In late August of this year, Inclusiv/Capital director Cathi Kim had the opportunity to attend the initial Native American Financial Institutions Gathering discussing the subject of Native CDFIs at the Center for Indian Country Development in Minneapolis.
What she found was an abundance of cooperative goodwill – a nurturing, thriving, and promising assemblage of 120 Native-serving financial institutions coming together with the shared goals of developing connections, communicating, and collaborating to increase financial inclusion and improved economic health in their respective Native regions of influence.
The experience proved illuminating, inspiring, and fulfilling – but also exceedingly challenging.
According to the U.S. Census estimate on July 1, 2021, the Native American and Alaska Native combined population is 7.2 million. Within those populations, the poverty rate registers at nearly 30 percent, the highest of any U.S. Census census race group.
Barriers to financial inclusion include historical racial and wealth disparities, the number of banking deserts on tribal lands, and a lack of comprehension and expertise on banking regulations regarding tribal lending, as well as other insufficiencies.
The impact of Native CDFIs in or near Native communities
About a million Native Americans reside in the 567 federally recognized tribal reservations. Within the last year, there are approximately 16 Native credit unions, 74 Native CDFIs (or NAFIs), and 18 Native banks serving largely unbanked and underbanked reservation communities. Those 15 Native credit unions extend from Hawaii to the Seneca Nation in New York and hold roughly $300 million while serving 57,000 members. They may be minimal in member count, but their influence is substantial in putting a spotlight on the evolutionary impact of CDFIs and CDCUs on local Native communities.
The financially-inclusive and healthy impact a financial institution – especially a member-first credit union – can have on a Native reservation is transformational, and strengthens tribal economic sustainability while hardening a foundation of financial stability on a community level.
At the NAFI Gathering event in August, Ketchikan, Alaska’s Tongass Federal Credit Union displayed how they are growing by meeting the needs of their community members. Their first tribal branch in the nearby Metlakatla Indian Community (MIC) took the place of a bank that had closed, leaving the community without viable access to mainstream financial services, not to mention a stable source of financial inclusion and economic health.
Today, however, the Tongass cooperative has engaged the community to receive input for shaping their products and services to match and meet the needs of their members. “We need to listen to what is needed. You can’t just put people into algorithms,” says Helen Mickel, President and CEO of Tongass FCU. “Listen to stories – then tell them what we can do.”
Tongass FCU then took action to expand its product offerings to assist members in both building credit and consistently cultivating savings. Using this model targeted for inclusivity, an incredible 1,200 to 1,400 adults living in and around the Metlakatla branch became members of the credit union! Due to these initiatives, the branch has originated $7 million in loans and has taken $3.5 million in deposits. It’s a brilliantly fulfilling story of recovery, financial inclusion, literacy, and success in bringing a community back from financial instability. And their story will not end there!
Native communities still facing systemic financial challenges to upward mobility
There is absolutely no doubt that the COVID-19 pandemic inordinately damaged Native communities; so much so, in fact, that even contemporary data likely cannot account for the extent of the effects.
Generational financial exclusion, wealth-stripping policies, and government subjugation lent themselves to a level of financial fragility, and in countless cases outright poverty, that has left majority-Native communities and reservations particularly vulnerable to the pandemic’s economic consequences.
By employing exclusive credit bureau and alternative financial service data on more than five million individuals with credit, the Urban Institute – a nonprofit research organization providing data and evidence to advance upward mobility and equity – explored the financial well-being of individuals living in majority-Native communities during the pandemic in 13 states: Alaska, Arizona, Minnesota, Montana, North Carolina, North Dakota, New Mexico, New York, South Dakota, Utah, Washington, Wisconsin, and Wyoming.
The Urban Institute’s new analysis discovered that throughout the duration of the pandemic in 2020, people living in majority-Native communities faced continuously high rates of delinquent debt while nearly half had subprime credit. Some even gave in and unwisely turned to predatory payday lenders to tide over their financial needs. Policymakers have the choice to help address these financial barriers and inequities through targeted investments and access to regulated and responsible mainstream financial services.
Investments like member-owned credit unions within or nearby Native communities represent a financially-forward and inclusive change in those municipalities, especially if they offer digital financial services like QCash Life Event Loans they can access from their mobile devices when and where they need fast funds.
Native communities at a loss for affordable credit alternative
indigenous communities continue to struggle to acquire access to improved and affordable credit to meet their regular financial goals.
The level of financial instability and lack of economic health is so prevalent in Native communities that according to Urban Institute Credit Bureau data, only 17 percent of the population does not use checking services at financial institutions. Instead, they rely on high-cost predatory lenders to “meet their credit needs” which, almost by definition at this point, spells chronic financial health challenges, especially at 83 percent of a single population.
By those ungodly numbers, it shouldn’t be a surprise that majority-Native populations used high-cost predatory payday lenders (such as payday lending outlets or pawnshops) more than other racial and ethnic groups, while increasing over the course the COVID-19 pandemic in 2020. Their use of high-cost lenders can threaten individuals’ financial stability and potential for upward mobility, while outstanding debt owed to those predatory lenders will complicate efforts to access low-cost financial services in the future.
The bottom line is the disconnection from mainstream financial services can erode consumers’ credit health. Residing in banking deserts directly results in lower credit scores, more delinquent accounts, and higher lending rates when using traditional credit.
According to recent research by the Federal Reserve Bank of Minneapolis, the establishment of Native community development financial institutions (or Native CDFIs) in or near reservations can enhance residents’ individuals’ credit outcomes – particularly if those consumers find themselves in dire credit insecurity – and therefore be an effective approach for solving for this economic barrier.
CDFIs are concentrated organizations that offer financial products and services for consumers and small businesses in areas not served by traditional financial institutions. According to the U.S. Treasury Department’s CDFI Fund which certifies CDFIs and grants them the funding to operate, Native CDFIs that allocate at least 50 percent of their activities towards Native Americans, Alaska Natives, and Native Hawaiians can be a life-changing resource for removing the area’s financial inclusion and wellness limitations, especially if those affected residents are in considerable financial distress. And the trend is progressing upward; the number of certified Native CDFIs has grown dramatically over the past 20 years, from a total of 16 in 2001 to 70 in 2021. But there is obviously still a long way to go to bring financial health to the U.S.’s Native communities.
Not only do CDFIs provide an enhanced presence to short-term products and services, unlike traditional banks they possess a social and educational mission as well which, if successful, should manifest increases in creditworthiness and future opportunities in investments in future assets.
The Federal Reserve Bank of Minneapolis found that adding one Native CDFI staff member per 1,000 residents leads, on average, to a 45-point gain in Equifax risk score for individuals whose initial score is in the lower third. In addition, when Native CDFIs’ activity is measured in loan volume, the outcomes suggest that lending produces short-term gains in the average risk score of area residents, particularly in the lower and middle thirds.
How policymakers can improve access to Native CDFI financial services
Policymakers in Washington can take notes from tribal leaders across the country to provide enhanced, culturally-specific federal support to those tribal nations by providing financial recovery from the ongoing COVID-19 pandemic, which has disproportionately affected Native communities nationwide.
Areas to target for investment in financial inclusion and well-beinginclude:
- Fund and thereby strengthen Native-owned financial institutions
Once again, Native CDFIs that service Native reservations, communities, and regions can offer enhanced and targeted financial services to build Native families’ financial capabilities and assets. Involvement or membership with Native credit unions or CDFIs in particular can help consumers and members improve their savings, purchase a car or home, or successfully get a small dollar loan in case of a life emergency or when they find they have more month than money.
- Establish opportunities for financial growth
Federal rules that prolong divided ownership and hold lands in trust exclude Native communities and their consumers out of critical wealth-building and investment opportunities in possible homeownership or growing a business. Such exclusionary policies cost tribal members $700 and $4,300 in lost wealth every year. While the HEARTH Act helps tribes to lease trust land, additional and more empowering policies could remove the barriers to tribes’ self-governance and ability to support wealth-building efforts.
Although private ownership is a primary driver of creating wealth for untold Americans, it’s not the same for Native communities. Such advantages fail to reflect Native communities’ relationship to their lands. Federal policymakers have the ability to grant full authority for tribal leadership in community ownership, financial inclusion, and securing wealth.
- Bring broadband internet access to tribal nations and reservations
Broadband internet infrastructure has the capacity to expand mainstream financial services into tribal nations or U.S. Native reservations. A full 35 percent of residents on tribal lands do not have access to broadband internet, compared to just eight percent of all Americans (although that figure is likely an underestimate).
Federal funds targeted for broadband development like those designated in the Bridging the Tribal Digital Divide Act could bolster broadband infrastructure, and rules reining in the operation of high-cost predatory online lenders can limit their propagation as broadband access expands in these affected areas.
Native populations residing in majority-Native communities have had to increasingly rely on predatory payday lenders to deal with their financial requirements. About half possess poor, delinquent, or non-existent credit. Literally hundreds of years of oppressive policies have created and exacerbated these challenges. An evolved comprehension of the barriers to financial access and wealth-building offers avenues to initiate respectful and culturally-appropriate rules and policies that stimulate tribes’ economic development efforts, increase investment capital, and enhance Native communities’ financial health and inclusion well into the future.