Are we courageous enough to lead the way to economic prosperity and economic sovereignty?
Can Indian Country achieve prosperity without risk? Or better yet, are we courageous enough to lead the way to economic prosperity and economic sovereignty by trusting our own proven Indian institutions and putting economic control and therefore real economic power in the hands of our own Indian people?
As the Cobell settlement begins to look more like a reality, we have to face some other realities with regard to money and markets, specifically, how do we invest idle funds awaiting distribution or those set aside for the education endowment? Do we as Indian people have an obligation to invest any portion of the settlement with Indian institutions that provide opportunities and services to Indian people rather than in non-Indian controlled investment vehicles? During the payout process, funds from the settlement 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’.
In financial terms, what is the increased risk of requiring one penny out of every dollar to be invested in Indian Country? More interestingly, what is the potential pay-off and how might we enlist other partners in the process?
If we were to require 1% of the $2 billion Cobell settlement to be put to work in Indian Country, what could be the pay-off/reward for that risk, and what would Indian Country have to give up in terms of risk or rate of return?
Here’s a ‘back-of-the-envelope’ risk and reward calculation to ponder. To date the money invested in Native CDFI’s as a result of 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 CDFI’s 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 CDFI’s. These Native organizations bring leadership and stability to their communities by building assets and expanding economic opportunity for the people they serve. Native CDFI’s are fully capable of ensuring the sustainable and economic wellbeing of Native communities, and serve as ideal institutions of perpetuating tribal economic sovereignty.
Additionally, based on First Nations Development Institute’s evaluation of our grantmaking program to Native CDFI’s, we have shown that for every $1 we have invested in Native CDFI’s, each dollar has been leveraged at a rate of about 20 to 1 ($20 to $1) – that means that our initial investment in early-stage Native CDFI’s helped them raise significant additional funds for their work. More important, 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. I believe that Indian Country would be hard-pressed to find an alternative investment that offered that relatively safe rate of return, while at the same time providing opportunity for Indian individuals in unbanked Native communities. Native CDFI’s provide much needed debt capital for consumer loans, home financing and small business working capital. Without these CDFI’s, there remains very few opportunities for financing in Native communities, save predatory lenders.
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 CDFI’s, we have some pretty good proxies. First Nations Oweesta Corporation pays its socially-responsible investors 2% to 3% on their investment – which is better by the way, than current 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 CDFI’s will not be repaid. So let’s take the average of 0% default and 100%, or 50%, which is still absurdly high. Using a simple weighted average rate of return, we would have 50% chance of returning 2% or 3%, and a 50% chance of returning 0%, which would give us an on average, risk-adjusted, rate of return of 1% to 1.5%, 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.
And rather that lamenting the risk associated with the investment in Native CDFI’s, let’s look at opportunities to involve partners in mitigating the risk. There is a growing movement among the private foundation and corporate community to look at program related investments. I believe that given the ability of Native CDFI’s to leverage funding, that there is an incredible opportunity for these same foundations and corporations to provide the assurance and fund a loan-loss reserve pool to further insure that any losses incurred by the Native CDFI’s would not compromise the return on investment of the 1% of the $2 billion invested from the Cobell settlement, much like a BIA loan guarantee insures commercial lenders to lend capital to Indian Country.
So I ask my question again, are we courageous enough to lead the way to economic prosperity and economic sovereignty by trusting our own proven Indian institutions and putting economic control and therefore real economic power in the hands of our own Indian people?
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.
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