[Senate Hearing 107-991]
[From the U.S. Government Printing Office]
S. Hrg. 107-991
CAPITAL INVESTMENT IN INDIAN COUNTRY
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
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
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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
C O N T E N T S
THURSDAY, JUNE 6, 2002
Opening statement of Senator Johnson............................. 1
Prepared statement........................................... 32
Opening statements, comments, or prepared statements of:
Senator Sabarnes............................................. 3
Senator Carper............................................... 15
Franklin D. Raines, Chairman and Chief Executive Officer, Fannie
Prepared statement........................................... 33
Rodger J. Boyd, Special Assistant to the Director, Community
Development Financial Institution Fund, U.S. Department of the
Prepared statement........................................... 38
J.D. Colbert, President, North American Native Bankers
Prepared statement........................................... 45
William V. Fischer, President, American State Bank, Pierre, South
Prepared statement........................................... 46
Michael B. Jandreau, Chairman, Lower Burle Sioux Tribe, South
Prepared statement........................................... 48
Elsie Meeks, Executive Director, First Nations Oweesta
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
CAPITAL INVESTMENT IN INDIAN COUNTRY
THURSDAY, JUNE 6, 2002
Committee on Banking, Housing, and Urban Affairs,
Subcommittee on Financial Institutions
The Subcommittee met at 10:02 a.m. in room SD-538 of the
Dirksen Senate Office Building, Tim Johnson (Chairman of the
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
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
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
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
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
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
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
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
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
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
Mr. Raines. Thank you. And also, thank you for
accommodating me in allowing me to go first in the panels
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
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
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
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
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
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
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
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
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
Senator Johnson. Thank you, Mr. Raines. It is an excellent
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
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
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
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
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
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
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. Well, Mr. Chairman, I do not have a
question to ask Frank Raines, but I do want to make this
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
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
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
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
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
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
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
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-
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
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
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
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
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
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
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
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
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.
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
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
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
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
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
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
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
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
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.
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
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
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
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
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
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-
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
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
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
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
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
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
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
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
Senator Johnson. We are back and we will resume testimony.
And we are about to come to Chairman 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
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
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
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
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
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
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
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
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.
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
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
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
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
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-
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
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
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
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.
Senator Johnson. I have one question for Mr. Boyd and Mr.
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-
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
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
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
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
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
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
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
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
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
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
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
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
It is very important that I tell tribes in Native
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
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
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
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
incentives for financial institutions to provide services on
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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.
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.
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
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
Fannie Mae's and Fannie Mae Foundation's Ongoing Efforts to
Serve Native American Communities
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
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
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
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
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
\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.
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
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
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
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
2. Uncertainty Generated by Changes in Tribal Government
3. Poor Understanding of Tribal Sovereignty and Sovereign
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
5. Lack of Networking of Native-owned Businesses With Equity
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
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
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
Increasing the skills and capacity of judges and judicial
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
There were four remedies identified that relate to economic
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
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
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
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,
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/
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
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
Development of core materials on small business finance and
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
2. To promote and encourage creation of new minority-owned
financial institutions, and
3. To provide for training, technical assistance, and
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
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
In addition to the need for additional native-owned banks and
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
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
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.
That concludes my statement. Thank You, Mr. Chairman and
Subcommittee Members for allowing me the opportunity to represent NANBA
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
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
Lack of understanding of tribal sovereignty and sovereign
State and Federal regulations and bureaucracy;
Lack of basic economics and credit knowledge at the enrolled
Each reservation has its own specific laws and policies with
no degree of uniformity of tribes dealing with economic issues--for
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
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
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
Perhaps the Congress should at least establish pilot projects
on each of these ideas;
Perhaps all Indian Reservations should be empowerment zones;
Possibly pick a few, well managed reservations, and make them
into experimental models, empowerment zone, to implement business
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
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,
PREPARED STATEMENT MICHAEL B. JANDREAU
Chairman, Lower Brule Sioux Tribe, South Dakota
June 6, 2002
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
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
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
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
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
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
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
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
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''
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
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
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
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.
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
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
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
The importance of the CDFI Fund in assisting native community
financial institutions cannot be overstated. There has been or is no
agency that has created a focus for building community development
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.