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Cobell and CDFIs

Can Indian country achieve prosperity without risk? Or better yet, are we courageous enough to lead the way to economic prosperity and sovereignty by trusting proven Indian institutions and putting economic control and power in the hands of our own Indian people?

During the payout process from the Cobell settlement, funds will have to be temporarily invested somewhere, so why not invest at least a portion of those funds directly into Indian institutions rather than Wall Street? Are we brave enough to endure a bit more perceived financial risk in exchange for a proven pathway to economic sovereignty? After all, the Cobell case was about non-Indian mismanagement of Indian money. If we have learned anything from history, we have learned that Indian people have historically been economically disempowered by non-Indians in the name of “fiduciary responsibility.”

One percent of $2 billion of the Trust Land Consolidation Fund in the Cobell settlement is $20 million. Let’s require that that $20 million be invested in Indian institutions that have proven for more than 10 years to be effective economic change agents in their Indian communities and have proven to be relatively low risk. I am talking about Native Community Development Financial Institutions (CDFIs) that in the past 10 years have grown in number from two to more than 60, with another 50 waiting for certification in the next year. CDFIs in Indian country, like those throughout the United States, play an important role in enabling locally based organizations to further goals such as economic development (job creation, business development and commercial real estate development), affordable housing (housing development and homeownership), and community development financial services (a provision of basic banking services to underserved communities and financial literacy training).

Here’s a “back-of-the-envelope” risk-and-reward calculation to ponder if we were to require one percent of the $2 billion Cobell settlement to be put to work in Indian country CDFIs. To date, the money invested in Native CDFIs as a result of Indian-specific language in the CDFI Act, as a result of folks like the federal Office of Native American Program’s Deputy Assistant Secretary Rodger Boyd and First Nations Development Institute fighting for Indian-specific language in the CDFI Act, has enabled the growth of the Native CDFI industry. The reach and impact of these programs have been significant. Since 2002, the CDFI Fund at the U.S. Department of the Treasury has awarded more than 175 grants totaling $31 million to Native CDFIs serving almost 100 Native communities. The growth of the Native CDFI industry is a remarkable accomplishment given that prior to the year 2000, there were just a handful of Native CDFIs. These Native organizations bring leadership and stability to their communities by building assets and expanding economic opportunity for the people they serve.

Additionally, based on the First Nations Development Institute’s evaluation of our grant-making program to Native CDFIs, we have shown that for every $1 we have invested in Native CDFIs, each dollar has been leveraged at a rate of about 20 to one ($20 to $1)—that means that our initial investment in early-stage Native CDFIs helped them raise significant additional funds for their work. More importantly, for each $1 we gave in grant funds, we saw at least $7 of that $20 in loans made to Native American small businesses or individuals. Without these CDFIs, there remain very few opportunities for financing in Native communities, save predatory lenders.

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So what’s the risk? Well, as with any investment, past performance does not guarantee future returns, so we don’t have a definite answer. But in the case of Native CDFIs, we have some pretty good proxies. First Nations Oweesta Corporation, which began as an affiliate of our institute, pays its socially responsible investors two percent to three percent on their investment—which is better than current short-term bank certificate of deposit rates. To date, First Nations Oweesta has seen no defaults from its Native CDFI institutional borrowers. In all likelihood, it is a bit much to ask to believe that there will continue to be zero.

But it is equally as absurd to believe that all of the loans to Native CDFIs will not be repaid. So let’s take the average of zero percent default and 100 percent, or 50 percent, which is still absurdly high. Using a simple average rate of return, we would have a 50 percent chance of returning two percent to three percent, and a 50 percent chance of returning zero percent, which would give us an on average, risk-adjusted, rate of return of one percent to 1.5 percent, which is still comparable or better than investing in “risk-free” certificates of deposit.

So for no increased risk for the investor, and no reduced return on investment in the portfolio, what we have left is a big return on investment for Indian country itself through the Native CDFI’s ability to leverage the dollars invested.

So I ask my question again: Are we courageous enough to lead the way to economic prosperity and economic sovereignty by trusting proven Indian institutions?

Michael E. Roberts (Tlingit) is the president of First Nations Development Institute. First Nations is a national Native American-led nonprofit organization, celebrating 30 years of strengthening American Indian economies.