corporation in New Mexico, and
    working with other partners to ensure a ready outlet for loans
    originated under this program.
        In South Dakota, Fannie Mae has made a 5-year, $3 million
    commitment to the Pine Ridge Reservation, which includes a $250,000
    venture capital investment to develop 14 single family homes and, in
    partnership with PMI and First Mortgage Co., a $100,000 revolving loan
    fund for more new home construction. As part of this commitment, we
    also invested $500,000 in the Lakota Fund, the Community Development
    Financial Institution that is helping to create small business and new
    jobs at Pine Ridge--the first step to creating new homeowners.
        I would also like to acknowledge the work of Elsie Meeks, the next
    panelist. It was with her support and cooperation that Fannie Mae made
    this commitment, and I would like to thank her for her work on this
    project.

    Legal and Regulatory Barriers

        Perhaps the greatest single obstacle to increasing homeownership in
    Indian Country is the legal framework governing tribal lands. Trust
    land is inalienable, being subject to transfer restrictions imposed by
    Indian treaties, Acts of Congress and proclamations of the Secretary of
    the Interior, and is generally subject to the jurisdiction and laws of
    the tribe, which is protected by sovereign immunity. Tribal
    sovereignty generally entails the right to govern, adjudicate disputes,
    and be immune from lawsuits. While some tribes have fully developed
    commercial codes,
    others maintain a tribal council or executive body as a legal
    enforcement mechanism, and some have no court system at all. As a
    result many lenders have concerns about the enforceability of
    contractual obligations and of the legal remedies available. Some
    lenders have been unwilling to provide capital in the face of such
    legal uncertainty.
        Even for those willing to lend, the legal environment creates many
    additional hurdles. For example, there is a very limited market from
    which lenders can obtain data for the purposes of determining property
    values, and the restrictions against alienation further diminish market
    values. In addition, the making of a home loan on tribal land generally
    requires the tribe to be a party to the transaction and contracts
    related to the property that require the tribe to be a party are not
    enforceable unless the Federal Bureau of Indian Affairs (BIA) approves
    the contract. The BIA, as administrator of trust lands, also has to
    provide title status reports on land covered under any mortgage.
        Addressing the legal issues such as tribal sovereignty and tribal
    court jurisdiction is a prerequisite for increasing the flow of capital
    to tribal lands. But it is not an easy task, since each tribe is
    sovereign and acts independently.
        Tribal governments have recognized this and have taken steps to
    clarify tribal sovereignty and sovereign immunity, particularly
    regarding business and housing development, but resolving this issue
    requires partnership from the private and public sectors. Fannie Mae
    has worked with HUD, the USDA, and Treasury to support tribes in
    creating standardized documents and model legal ordinances to support
    government guaranteed and conventional mortgage activity.
        In fact, in April we made a major announcement that we hope will
    minimize what has been a significant barrier to lending on tribal
    lands: Fannie Mae will no longer require tribes to make limited waivers
    of their sovereign immunity and we will also provide for the mutual
    consent to tribal court jurisdiction over conventional lending
    initiatives on tribal trust land.
        We believe that these modifications to our legal policy that
    simplify and streamline the implementation of appropriate structures
    for tribal governments will encourage our lender partners to expand
    their efforts to serve the Native American community. Addressing this
    issue should go a long way toward building a better relationship
    between the lending community and tribal governments and improving
    housing opportunities for Native Americans on tribal lands.

    Communication Barriers

        Another major barrier to homeownership in Indian Country has been
    simply communication. For years, Native American communities have been
    told how to solve their problems but given few opportunities to
    participate in developing the solutions. Fannie Mae recognizes each
    tribe as its own sovereign nation, with unique housing challenges and
    that a one-size-fits-all approach to expanding homeownership will not
    work with tribal communities.
        As a result, we are working to create an open dialogue between
    individual tribes in an attempt to gain greater understanding of each
    tribe and the challenges it faces. In April 2002, we convened the
    Northern Great Plains Native American Housing Summit, which brought
    together housing officials from 18 Native American tribes in the
    Northern Great Plains, representatives from the North Dakota Indian
    Affairs Commission, the South Dakota Tribal Affairs Commission, the
    North Dakota Housing Finance Authority, USDA Rural Development, the
    Federal Reserve Bank of Minneapolis and the National American Indian
    Housing Council to build stronger relationships and to improve
    communication among the various stakeholders. The Summit included a
    financial literacy course, workshops on a variety of homeownership-
    related issues, and a strategic planning session to identify key areas
    of focus for Fannie Mae and tribal leaders to work together to expand
    Native American homeownership.

    Information Barriers

        The final barrier to capital access for Native Americans we have
    identified is education. Many Native Americans do not have banking
    relationships, and in many Native American economies, financial
    transactions have long been conducted in cash. As a result, many Native
    Americans lack an understanding or familiarity with banking, credit
    reporting, and loan qualification process and standards. And
    unsurprisingly, they have difficulty obtaining credit through
    traditional means. Native Americans have had the highest conventional
    loan denial rate of any ethnic group every year since 1994; in 1999 the
    conventional loan denial rate stood at 43.2 percent.
        This lack of familiarity with bank practices and products also
    leaves many native communities vulnerable to unscrupulous financial
    practices that undermine communities' efforts to build financial
    assets. In 1999, the National American Indian Housing Council found
    that 68 percent of its survey respondents were victims of predatory
    lending.
        One of the products that Fannie Mae has tailored to help those with
    impaired credit is our Timely Payment Rewards mortgage. This product
    helps borrowers obtain affordable housing finance, while simultaneously
    helping to repair their credit. Under this mortgage a borrower who
    makes 24 on-time mortgage payments is eligible for up to a 1 percent
    rate reduction, effectively saving them up to $60,000 over the life of
    a $100,000 mortgage.
        We believe that improving financial literacy can be a significant
    help. To this end, Fannie Mae provides the sole funding for the Fannie
    Mae Foundation, for which I also serve as Chairman. As a result of
    Fannie Mae's financial support, the Foundation undertakes many
    activities to improve financial literacy of Native Americans.
        Most recently the Foundation partnered with First Nations
    Development Institute to develop a financial literacy curriculum
    entitled Native Communities: Financial Skills for Families. This
    curriculum is dedicated to promoting economic understanding and
    personal financial literacy among American Indians. Released in
    November 2000, this curriculum provides training about financial
    products and personal financial management and is a unique tool to help
    Native Americans build on their own knowledge and develop personal
    financial skills while embracing native traditions and values. Since
    its release, over 18,000 copies of the Building Native Communities
    workbooks have been distributed. In addition, the Foundation, First
    Nations and its key partners--including the Federal Reserve, HUD's
    Office of Native American Programs, and the National American Indian
    Housing Council--collectively have sponsored 33 ``train the trainer''
    workshops in 30 different tribal communities across the country,
    reaching 476 instructors who will offer financial education courses to
    their tribal members.
        In addition, the Foundation and its partners--the Enterprise
    Foundation, the Ford Foundation, HUD, and the Neighborhood Reinvestment
    Corporation (NRC)--announced 2 days ago that they will provide a grant
    of $200,000 to the National Congress of American Indians to develop a
    national homeownership curriculum designed for Indian Country. This
    initiative will build on the One-Stop Mortgage Center Initiative
    developed by the Department of the Treasury and HUD whose purpose was
    to identify barriers and promote homeownership opportunities in Indian
    Country. The materials will incorporate successful components of
    existing local programs to create a national homeownership education
    model that is easily accessible to tribes and tribal nonprofits
    nationwide.

    Fannie Mae's and Fannie Mae Foundation's Ongoing Efforts to
    Serve Native American Communities

    Fannie Mae

        Finally, I would like to briefly highlight for you some of the
    ongoing efforts of Fannie Mae to expand homeownership in tribal
    communities. First, Fannie Mae is moving aggressively toward the goal
    outlined in the $2 Trillion American Dream Commitment of investing at
    least $350 million for 4,600 native families and expanding our
    relationships to 100 tribes for Native Americans on trust and tribally
    restricted land.
        Second, we are continuing to collaborate with tribal communities
    and lenders to build relationships necessary to overcome the barriers
    to capital access in Indian Country. To this end, we have created an
    internal Native American Business Council, which will work to expand
    our capacity to make tangible investments that increase affordable
    housing opportunities on tribal lands throughout the country. Some of
    the goals of this Council include the following:

     building a stronger lender base by educating lenders about the
        unique characteristics of lending to tribal communities;
     teaching tribes to leverage Federal resources to support the
        production of additional affordable housing units; these programs
        include Title VI, loan programs, low-income housing tax credit, and
        the Mortgage Revenue Bond Program; and
     developing additional products appropriately tailored to the
        specific needs of each tribe.

    Fannie Mae Foundation

        The Fannie Mae Foundation will continue its work on providing
    financial literacy training to all Native Americans. It is also working
    on a comprehensive analysis of the conditions of Native American tribal
    communities entitled Economic and Housing Development Conditions,
    Constraints, Strategies, and Data Sources in Indian Country which will
    be published in 2003. This report, which will be a significant
    advancement in the housing community's understanding of the current
    economic conditions on tribal lands, will include the following:

     a discussion of the legal issues surrounding lands held in
        trust by the Federal Government, and their implications for
        mortgage lending and economic development on affected tribal lands;
     an examination of economic development conditions in Indian
        Country;
     an analysis of housing and homeownership conditions; and
     a qualitative examination of the data, which includes findings
        from interviews and focus groups, and from case studies of housing
        and economic development practices and challenges of the Navajo
        Nation in the southwestern United States and of the Seminole
        Reservation in Florida.

        I hope that with these commitments, Fannie Mae will begin to make
    progress in expanding homeownership for Native Americans. We recognize
    we have a long way to go, and we will continue to listen closely to
    Indian Country leaders. Combined with our knowledge of mortgage
    finance, we believe that we can create long-term partnerships with
    tribal leaders to address the tough housing and economic challenges
    facing Native American communities today.
        I want to thank Senator Johnson for his leadership and for his
    commitment to engaging in this process. He has shown immense dedication
    to serving the Native American communities in his State. I know he has
    been a champion of developing infrastructure in Indian Country and has
    been very active in helping tribal members efforts to revitalize their
    communities. I look forward to working with him to make these changes
    happen.
        Thank you, and I would be happy to answer any questions.

                                   ----------
                      PREPARED STATEMENT OF RODGER J. BOYD
                       Special Assistant to the Director
               Community Development Financial Institutions Fund
                        U.S. Department of the Treasury
                                  June 6, 2002

        Chairman Johnson, Senator Bennett, and Members of the Subcommittee,
    I am Rodger Boyd, Special Assistant to the Director of the Community
    Development Financial Institutions (CDFI) Fund. I appreciate the
    opportunity to appear before you today on behalf of the CDFI Fund. In
    addition to my current duties as Special Assistant, I served as the
    lead staff member for the Native American Lending Study conducted by
    the CDFI Fund. I have been asked to specifically address the findings
    of that study as they relate to the subject of this hearing, ``Capital
    Investment in Indian Country.''
        The Community Development Financial Institutions Fund is a
    Government corporation within the U.S. Department of the Treasury. The
    CDFI Fund's mission is to expand the capacity of financial institutions
    to provide capital, credit, and financial services in underserved
    markets.
        When the Congress authorized the CDFI Fund under P.L. 103-325, the
    enabling legislation required the CDFI Fund to undertake a study on
    lending and investment practices on Indian Reservations and other lands
    held in trust by the United States. The result, known as the Native
    American Lending Study (the Study), was undertaken for the purposes of
    meeting that Congressional mandate and examining the barriers to
    accessing capital and providing financial services on Indian Lands \1\
    and Hawaiian Home Lands. \2\, \3\
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        \1\ ``Indian Lands'' are defined for purposes of the Study as lands
    owned by or under the control of tribal governments including
    reservations, Indian Lands, and Alaska Native Villages. For purposes of
    the Study, Alaska Native Villages have the definition ascribed by 43
    U.S.C. 1602, et seq.
        \2\ ``Hawaiian Home Lands'' are defined for the purposes of the
    Study as trust lands held for the benefit of Native Hawaiian people and
    are administered by the State of Hawaii's Department of Hawaiian Home
    Lands.
        \3\ For the purposes of the Study, the term ``Native Hawaiian'' is
    defined as ``a person having origins in the original peoples of
    Hawaii'', see Federal Register 58,781 (1997). ``Native Hawaiian'' is
    not a term that refers to a Federally recognized tribe. Inclusion of
    Native Hawaiians in the Study does not confer or imply any specific,
    legally enforceable duties on the United States as trustee that apply
    under certain circumstances when it manages tribal or individual Indian
    property or resources. In addition, this study does not support or
    create any right enforceable or cause of action by or against the
    United States, it agencies, officers, or any person. The CDFI Fund's
    experience with CDFI's and prospective CDFI's in Hawaii has suggested
    that Native Hawaiians face many of the same issues and barriers as
    Native Americans and Alaska Natives in their attempts to access loans
    and investment capital. Accordingly, in 1999, the CDFI Fund proposed to
    Congress to expand the Study beyond the original Congressional mandate
    to include Native Hawaiian. The Senate Committee on Indian Affairs
    encouraged and supported the proposed expansion. We do not currently
    recommend that Congress enact any Federal Government programs to
    provide special benefits to Native Hawaiians. The Study addressed
    various actions that could voluntarily be undertaken by financial
    institutions and Native Hawaiian organizations. Any program targeting
    Native Hawaiians as a group is subject to strict scrutiny and of
    questionable validity under the Constitution.

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    The Issue

        In the Community Development Banking and Financial Institutions Act
    1994, Congress found that ``[m]any of the Nation's urban, rural, and
    Native American communities face critical social and economic problems
    arising in part from the lack of economic growth, people living in
    poverty, and the lack of employment and other economic opportunities.''
    Indeed, many communities located in Indian Lands face economic and
    social challenges that place them significantly behind the rest of the
    U.S. economy.

    Study Approach

        The Study was designed to produce a broad, if not necessarily
    exhaustive, qualitative review of the state of lending and investment
    on Indian Lands and Hawaiian Home Lands. This was accomplished largely
    through input from many of the stakeholders involved in capital access
    issues on Indian Lands and Hawaiian Home Lands. Simultaneously, the
    Study has attempted to supplement this review with meaningful
    quantitative input and analysis. This was accomplished through the CDFI
    Fund's Financial Survey, the Equity Investment Research Report, and
    other CDFI Research. Accordingly, the Study approach was designed not
    only to provide a catalog of economic problems on Indian Lands and
    Hawaiian Home Lands by integrating the concerns and recommendations of
    those who are attempting to lead their communities into the Nation's
    economic mainstream, but to provide a statistical reporting as well.
        To assist in accomplishing this, the CDFI Fund convened 13 regional
    workshops and two national roundtable meetings involving tribal leaders
    and economic development professionals, Native American and Native
    Hawaiian business people, private investors and bankers, Federal
    regulatory officials, and Federal agency Government officials. The
    workshops discussed issues related to barriers to capital access and
    identify possible remedies. The Fund developed this Study approach to
    gain the knowledge and experience of these participants that have
    worked with these issues on a day-to-day basis.
        The workshops were complemented by the following research:

     The Financial Survey was administered to 851 tribal government
        housing and economic development directors and 735 private
        financial service organizations (FSO's) located on or near Indian
        Lands or located in Hawaiian Home Lands to identify the barriers to
        lending and provide financial services and to help develop
        recommendations to address those barriers.
     An Equity Investment Research Report on Indian Lands and
        Hawaiian Home Lands was developed to provide the background and
        recommendations for enhancing equity capital access. This research
        included discussions with equity market participants, review of the
        relevant findings from the Financial Survey, and analysis of the
        findings from the workshops. In addition, a questionnaire was
        administered to participants in the Equity Investment Roundtable
        that provided useful information about equity investment on Indian
        Lands and Hawaiian Home Lands.

        The CDFI Fund's research found that there exists a significant
    difference in the amount of capital investment when comparing the rest
    of the United States to Indian Lands and Hawaiian Home Lands.
        The Financial Survey and Equity Investment Research Report found
    the following evidence of this historic under investment on Indian
    Lands and Hawaiian Home Lands:

     65 percent of Native American and Native Hawaiian respondents
        to the Financial Survey report that conventional mortgages are
        ``difficult'' or ``impossible'' to obtain. Home equity loans and
        construction and property rehabilitation loans are also in short
        supply on Indian Lands and Hawaiian Home Lands.
     Business loans were rated as ``impossible'' to obtain by 24
        percent of Native American and Native Hawaiian respondents to the
        Financial Survey and as ``difficult'' to obtain by 37 percent.
        Larger business loans, those over $100,000, are even more difficult
        to obtain; 67 percent of said Financial Survey respondents rated
        them as ``difficult'' to impossible to obtain.
     66 percent of Native American and Native Hawaiian respondents
        to the Financial Survey stated that private equity investments are
        ``difficult'' or ``impossible'' to obtain for Native American and
        Native Hawaiian business owners.
     33 percent of Native American respondents to the Financial
        Survey indicated they had to drive over 30 miles to ATM and bank
        branches.
     The Equity Research Report estimates the buying power of
        Native Americans is about $35 Billion and estimated Indian Country
        revenue of $34 Billion for 2001.
     The Equity Research Report estimates that the investment gap
        between Native American and Native Hawaiian economies and the
        United States overall totals $44 billion.

    Barriers to Capital Access

        The Study identified 17 major barriers to capital access, relating
    to legal infrastructure, Government operations, economic, financial and
    physical infrastructure, and education and cultural issues.
        The Study identified one major barrier to capital access related to
    legal infrastructure:

            1. Uncertain Tribal Commercial Laws and Regulations and the
            Absence of an Independent Judiciary.

        Three major capital access barriers were identified that are
    related to Government operations:

            1. Cumbersome, Conflicting, or Ineffective Federal Programs and
            Regulations.
            2. Uncertainty Generated by Changes in Tribal Government
            Leadership.
            3. Poor Understanding of Tribal Sovereignty and Sovereign
            Immunity.

        Five major economic barriers to capital access were identified:

            1. Limited Use of Trust Land as Collateral.
            2. Inflexible Bank Lending Rules and Regulations.
            3. Lack of Capital, Collateral, and/or Credit Histories of
            Native Americans and Native Hawaiians on Indian Lands and
            Hawaiian Home Lands.
            4. Negligible Economic Base on Indian Lands and Hawaiian Home
            Lands.
            5. Lack of Networking of Native-owned Businesses With Equity
            Investors.

        There are two major capital access barriers related to financial
    and physical infrastructure:

            1. Lack of Financial Institutions on or Near Indian Lands.
            2. Lack of Physical and Telecommunications Infrastructure on
            Indian Lands or Hawaiian Home Lands.

        Six major capital access barriers related to education and cultural
    issues were identified:

            1. Lack of Knowledge or Experience With the Financial World on
            the Part of Native Americans and Native Hawaiians.
            2. Lack of Technical Assistance Resources.
            3. Failure of Lenders and Investors to Understand Tribal
            Government or Legal Systems.
            4. Historical Absence of Trust Between Tribes and Banks.
            5. Differences Between Native American and Native Hawaiian
            Cultures and Banking and Investor Cultures.
            6. Discrimination Against and/or Stereotyping of Native
            American and Native Hawaiian Communities.

    Remedies and Recommendations

        Study participants identified a number of potential remedies and
    recommendations related to the major capital access barriers identified
    above.
        Participants identified one recommendation related to the legal
    infrastructure barrier cited above.
        1. Enhance the Tribal Legal Infrastructure. Some Study participants
    recommended a strategy of creating a more pro-business legal
    environment on Indian Lands, through such actions as:

     Establishment of a tribal legal infrastructure for business
        development, including tribal commercial codes, foreclosure
        regulations, permitting processes, and general regulatory
        frameworks,
     Development of zoning codes and land use plans, and
     Clarification of sovereignty and sovereign immunity,
        particularly regarding business and housing development.

        Study participants identified four recommendations related to the
    three Government operations barriers.

        1. Improve Tribal Planning Processes and Structures. Some workshop
    participants felt that tribal governments need to enhance their ability
    to establish, articulate and manage a clear and concise vision, to
    formulate policies and strategic plans for overall economic
    development, and to cultivate the professional Government workforce
    necessary to implement such plans.

        2. Separate the Goals and Management of Tribal Government From
    Those of Tribal Business. Some workshop participants recommended
    separating the management of business and Government, spinning off
    tribally owned enterprises to a separate bodies for oversight and
    management, delegating privately owned
    enterprise oversight to nonpolitical bodies, and clarifying the
    differences between tribal government and corporate liability.

        3. Strengthen Tribal Courts. Some actions recommended by Study
    participants include:

     Increasing the skills and capacity of judges and judicial
        personnel regarding
        lender and investor issues, and
     Establishment of enforcement procedures for, garnishment.

        4. Streamline and Improve the Efficiency and Effectiveness of Cer-
    tain Federal and State Programs Used By Native Americans and Native
    Hawaiians. Many workshop participants expressed the need to accelerate
    the pace of decisionmaking, reducing excessive requirements and
    paperwork, rationalizing conflicting requirements and revising programs
    with overly restrictive entry guidelines, of certain State and Federal
    programs.

        There were four remedies identified that relate to economic
    barriers.

        1. Create Alternative Collateral Options for Trust Land. Workshop
    participants recommended recognizing and leveraging the value of trust
    assets; facilitating development of trust land through alternative
    means of valuation and collat-
    eralization, such as the creation of leaseholds and master leaseholds;
    building equity pools from trust lands and other resources; and
    converting traditional assets into collateral.

        2. Develop New Local and Non-traditional Mechanisms to Deliver
    Capital on Indian Lands and Hawaiian Home Lands. Workshop participants
    suggested that tribal governments should develop their capacity to
    orchestrate and leverage all sources of capital, and financial
    institutions should develop new lending and financing products and
    revise underwriting criteria to meet the unique needs of Native
    American and Native Hawaiian markets, including the development of
    microlending programs for small businesses and securitization of oil
    and gas reserves and timber. Workshop participants proposed two options
    for providing access to nontraditional sources of debt and equity
    capital:

     Develop tribal or intertribal CDFI's, community banks, and
        other lending and investment institutions; and
     Create tribal or intertribal pools for loan guarantees, equity
        investments/venture capital, microlending, and lending for housing
        and small business.

        3. Increase Equity Investment on Indian Lands and Hawaiian Home
    Lands. Equity Investment Roundtable participants suggested the
    following methods of increasing equity investment in Native American
    and Native Hawaiian communities:

     Create industry sector specific incubators that provide
        management and technical assistance to start-up businesses and that
        focus on the specific needs of Native American and Native Hawaiian
        business owners,
     Use existing ``angel investor'' networks (for example--
        networks of investors who provide start-up capital for new
        business, sometimes accompanied by technical expertise and contacts
        networks),
     Build an ``angel'' network that specializes in investments in
        Native American-owned or Native Hawaiian-owned businesses,
     Create community development venture capital (CDVC) funds,
     Use existing corporate venture capital programs,
     Use State and city venture capital programs, and
     Form a public/private intermediary to direct funds into Native
        American and Native Hawaiian CDFI's, businesses, or projects.

        4. Establish a Native American/Native Hawaiian Equity Fund. To
    attract equity investments in Native American and Native Hawaiian
    communities, workshop participants suggested that the Federal
    Government sponsor an equity fund to help encourage private sector
    investors and public/private partnerships to invest on Indian Lands and
    Hawaiian Home Lands.

        Four recommendations related to the two financial and physical
    infrastructure barriers cited above, were identified:

        1. Increase the Number of Financial Institutions on or Near Indian
    Lands. To provide Native Americans and Native Hawaiians greater access
    to financial services, a number of policies need to be considered,
    including:

     Creating more financial institutions, including CDFI's, on
        Indian Lands, and
     Encouraging existing financial institutions that are not
        located on Indian Lands to open branches on Indian Lands.

        2. Develop Regional Financial Institutions. The workshop
    participants believed that regional partnerships and alliances are
    essential to overcoming barriers to capital and credit access, and
    possible strategies include:

     Building on partnerships established with the CDFI Fund's
        regional intertribal cosponsors and holding follow-up forums
        similar to those conducted in the Study,
     Establishing information clearinghouses at the regional level
        on model financing approaches, methods of accessing equity capital,
        and sources of training and technical assistance,
     Providing channels of information to Native American and
        Native Hawaiian communities so that they can adapt existing models
        to their unique cultural and community needs, and
     Establishing regional partnerships among banks, lending
        institutions, venture capitalists, Federal agencies, and tribes/
        intertribal organizations.

        3. Develop Financial Products and Services That Will Meet the Needs
    of Native American and Native Hawaiian Depositors and Borrowers.
    Workshop participants suggested that this could be accomplished by
    financial institutions through the development of new lending and
    financing products, revised underwriting criteria more suited to the
    unique attributes of Native American and Native Hawaiian communities,
    the creation of micro lending programs for small business, and the
    creation of CDFI's.

        4. Create Innovative Strategies to Develop Physical Infrastructure
    on Indian Lands and Hawaiian Home Lands. Various initiatives were
    explored at the workshops to facilitate development of a more adequate
    infrastructure system on
    Indian Lands and Hawaiian Home Lands, including creation of
    partnerships with private developers to plan for infrastructure
    development and development of an infrastructure investment strategy
    that utilizes available Federal resources and
    encourages private partnerships to participate in the funding and
    development
    process.

        Study participants identified four recommendations related to the
    seven educational and cultural barriers.

        1. Expand Financial Literacy Education Opportunities for Native
    Americans and Native Hawaiians. Workshop participants agreed that
    providing financial literacy education and personal finance education
    for Native Americans and Native Hawaiians can provide them with the
    means to participate in the contemporary economy and that culturally
    appropriate financial literacy curriculum is available from various
    sources. Many existing CDFI's regularly provide this type of training
    in their communities.

        2. Develop Entrepreneurship Programs for Native Americans and
    Native Hawaiians. Workshop participants recommended that these programs
    include:

     Development of core materials on small business finance and
        entrepreneurship,
     Establishment of teaching partnerships with tribal and
        nontribal colleges, financial institutions, CDFI's, and nonprofits,
     Incorporation of web-based training in the curriculum, and
     Facilitation of funding and teacher recruitment through the
        private sector, tribes, intertribal organizations, and Federal
        agencies.

        3. Conduct Lender and Investor Education. Actions recommended by
    the workshop participants include:

     Development of informational handbooks on issues such as
        tribal government structures, sovereignty and sovereign immunity,
        and land status,
     Creation of a directory of tribal credit officers, economic
        development officers, and department heads and a directory of
        attorneys qualified to practice in tribal courts,
     Development of a marketing campaign that illustrates effective
        practices and success stories, initiation of educational outreach
        seminars by Native American and Native Hawaiian communities for
        potential lenders and investors, and
     Initiation of ``road shows'' focusing on investment
        opportunities on Indian Lands and Hawaiian Home Lands.

        4. Expand Technical Assistance and Training. From the workshops,
    several initiatives were identified for increasing technical assistance
    and training on Indian Lands and Hawaiian Home Lands:

     Provide Native Americans and Native Hawaiian business owners
        with technical assistance related to developing business plans and
        proposals and other business management needs,
     Help tribal governments develop a comprehensive strategic plan
        to meet development and financing needs,
     Assist lenders, investors, and potential business partners in
        developing an understanding of tribal laws, tribal enforcement
        capabilities, and lender rights, and
     Help lenders, investors, and potential business partners
        understand Federal programs, requirements, and application
        processes.

    Examples of Initiatives and Programs

        One of the important aspects of the Study was the identification by
    participants of programs and initiatives that involve Government, the
    private sector, and tribes to address the major barriers identified
    above. Each initiative identified below, designed to meet the needs of
    a particular community, may offer insights to other communities that
    can be adapted to meet the unique needs of other particular communities
    or regions.
        For example, some tribes have enacted legislation to promote
    business development, tribal commercial codes, land use and planning
    codes, zoning codes, and laws regulating corporate and business
    activity.
        Workshop participants noted that lenders and investors are often
    reluctant to accept the jurisdiction of tribal courts to enforce
    financial contracts and, to address this problem, suggested increasing
    the capacity of tribal courts to resolve commercial and financial
    disputes and to enforce commercial codes. Some initiatives are
    currently underway:

     The Federal Bureau of Justice Assistance, Department of
        Justice, and Bureau of Indian Affairs are currently funding
        technical assistance and training grants for tribal court capacity
        building.
     The National American Indian Court Judges Association has
        established the National Tribal Justice Resource Center to assist
        tribes in strengthening methods of self-government and to provide
        technical assistance for enhancing tribal justice systems.
     The Tribal Court Clearinghouse has been created as a resource
        for tribal court development, training, court review, code
        drafting, and training.

        To provide Native Americans and Native Hawaiians greater access to
    financial services, Study participants felt that a number of options
    need to be considered, including creating more financial institutions
    on Indian Lands and Hawaiian Home Lands, expanding and/or rebuilding
    existing financial institutions on Indian Lands, purchasing existing
    banks, expanding Native-ownership of financial institutions through
    purchase or de novo creation of new institutions, and creating more
    CDFI's. Workshop participants and CDFI Fund research identified the
    following examples of successful initiatives:

     The Cheyenne River Sioux Tribe used an existing revolving loan
        fund to create the nonprofit Four Bands Community Fund, which makes
        business loans.
     In 1990, the Navajo Nation had only three bank branches and
        one ATM serving a geographic area of 17 million acres. To increase
        the availability of financial
        services on the reservation, the tribe entered into an agreement
        with Norwest Bank (now Wells Fargo) to build four new branch banks
        with ATM's, hire and
        train Navajo personnel, and target financing to business startups
        and housing
        development.
     In all, nine tribally owned commercial banks, seven credit
        unions, and 14 loan funds have been developed nationwide to serve
        Native American communities.
     Hawaiian Community Assets, Inc. is developing a charter for
        the first Native Hawaiian-owned bank.
     As of September 30, 2000, the CDFI Fund had made awards
        totaling nearly $27 million to 33 CDFI's that provide some level of
        service to Native American or Native Hawaiian communities.
     In fiscal year 2002, the CDFI Fund initiated its $5.0 million
        Native American Technical Assistance program to assist Native
        American and Native Hawaiian communities in establishing community
        based CDFI's.

        Workshop participants identified regional partnerships and
    alliances as essential components to overcoming barriers to capital and
    credit access, and examples of successful regional initiatives include:

     The Native American Development Corporation is a CDFI that
        provides Native American business communities in Montana and
        Wyoming with funds to create jobs, develop long-term economic self-
        sufficiency, and facilitate access to capital. Its Capital Loan
        Fund was initially capitalized with funding from banks, the Federal
        Government, First Nations Development Institute, and private
        corporations.
     The Native American Lending Group, Inc. is a nonprofit
        multitribe CDFI in New Mexico that serves 19 Pueblo communities. It
        was created to provide tribes, businesses, and individuals access
        to private investment capital.
     Coastal Enterprises, Inc. is a nonprofit CDFI that serves low-
        income communities in Maine and provides financial and technical
        assistance for development and expansion of certain targeted
        industries, small businesses, housing, and social services. CEI has
        established a partnership with the Penobscot Indian Nation to
        develop a CDFI to fund housing and business development.

        Tribal leaders and private investors participating in the workshops
    suggested strategies that relied on accessing capital sources that have
    not traditionally been on the Native American investment ``radar
    screen'' and on expanding Native American awareness to include more
    equity and nontraditional financing and thus increase the likelihood of
    securing funding.
        One example of an existing strategy captured significant workshop
    participant attention: Center of North America Capital Fund is an
    ``angel'' investor network and investment fund in North Dakota that
    links two tribes--the Turtle Mountain Band of Chippewa and the Spirit
    Lake Sioux--with investors. The CONAC Fund was modeled after
    Minnesota's Regional Angel Investor Networks Fund, a series of rural
    investment funds formed by the Minnesota Investment Network
    Corporation.
        The following are examples of public/private intermediaries cited
    by workshop participants that direct funds to Native American and
    Native Hawaiian businesses:

     The Hopi Credit Association is a tribal loan fund that
        provides a bridge between banks and tribal borrowers, obtaining
        funds from banks, handling all loan selection and servicing with
        tribal members. Participating banks thus gain a point of entry to
        the tribal community, via a tribal loan fund that understands
        banking needs, and tribal members are served directly by a credit
        union that understands their needs.
     Another example is the Southern Ute Growth Fund, which uses a
        partnership approach and co-invests, using its growth fund and
        capital provided by outside investors, in a variety of growth
        opportunities.

    Conclusion

        Much of the progress in expanding access to capital was not
    achieved by tribal governments, financial institutions, or Federal
    agencies acting alone. Rather, progress often depended on these
    stakeholders acting together. One of the most important themes to
    emerge from the CDFI Fund's research, workshops, and Equity Research is
    the need to foster even greater coordinated activity among
    stakeholders. For example, input of tribal or Native Hawaiian
    representatives to any review of the effectiveness of Government
    programs or policies would help to answer questions about community
    compatibility and relevance. Neither technical assistance nor cultural
    education will have the desired effect unless tribes, Native Hawaiian
    communities, and FSO's commit to such processes. Moreover, FSO's,
    Government regulators, and tribes would all likely have to participate
    in attempts to create new loan products and equity investment
    opportunities for Native American or Native Hawaiian communities.

                                   ----------
                       PREPARED STATEMENT OF J.D. COLBERT
              President, North American Native Bankers Association
                                  June 6, 2002

        Good Morning Mr. Chairman and Subcommittee Members. I am here today
    as President of the North American Native Bankers Association, also
    known as ``NANBA''. NANBA is an association of commercial banks and
    other regulated financial institutions owned by Indian tribes. I
    appreciate the Subcommittee's concerns regarding Capital Investment in
    Indian Country and applaud your efforts to effect greater capital
    access. Thank you for allowing me to make a brief statement before this
    Committee.
    Native Ownership of Financial Institutions
        Lack of native ownership of financial institutions continues to be
    a major obstacle to greater capital access in Indian Country. This lack
    of native-owned financial institutions has repeatedly been identified
    as an impediment to greater capital access. For example, the Native
    American Lending Study conducted at the Community Development Financial
    Institutions Fund at the Department of the Treasury recently identified
    the lack of native ownership of financial institutions as a major
    obstacle regarding capital access.
        With respect to regulated financial institutions, at present there
    are only eight (8) tribally owned banks and another nine (9) banks
    owned by individually enrolled tribal members in the United States. In
    addition, there are approximately six (6) tribally owned community
    development credit unions. Accordingly, there are only 23 regulated
    financial institutions owned and controlled by native tribes or
    individuals to serve over 560 Federally recognized Indian tribes and
    over 2,000,000 individual Indians. Clearly there is a great disparity
    between the number of native-owned banks and the demographics of Indian
    Country.
        Presently, there is at least one piece of legislation currently on
    the books that could be utilized to address this disparity. In August,
    1989 Congress enacted the Financial Institutions Reform, Recovery and
    Enforcement Act of 1989 known as ``FIRREA.'' Section 308 of FIRREA
    established at least three salient public policy goals:

            1. To preserve the number of minority-owned financial
            institutions,
            2. To promote and encourage creation of new minority-owned
            financial institutions, and
            3. To provide for training, technical assistance, and
            educational programs.

        As indicated by the paucity of native-owned financial institutions,
    and minority-owned institutions in general, the will of the Congress as
    expressed by Section 308 of FIRREA has been frustrated by the lack of
    responsiveness of the Federal bank regulatory agencies. At best this
    responsiveness could be described as ``minimal,'' at worse, it could be
    described as disregarding this Congressional mandate.
        In all fairness, there have been some recent positive developments
    with regard to efforts made by the various Federal bank regulatory
    agencies to reach out to Indian Country. For example, the Federal
    Reserve Bank of San Francisco has sponsored various ``Sovereign Lending
    Workshops,'' the FDIC has recently adopted a revised policy statement
    on minority-owned financial institutions that expands the scope of
    their activities and the Office of the Comptroller of the Currency
    published, with NANBA's assistance, a booklet entitled A Guide to
    Tribal Ownership of a National Bank.
        While these and other efforts are most welcome in Indian Country
    they fail to directly address a key goal of Section 308: to promote and
    encourage the creation of NEW minority-owned financial institutions
    (emphasis mine). The Federal bank regulatory agencies, who have primary
    responsibility for implementing the goals of Section 308, have done
    very little to actually increase the number of native-owned banks.
        NANBA, however, has been active on this point. In July, 2000 NANBA
    hosted the ``Tribal Ownership of Banks Conference.'' The goal of the
    conference was to foster the development of additional native-owned
    banks. We had approximately 150 people attend the conference with over
    25 tribes represented. To my knowledge, the NANBA conference was the
    first and only conference ever conducted to stimulate the development
    of additional native-owned banks. Indeed, it may stand as the ONLY
    conference ever held in the history of the United States that had the
    goal of creating new Minority Owned banks.
        I would suggest that the Congress might provide funding to allow an
    Interagency Task Force of the Federal bank regulatory agencies to
    fulfill their Section 308 responsibilities by hosting a similar
    conference for Indian Country as well as for members of other minority
    groups. I would further suggest that such a conference be conducted for
    at least 3 years in a row to maximize its potential impact and outreach
    efforts.
        In addition, the various bank charter granting Federal bank
    agencies should work with established Indian organizations such as
    NANBA to continually provide outreach, training and educational efforts
    to both expand the number of native-owned financial institutions as
    well as to assist in the growth and development of existing native
    institutions. We at NANBA stand ready to work together with the
    Congress, the Administration and the Federal bank regulatory agencies
    to fully implement all the public policy goals of Section 308 of FIRREA
    and especially the goal of creating NEW native- and minority-owned
    banking institutions.

    Bond Financing
        In addition to the need for additional native-owned banks and
    financial in-
    stitutions, Indian Country badly needs to access capital investment
    through bond financing.
        In order to stimulate access to this important sector of the
    capital markets, I would suggest that the Congress consider amending
    the Securities Act of 1933 to allow Indian tribal governments access to
    the same exemption from securities registration that State, county, and
    local governments currently enjoy with respect to the issuance of tax
    exempt bonds.
        Presently in order to access the mainstream bond markets tribes are
    forced to go through an expensive and time consuming registration
    process. Generally tribes naturally avoid this process and will turn to
    the private placement market. This entails paying higher yields on
    their paper than what could otherwise be expected in the mainstream
    bond market.
        To the extent that the Congress sees fit to so amend the 1933
    Securities Act, I would further suggest amending the Internal Revenue
    Code of 1986 to allow Indian tribal governments to issue ``private
    activity bonds'' in the same manner as allowed for State and local
    governments. In addition, I would suggest exempting tribes, under
    certain circumstances, from the ``volume cap'' requirements of Section
    146 of the Internal Revenue Code.
        By providing Indian tribal governments with equal footing as that
    enjoyed by State and local governments with respect to the issuance of
    private activity bonds it will greatly stimulate the flow of capital to
    Indian Country. Also, by granting an exemption to Indian tribes, under
    certain circumstances, from the ``volume cap'' restrictions will mean
    that tribes will not have to request a private activity allocation from
    a State government who may be unwilling or unable to grant such
    allocation as an Indian tribal government is not a political
    subdivision of the State.
    Closing
        That concludes my statement. Thank You, Mr. Chairman and
    Subcommittee Members for allowing me the opportunity to represent NANBA
    before this
    Subcommittee. I will be pleased to entertain any questions or comments
    from the Subcommittee.

                                   ----------
                    PREPARED STATEMENT OF WILLIAM V. FISCHER
             President, American State Bank of Pierre, South Dakota
                                  June 6, 2002

        Good morning, Mr. Chairman, Ranking Member, and Members of the
    Subcommittee. Thank you for the opportunity to appear here today. My
    name is William V. Fischer. I am President of the American State Bank
    of Pierre, South Dakota, a $90 million independent commercial bank
    located on the Missouri River in the center of the State. I am a third
    generation South Dakotan whose grandfather arrived here in 1884. I will
    be testifying from my position as a commercial banker in Central South
    Dakota, Indian Country, for the past 36 years.
        South Dakota is not unique from other States in having Indian
    Reservations located within its boundaries. We have nine reservations
    in South Dakota, three of these reservations are located in our lending
    area.
        There have been numerous studies compiled, some commissioned by
    Congress and independent studies done over the past years regarding
    lending in Indian Country. Recently, there was a workshop held in Rapid
    City, South Dakota, sponsored by the U.S. Treasury on lending in Indian
    Country. Also, the FDIC out of Kansas City has been working on the
    Cheyenne River Sioux Tribe Reservation since 1995 regarding lending in
    Indian Country. (See attached letter from John P. Misiewicz of the
    Kansas City FDIC Office)
        First let me address what I feel are some of the obstacles to
    lending in Indian Country:

     Instability of reservation tribal form of government;
     No checks and balances--the legislative, executive, and
        judicial are very interrelated and thus virtually one;
     Constant turnover, inexperience and thus lack of consistency
        in tribal governments;
     Economics--lack of financial education and economic knowledge;
     A general lack of unified tribal vision, planning and business
        experience;
     Lack of understanding of tribal sovereignty and sovereign
        immunity;
     State and Federal regulations and bureaucracy;
     Lack of basic economics and credit knowledge at the enrolled
        members level;
     Each reservation has its own specific laws and policies with
        no degree of uniformity of tribes dealing with economic issues--for
        example UCC;
     The tendency to insist on tribal members to manage tribal
        businesses when the members have no experience in managing this
        type of business venture;
     The general tendency to try and run (manage) businesses
        without accurate financial accounting records;

        Some practices that American State Bank has implemented to overcome
    obstacles of lending in Indian Country:

     Know the tribe and/or tribal member wanting to borrow money;
     Establish a professional relationship with an attorney and
        accountant familiar with tribal law and the reservation involved;
     Follow basic credit criteria--character, capacity and
        collateral;
     Know the tribe, its officers, council, issues and history;
     Realize that very few customers, Indian and/or non-Indian, are
        entrepreneurs and thus should we lend money for such a venture, we
        allocate time and special attention to assisting and ensuring the
        venture has an even chance to succeed--tribes and tribal members do
        not need more examples of failure;
     American State Bank has taken a very active position in
        understanding the issues and concerns on the Cheyenne River Sioux
        Tribe Reservation. One employee of the Bank serves on the Four
        Bands Community Loan fund;

        Legislative or regulatory remedies that I believe would be helpful
    to facilitate the flow of capital to Indian Country:

     Promote a tribal governing system that better separates the
        legislative, executive, and judicial systems and thereby provide
        check and balance, and thus stability;
     Better separation of economics from political decisions;
     Needs to be a better working relationship between the BIA and
        tribes . . . working for the better good of all parties involved;
     Promote establishment of 1, 3, 5, and 10 year economic
        development plans and where necessary hire the best managers to
        implement them;
     Managers for tribal businesses should be the very best that
        are available whether they are Indian or non-Indian--with built-in
        incentives for successful/profitable operation;
     Implement a series of courses both at the high school and post
        high school levels promoting good business practices;
     Let us reconsider loan guarantees for commercial loans that
        are made in Indian Country;
     Let us consider tax incentives for loans that are made in
        Indian Country;
     Perhaps the Congress should at least establish pilot projects
        on each of these ideas;
     Perhaps all Indian Reservations should be empowerment zones;
        or
     Possibly pick a few, well managed reservations, and make them
        into experimental models, empowerment zone, to implement business
        practices;
     And last but not least, fund the Wakpa Sica project #HR5528
        and thereby establish a supreme court for the eleven tribes of the
        Great Sioux Nation--this is truly the first step in bringing
        uniformity and creditability to a system that is very suspect by
        creditors.

        Mr. Chairman, as you know, Federal Indian policy at this point is
    mostly a series of programs that attempt to address basic human needs:
    education, housing, health care, etc. They are very expensive and they
    have had mixed results, at best. Let us try investing through private
    markets with the goal of creating an Indian private sector, so that the
    human needs will not be as great or cost as much. As Chairman Jandreau
    states in his testimony, unemployment in South Dakota is under 4
    percent yet in Indian Country the unemployment rate is, on average, 75
    percent. If the Federal Government can drive that rate down by
    stimulating a private sector it will save the Government a lot and be a
    good return on investment.
        Thank you for convening this very important hearing. I would be
    pleased to answer any questions.
        Let me conclude by quoting Bobby Whitefeather: ``I know what we
    need to do. All the ingredients are there. We just need to put the
    pieces together. The challenge is, are tribes ready and is Congress and
    the Administration willing to provide or create the necessary receptive
    environments and support to 'enable' Native Nations to prosper.''--
    Bobby Whitefeather, Tribal Chairman, Red Lake Band of Chippewa Indian,
    Minnesota.

                     PREPARED STATEMENT MICHAEL B. JANDREAU
                Chairman, Lower Brule Sioux Tribe, South Dakota
                                  June 6, 2002
    Background
        Chairman Johnson, Members of the Subcommittee, I would like to
    thank you for providing me with the opportunity to testify on this
    extremely important issue. My name is Michael B. Jandreau; I am the
    Chairman of the Lower Brule Sioux Tribe in South Dakota. I have been
    Chairman for over 20 years. My tribe is located in the Bureau of Indian
    Affairs' Great Plains Region, which includes the 16 tribes in North
    Dakota, South Dakota, and Nebraska.
        As you know, Indian Country is facing many pressing issues that
    would make excellent topics for Congressional hearings. The Indian
    health care system is a prime example. Indian communities in the Great
    Plains Region lead the country in almost every negative health care
    statistic available. We have the lowest life expectancy of any
    demographic group in the country, and alcoholism and diabetes are
    ravaging our communities.
        There are also pressing economic development needs. According to
    the 2000 Census figures, South Dakota Indian Reservations are home to 5
    of the top 10 poorest counties per capita in the entire United States.
    We have an average unemployment rate of 75 percent on reservations
    throughout the Great Plains while a State like South Dakota currently
    enjoys an unemployment rate of 3.4 percent. How can these islands of
    poverty coexist with prosperous communities literally just down the
    road? I believe this hearing can be a positive step toward answering
    that question.
        Let me be clear. Improving Indians' access to investment capital is
    one of the best ways to solve the deep-rooted economic problems that
    exist on reservations across South Dakota and the Northern Plains. Real
    economic development in Indian Country will, in turn, provide tribes
    with the resources they need to deal with the countless other
    challenges and difficulties plaguing our people. Government programs
    currently provide for many of our basic needs, but if we are to break
    the cycle of poverty that exists in Indian Country, we must establish a
    private sector in our Indian communities. And if we are to develop a
    private sector, we must have access to capital. It is as simple as
    that.
        Unfortunately, our Indian reservations face economic and social
    challenges that place us at a distinct disadvantage. The lack of
    economic growth, poverty, and unemployment place us well behind the
    rest of the country. In addition, the lack of access to capital and
    other financial services makes it almost impossible for tribal leaders
    and individual entrepreneurs to have the necessary resources available
    to assist in growing our local economies.

    Specific Problems and Solutions
        I know we are here today to focus on solutions--how to create and
    restructure Federal programs so as to foster capital investment in
    Indian Country. For that reason, the Subcommittee must be made aware of
    the real obstacles to achieving this goal, and how to overcome those
    obstacles. The barriers to capital access in Indian Country cross an
    entire spectrum of issues: how tribal governments operate; the
    perception among non-Indians that the legal systems in Indian Country
    are unstable or unreliable; the lack of adequate infrastructure; and
    cultural misunderstandings on both sides of the issue.

     Problem: Some tribal courts may seem as though they are not
        sufficiently independent of the executive branch of their tribal
        government. Additionally, the absence of codified tribal commercial
        laws and regulations may cause investors to be hesitant to invest
        capital on Indian Lands.
     Solution: Provide tribes with adequate funding for court
        systems and proper staff training. This will allow tribes to
        develop the expertise to create a legal infrastructure that
        supports successful business development.

     Problem: Existing Federal programs that have been developed to
        foster capital investment in Indian Country have been ineffective
        and conflicting. They do not support the type of decisionmaking
        necessary for business to be completed in a timely manner.
     Solution: Create a task force, comprised of tribal and
        government officials, and banking experts, to evaluate the current
        laws and regulations and make recommendations to Congress for
        needed changes.

     Problem: Misunderstanding and mistrust of tribal sovereignty
        and sovereign immunity.
     Solution: Provide funding and develop curricula to educate
        potential investors as the business advantages that tribal immunity
        offers.

     Problem: Many bank lending rules and regulations are
        inflexible in dealing with local banking institutions and their
        ability to lend.
     Solution: Provide more opportunities for secondary market
        development for guarantee loans such as Bureau of Indian Affairs
        and Small Business Administration guarantee loan programs. The
        selling of these loans to secondary markets allows smaller local
        banks the ability to free up cash that is available to be loaned
        again. This will allow lenders to originate more loans without
        violating laws and regulations that limit the amount banks may lend
        to a particular borrower. This limit is a function of the bank size
        and further prohibits banks from having to many of the same types
        of loans in its portfolio.

     Problem: Many individual Indians lack the collateral and/or
        the personal credit histories needed to secure loans.
     Solution: Develop or expand tribal or inter-tribal Community
        Development Financial Institutions (CDFI), community banks, and
        other lending and investment
        institutions. Create tribal or inter-tribal pools for loan
        guarantees, equity investments/venture capital, offer microloans
        and lending for housing and small
        business. Provide technical assistance opportunities for Indians to
        address their credit histories.

     Problem: Most reservations have small economic bases and so,
        many of their communities' basic financial needs cannot be met.
     Solution: Create incubators for Indian businesses, create a
        board of Indian business leaders to provide guidance for businesses
        looking to invest in Indian Country. Foster technical assistance
        between successful Indian businesses and new emerging businesses,
        tap into current investment opportunities through Congressionally
        sponsored roundtables, create a Federal/tribal investment board
        that provides guidance to potential investors about investing in
        Indian Country.

     Problem: There is a limited opportunity for Indian businesses
        to network with potential investors. Because most reservations are
        located in rural areas, their access to those with capital to
        invest is limited at best.
     Solution: The Federal Government should sponsor an equity fund
        to help encourage private investment in tribal projects.

     Problem: Lack of financial institutions on or near Indian
        reservations.
     Solution: Examine current banking laws dealing with
        historically underserved rural communities to see if changes are
        warranted to allow exceptions for reservations.

     Problem: Many homes on reservations lack the necessary
        physical and telecommunications infrastructure needed to properly
        encourage and support business development.
     Solution: Expand current programs that provide funding for
        infrastructure development in rural communities and create
        financial incentives for private investment in Indian communities.

     Problem: Most Native Americans lack experience with the
        banking industry in general. Therefore, they find the process of
        obtaining loans cumbersome and uncomfortable.
     Solution: Provide funding and incentives so the banking
        industry will work with tribes to increase the financial literacy
        for Native Americans.

     Problem: Lack of technical assistance and training resources
        for financial literacy, financial management, and entrepreneurship.
     Solution: Develop entrepreneurship programs for Native
        Americans that include information on small business development
        and web-based training. These programs can be implemented through
        work with tribal colleges and universities.

     Problem: Lenders and investors do not understand tribal
        governments or their legal systems.
     Solution: Conduct lender and investor education seminars that
        could include handbooks on tribal government structure, sovereign
        immunity, tribal history, and contact information to various
        officials.

     Problem: Historical misunderstanding and mistrust between
        tribes and lenders.
     Solution: More interaction between people and development of
        educational materials and forums.

     Problem: Discrimination and stereotyping of Native Americans.
     Solution: More interaction between people and development of
        educational materials and forums.

        Chairman Johnson, clearly I have identified more challenges than we
    can solve today. But just the convening of this hearing has encouraged
    me and other elders and tribal leaders. We want to work with you and
    the Congress to encourage the development of capital markets on the
    reservations. We have tried to address some of these problems through
    the creation of the ``Wakpa Sica Reconciliation Place,'' (Public Law
    106-568). We thank you for your support for this project. As you know,
    Wakpa Sica has several goals, including the establishment of a more
    reliable court system in an effort to attract private capital.
        Because of the trust relationship with the United States, I believe
    this effort must be a creative partnership between tribes, private
    business and the U.S. Government to work to find solutions and have
    proper legislation and regulations that provide the incentives
    necessary, and the guarantees necessary, to direct private capital to
    the Indian Country.
        Out treaties are still sacred documents to Indian people. Tribal
    sovereignty is still an important legal principle to Indian people. But
    I am convinced that if we are to succeed in Indian Country we must have
    a strong private sector. Anything this important Committee can do to
    help would be greatly appreciated. Thank you. I would be pleased to
    answer any questions.

                                   ----------
                       PREPARED STATEMENT OF ELSIE MEEKS
             Executive Director, First Nations Oweesta Corporation
                                  June 6, 2002

    Organizational Background
        First Nations Oweesta Corporation (FNOC) was incorporated in
    December 1999 as a subsidiary corporation of First Nations Development
    Institute, a national organization that has been focused on assisting
    tribes and other native communities to access, control, create,
    leverage, and retain financial assets. FNOC was launched to enhance
    native communities access to financial capital through the development
    and/or expansion of native community-based community development
    financial institutions. FNOC provides to qualified native community
    development financial institutions loan/investment capital, training,
    and technical assistance.
        FNOC, in partnership with National Community Capital Association
    has developed a training curriculum, Developing Strong CDFI's in Indian
    Country, to be delivered to tribes and native communities to assist
    them in organizing and implementing community development financial
    institutions. It has also, along with Fannie Mae Foundation developed a
    consumer financial literacy curriculum, Building Native Communities,
    Financial Skills for Families. In addition to developing the
    curriculum, FNOC has conducted numerous ``train the trainers''
    workshops that
    enable people employed at the local level to conduct the training in
    their own communities. As part of its effort to improve access to
    capital in Indian Country, First
    Nations believes that the foundation of self-reliant, economically
    healthy communities--now and for future generations--are households
    empowered with financial tools and skills. Lack of information about
    personal finance and credit is a serious economic barrier for many
    native communities. As the facilitator of the Native American Financial
    Literacy Coalition, First Nations is working to overcome that barrier
    by supporting efforts to improve financial literacy education and
    awareness in Indian Country.

    Role of Native Community Development Financial Institutions (NCDFI's)
        Lack of access to capital and the lack of business and management
    experience are among the chief barriers to economic and business
    development in Indian Country. While there are needs for macrofinancing
    structures for infrastructure development and large tribal enterprises,
    private, regional, and local financial institution are key for Indian
    Country development.

     Tribes need institutions at the local and regional level to
        help form capital and provide accessible technical assistance.
        Tribes and communities need to develop their own institutions to
        begin to build their own wealth and management capability.
     NCDFI's can provide capital for financing businesses, land
        acquisition, home-ownership and development, and community
        development projects. All help to create a healthy economy.
     NCDFI's leverage grants, bank loans, and other sources of
        capital into the community.
     NCDFI's can build capacity of tribal members to improve access
        to credit, buy homes and develop and manage businesses.

        My experience in the community development financial institution
    field began in 1985 with the development of The Lakota Fund which was
    started as a project of First Nations Development Institute. The Lakota
    Fund is a private, nonprofit NCDFI on the Pine Ridge Indian Reservation
    in South Dakota. Pine Ridge is one of the poorest reservations in the
    Nation. Many are aware of the problems that have persisted at Pine
    Ridge. Despite its environment The Lakota Fund is widely regarded as
    one of the most successful private sector initiatives in Indian
    Country. It was also the first private, nonprofit microenterprise loan
    fund in Indian Country.
        When The Lakota Fund began lending:

     85 percent of its borrowers had never had a checking or saving
        account;
     75 percent had never had a loan;
     95 percent had no business experience.

        The Lakota Fund now:

     lends in amounts up to $200,000;
     has a loan capital fund of $3.5 million from foundations,
        corporations, private investors, and governmental sources;
     provides training and technical assistance;
     they have loss rates of less than 10 percent;
     has been instrumental in starting the Pine Ridge Area Chamber
        of Commerce;
     has developed an IDA program;
     has developed a 30 unit low-income tax credit program;
     operates a Tribal Business Information Center.

        How was The Lakota Fund able to do business lending in this
    environment when banks and other lenders could not? Simply, The Lakota
    Fund as well as other CDFI's are able to take on more risk than banks
    and other regulated financial institutions. CDFI's missions allows them
    to develop capacity among their borrowers. Their mission is to develop
    the market in underserved and economically distressed communities.
    Another important reason why most lenders have trouble lending in
    Indian Country is the security and collateral issues, especially for
    home mortgages. NCDFI's can safely make concessions which allow them to
    provide flexible financing for homebuyers.
        Many valuable lessons were learned from The Lakota Fund's
    experience. Lessons that have helped develop strategies for start-up
    NCDFI's such as Four Bands Community Fund on the Cheyenne River
    Reservation in South Dakota and others.

    Lessons Learned
     Keep politics out of lending decisions.
     Develop and maintain good loan tracking system.
     Commitment to making borrowers accountable.
     Require investment from the borrower.
     Be a model organization.

       Responsible, disciplined, ethical staff/board.
       Develop good policies/adhere to policies.
       Develop good operating systems.
       Acquire annual audits.

        Other examples of the critical need for NCDFI's are the Navajo
    Partnership for Housing, Inc. (NPH) and the Oglala Sioux Partnership
    for Housing (OSTPH). These nonprofit homeownership organizations,
    operate on the Navajo Nation and the Pine Ridge Indian Reservation,
    provide homebuyer education and assistance working with lenders to
    first-time homebuyers. Almost out of desperation, both organizations
    created small loans funds to fill the gap in lending market for interim
    construction financing.
        OSTPH has also, on several occasions, provided first mortgages to
    homebuyers. In all cases, OSTPH had worked with USDA/Rural Development
    to obtain a 502 loan for the homebuyer but because of fractionated land
    issues the loan approval was delayed beyond 2 years. OSTPH was left
    with no other options, but to provide a first mortgage to the
    homebuyers. When and if the land issues are resolved, OSTPH hopes to
    ``sell'' the loans to a conventional lender.
        Although no lender would offer this type of loan product due to the
    perceived risks of construction lending on the reservations, NPH and
    OSTPH were perfectly situated to make these loans as local
    intermediaries familiar with the market. Both organizations have plans
    to expand their loan fund to meet other types of financing needs such
    as soft second mortgages and, eventually, first mortgages.
    Role of Banks in Community Development
        Banks can be a partner in community development; they can offer
    valuable lending experience and can provide funding and investments.
    But, because banks and credit unions are regulated financial
    institutions, they generally cannot be lenders to the markets that are
    served by NCDFI's. They cannot play the role as technical assistance
    providers nor can they risk lending to primarily start-up businesses or
    first time borrowers.

    Role of the Department of Treasury's CDFI Fund
        Despite The Lakota Funds success, until recently, few native
    communities had successfully developed and implemented NCDFI's. This
    was due, in part, to the tremendous effort and funding needed for
    start-up. Several changes in the environment has precipitated interest
    in NCDFI development: (1) The CDFI Fund has been instrumental as a
    catalyst for native communities to begin the development and
    implementation of NCDFI's; (2) the knowledge of the CDFI field has
    grown substantially and, therefore, technical assistance for start-ups
    has improved. Some of the NCDFI's that have recently started are:

    1. Four Bands Community Fund (Cheyenne River Sioux Tribe, South Dakota)
    2. Lac Courte O'Reilles Credit Union (Wisconsin)
    3. Four Direction Development Corporation (multitribe--Maine)
    4. Affiliated Tribes of the Northwest Indians Revolving Loan Fund
        (Wasington)
    5. Hochunk Community Development Corporation (Winnebago--Nebraska)
    6. Valley Credit Association (Duck Valley--Nevada)
    7. Hopi Credit Association (Arizona)
    8. OST Partnership for Housing (Pine Ridge, South Dakota)
    9. Navajo Partnership for Housing (Navajo Nation)

        The CDFI Fund's NACTA Program (Native American Component for
    Technical Assistance) received an incredible 47 applications in the
    first round. This funding allows tribes and native communities funding
    to start NCDFI's. Tribes and native communities must develop a 2-year
    proposal that articulates their plan from organizing a NCDFI to
    implementation.
        The importance of the CDFI Fund in assisting native community
    development
    financial institutions cannot be overstated. There has been or is no
    other single
    agency that has created a focus for building community development
    financial
    institutions in Indian Country. Because of my experience working in
    economic development over the past 20 years, I know of no other effort
    than private or regional community development financial institutions
    that allow native people to develop management and decisionmaking
    skills while building self-sufficiency. The CDFI Fund has been
    effective in facilitating growth of NCDFI's. It is important that
    Congress provide funding for the CDFI Fund in an amount of at least
    $125 million and that at least $5 million be set aside for native
    communities to develop CDFI's.