Economic Reconciliation Roundtable II: What We Heard Report
A summary of the perspectives shared by participants at the second Economic Reconciliation Roundtable on May 27 2024, hosted by the Honourable Patty Hajdu, Minister of Indigenous Services at the Bank of Canada.
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About the roundtable
Attendees included Indigenous leaders from National Indigenous Organizations and national Indigenous economic institutions, senior executives from Canada's financial sector, federal ministers and senior federal officials.
The content included does not outline the position or opinions of Indigenous Services Canada or the Government of Canada but instead offers a synthesis of opinions and perspectives shared by participants during the Economic Reconciliation Roundtable. In the spirit of the Chatham House Rule, no attributions are made. The examples provided are not verbatim quotes from the roundtable. In some circumstances, ideas have been synthesized or rephrased for flow, clarity and anonymity.
Research, data and information sharing
To provide context for the meeting, a presentation was shared on Canada's economic outlook. The presentation touched on how total inflation in Canada compares to Europe and the United States. It also identified trends in growth, employment, and Gross Domestic Product.
While the overarching trends provided insight on the broader Canadian economy, it was noted that Indigenous economies can face different challenges than other segments of the Canadian economy. Common economic indicators for the broad Canadian economy are not always representative of the realities of Indigenous economies. The following are specific barriers and considerations that were cited in forecasting economic outlooks in Indigenous economies:
- The data on economic outlooks in Indigenous economies is not as robust as other segments of the economy
- In some cases where there is data available, it is often not well understood by those who are unfamiliar with the unique challenges faced by Indigenous Peoples
- The former First Nations Statistical Institute was cited as a previous attempt to address these barriers
- Some statistical models used in economic forecasting exclude businesses on reserve Footnote 1
- The National Labour Force Survey: conducted monthly by Statistics Canada excludes on-reserve communities
- The Consumer Price Index: measured by Statistics Canada excludes people living on-reserve
- Inflation experienced by Indigenous communities is often higher than that faced by the average Canadian
- For example, national measures based on the average basket of goods for the average Canadian do not reflect the higher prices often faced by Indigenous communities due to remoteness
The following are ongoing and suggested actions to help address the research and data gaps outlined by participants:
Ongoing actions
- The Bank of Canada has partnered with the Canadian Centre for Aboriginal Businesses to conduct a survey (PDF) of businesses on reserve
- The Bank of Canada is supporting the Central Bank Network for Indigenous Inclusion
- The Bank of Canada is conducting research to fill current information gaps (see An overview of the Indigenous economy in Canada (PDF))
- Statistics Canada offers the Indigenous Liaison Program which serves as a bridge between Statistics Canada and First Nations, Métis and Inuit communities and Indigenous organizations
Recommendations
- Working with Statistics Canada to determine the impact of economic policy on Indigenous communities
- A semi-annual or annual Indigenous economic outlook, produced by the federal government or another financial institution
Throughout the conversations on data and research, it was recognized that Indigenous Peoples have historically been researched without experiencing any benefits. The principles of Ownership, Control, Access and Possession (OCAP) were raised and there was acknowledgement of the importance of ensuring that the research conducted about Indigenous Peoples can be leveraged by Indigenous communities and used to promote meaningful change.
Indigenous Loan Guarantee Program
The Indigenous Loan Guarantee Program (ILGP) was discussed, with opportunities for participants to raise questions and offer suggestions on the design and rollout of the program. The discussion focused on the following elements:
Program purpose: Participants posed questions related to the program's purpose, specifically whether it was intended to drive down the cost of capital or to finance projects that are assessed by mainstream lenders as inherently riskier.
Risk assessment: Participants sought a better understanding of the risk evaluation for program applicants. Additionally, participants were interested in whether projects with higher degrees of readiness will be targeted first.
Benefits: Participants were interested in understanding what safeguards will be implemented to ensure the benefits of the ILGP are experienced by Indigenous Peoples. Additionally, participants asked how this program will be protected from fraudulent claims of Indigeneity.
Capacity supports: Participants emphasized the importance of the program offering additional support to address capacity needs, noting the significant costs incurred while raising capital for major projects.
Growth: There was a strong interest in seeing the program grow over time, with the initial investment of $5 billion being treated as the foundation, not as the maximum program size in the future.
Implementation: Participants sought clarity regarding the program's implementation timeline, fees associated with accessing the program, and efforts to remove administrative friction from the process. Participants were also interested in whether there will be a distinctions based approach to implementation, and if the delivery will be Indigenous-led. The Canada Growth Fund (CGF) was cited as a model that provides essential distinctions-based delivery considerations.
Other considerations: Participants asked questions about projects or Indigenous groups that spanned across provincial jurisdictions and how that could affect participation in the program.
Mortgages and other borrowing under the Indian Act
Section 89(1) of the Indian Act prohibits confiscation of Indigenous property on reserves. This has precluded its use as collateral for First Nations seeking financing. In conjunction with other factors, this restriction has contributed to significant economic development barriers for First Nations living on reserves. Participants proposed potential/practical solutions to overcome barriers presented by the Indian Act including:
- removing the requirement for ministerial consent to enter third party leases
- introducing a federal Torrens-based Footnote 2 land registry system
- evaluating the practices and policies of governments that prevent the financial sector from working with Indigenous governments as equals
Barriers to accessing affordable capital
Indigenous economic institutions continue to highlight access to affordable capital as a key enabler of Indigenous groups pursuing their economic visions for the future. While there are many sources of capital available to Indigenous groups (commercial lending, lending through Crown Corporations and government programs such as the Entrepreneurship Program, and lending enabled by the First Nations Fiscal Management Act), much of the capital available is unaffordable due to the pricing of risk and high debt service costs experienced by Indigenous businesses and governments. Participants highlighted several factors that contribute to the pricing of capital:
- It can be difficult to finance projects that are not immediately revenue generating or that do not have a reliable repayment source
- Many underwriters are not informed on the legal and historical contexts of Indigenous communities or on potential tools that can be used to address financing challenges
- The lack of specialized knowledge and understanding of this market can lead to ineffective relationships between borrowers and financers
- There is a burden on Indigenous Peoples to explain the complexities of their own legal and political contexts to financial institutions
- Lack of up-to-date financial statements for some applicants
Recommendations
Financial institutions benefit from strong working relationships with Indigenous clients, and those that find solutions gain business and opportunities. The following points are specific solutions that were mentioned during the discussion:
- Roundtable participants put forward ideas on how financial institutions can work around limitations that the Indian Act poses on First Nations borrowers, including:
- Subsection 89(1.1), which allows First Nations to designate land. Designated land retains reserve-land status which can typically be subleased to non-First Nations without Ministerial approval. Sub-leases can then be used as collateral in lending relationships.
- First Nations that have opted into the First Nations Land Management Act regime can create a Land Code that outlines leasehold interests for non-First Nations members. This approach can allow subleases to be used as collateral with more certainty.
- Financial institutions should ensure their staff, policies and processes integrate best practices on collaborating with Indigenous communities including but not limited to:
- An understanding of the legal and administrative elements of transactions involving Indigenous governments
- Cultural competency and genuine relationship building
- The ability to attract and retain Indigenous clients, and
- Specific Indigenous financial expertise catered to underwriters through to risk adjudicators
- There needs to be a greater consistency across the country on how programs and services are delivered to Indigenous communities, from both governments and institutions.
- For example, a roundtable participant shared that their institution extends the same benefits to Indigenous communities as they would to any other level of government when accessing capital. That sentiment was not echoed by all financial institutions present.
- The federal government's Indigenous Loan Guarantee Program is an example of increasing widespread access to programs and services where previously, only select provinces were offering a similar program.
- An Indigenous investor conference should be held to address asymmetric information and bring international investors together with Indigenous groups seeking capital.
- The federal government should consider amending legislation that creates barriers to Indigenous groups from capital market access.
- This is a large piece of work that must be contemplated with full collaboration of Indigenous partners.
Overarching recommendations and next steps
The roundtable concluded with an opportunity for participants to identify concrete actions that could be taken to improve access to affordable capital and advance economic reconciliation more broadly. Below is a summary of recommendations from the participants.
- Financial institutions need to be mindful of inadvertently creating barriers to revenues or other assets when financing projects with Indigenous groups
- For example, tying up all of a community's accessible assets into one major project is unlikely to serve the best interests of the community in the long-term. Thinking beyond the lifespan and profits of a single project will be conducive to stronger and more meaningful relationships
- Greater transparency in financing decisions can avoid disadvantaging Indigenous groups in future transactions
- Institutions that provide support to small and medium businesses could establish a broader suite of supports for Indigenous entrepreneurs
- Financial institutions may wish to consider circumstances where an unsecured loan could be offered to borrowers at an affordable rate when securities are unavailable
- Financial institutions could take steps to understand and proactively get systems and employees ready to incorporate a Free, Prior and Informed Consent (FPIC) standard to support lending assessments through engagement with Indigenous partners on what meaningful consent looks like
- Communities should be engaged early in projects to ensure full participation and opportunities are realized
- Financial institutions would benefit from teams that have the skills and capacity to support Indigenous organizations and individuals in their economic and financial sector goals
Conclusion
In summary, the discussion focused on a broad range of issues impacting meaningful progress towards economic reconciliation. Notably, discussion focused on the following topics.
Research, data and information sharing
Participants highlighted the absence of robust data on Indigenous economies, the exclusion of reserves in key economic indicators and the increased economic pressures faced by Indigenous communities that continue to not be reflected in national averages. Participants recommended the creation of regular Indigenous economic outlooks as well as further work with Statistics Canada to determine the impact of economic policy on Indigenous communities.
Indigenous Loan Guarantee Program
Participants sought a better understanding of the program, specifically on its purpose, risk assessment policy, intended benefits, availability of capacity support, growth potential and implementation.
Mortgages and other borrowing under the Indian Act
Participants reiterated the ongoing restrictions that the Indian Act poses on the use of land or property as collateral in financing arrangements. Several potential solutions were mentioned including: removing the requirement for ministerial consent to enter third party leases, introducing a federal Torrens-based land registry system and evaluating practices and policies that prevent the financial sector from working with Indigenous governments as equals.
Barriers to accessing affordable capital
An ongoing challenge that was revisited from the February 2024 roundtable was the access to affordable capital. The specific barriers that were mentioned include: financing projects that do not have a reliable payment source, the lack of specialized knowledge needed by underwriters and the lack of up-to-date financial statements. Participants recommended leveraging opportunities presented by the First Nations Land Management Act, a concerted effort by financial institutions to educate and inform their policies and practices, a greater national consistency of the availability of programs and services that support access to capital, the creation of an Indigenous investor conference and the consideration of amending federal legislation that create barriers to capital market access.
Next Steps
Participants established a commitment to ongoing work in this space, and to continue the conversation and momentum that was built throughout the discussion. The Government of Canada will continue to engage and work collaboratively with participants to explore the options and recommendations that were shared during the discussion.
Looking ahead, planning is underway for the next roundtable expected for Fall 2024. The Royal Bank of Canada and the First Nations Financial Management Board have volunteered to host this discussion. Participants will be encouraged to come to the discussion with examples of progress made and specific commitments to further action in response to the various barriers and solutions suggested at the last two economic reconciliation roundtables.