Effectiveness of Aboriginal financial institutions questioned

Joseph Quesnel argues that Aboriginal financial institutions need to be thoroughly examined in terms of effectiveness and value for money.
Published on February 10, 2011

Tensions are heating over Aboriginal financial institutions. These funding agencies were created by the federal government in the 1980s to offset the fact that First Nation businesses lacked access to conventional credit due to the land restrictions created by the Indian Act. As reserve lands cannot be leveraged as collateral, First Nation entrepreneurs must seek other sources of financing. Given the higher poverty rates among reserve residents, self-financing is often not an option.

In 2009, Indian Affairs awarded traditional lenders about $18 million in loan-loss guarantee monies. Traditional Aboriginal lending institutions are angry over this fact as they argue they are closer to the communities they lend in.

To defend themselves, the Aboriginal program spokespeople havre said: “Since they were created, the Aboriginal lenders have provided about 33,000 loans, injecting $1.4 billion into Aboriginal and mainstream communities.” This is according to Nicole Ladouceur, director-general of the Aboriginal Entrepreneurship branch of the Department of Indian and Northern Affairs.

While I have seen data that says the success rate of these businesses is high, it is evident more needs to be done to study the effectiveness of these financial institutions.

Also, the fact that Aboriginal communities are clinging to these programs flies in the face of those why say fundamental change to the Indian Act or land ownership on reserves is not essential to succeed economically.


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