[Senate Hearing 107-991]
[From the U.S. Government Printing 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\
---------------------------------------------------------------------------
    \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.

---------------------------------------------------------------------------
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.