By Ellie Winninghoff
Imagine a reservation the size of Connecticut with 30,000 people living on it who have no access to banking services and which is ringed by predatory payday lenders.
That's how Randy Rice, community impact investments portfolio manager at Boston-based Trillium Asset Management, describes the Pine Ridge Reservation to investors. Located 75 southeast of the Black Hills in South Dakota, it is home to the Oglala Lakota, part of the Great Sioux Nation.
"My clients understand the need for the Lakota Funds," Rice says, referring to the community development finance institution, or CDFI, that was started in l987 to support the creation of micro-businesses. "If you had told me 13 years ago that there would be 350 businesses on the Pine Ridge Reservation, I am not sure I would have believed you. One thing that has impressed us as investors is that as they begin to fulfill their mission, they continue to broaden that mission."
Today, besides providing business training and small business loans to members of the tribe, the Lakota Funds offers predatory prevention loans, credit building loans and matched savings accounts for asset building. And it has sponsored the Lakota Federal Credit Union, which will offer banking services on the reservation for the first time. Lakota Funds executive director Tawney Brunsch, who also serves as the credit union's CEO, expects the credit union to open as this article goes to press.
There are two ways to invest in the Pine Ridge Reservation. The first is to invest in the Lakota Funds, where Trillium's clients have invested $400,000. Other top supporters include the Northwest Area Foundation, Kellogg Foundation, Tides Foundation, and Walton Family Foundation. Returns, which are negotiated (there is no standard product), average 1.45%, and several foundations have made program related investments at 0% for three to five years.
The second way is to invest in CDs with the Lakota Federal Credit Union. Since it has a low-income designation, it will be able to accept non-member deposits, which are insured by the National Credit Union Association (NCUA).
"This will be very attractive to our clients," Rice says. "It's a no-risk Native investment."
Trial And Error
Pine Ridge, home to Wounded Knee, spans the Great Plains and badlands region. It's an isolated place where half the residents live below the official poverty level. Extended families are often crowded in houses, and many do not have a telephone, running water or electricity. Most residents must drive 100 miles to the closest city once a month to buy processed food, and more than half of the adults have diabetes. The unemployment rate is 80 percent.
A big problem in Indian country is keeping the millions of dollars invested there circulating on the reservation rather than leaking out.
In the l980s, the community concluded that the only way to retain these funds was to have more businesses on the reservation. The Ford Foundation connected the Pine Ridge-based First Nations Financial Project 7th Generation Fund with Muhammad Yunus and other leaders in the then emerging micro-lending world, thus allowing the Lakota to tap their expertise. The Lakota Funds began as a subsidiary of First Nations.
But it didn't work. And it didn't work again and again.
One thing that did not work was circle lending, the foundation of most microfinance in the developing world. Circle lending is based on a group strategy to make sure existing loans are paid off within the group before new loans are made to others in the circle.
The Lakota's problems were twofold: Unlike in Bangladesh, there was a lack of people nearby to sell to. Another issue was kinship. "We're all related," Brunsch says, "It was almost impossible to have a circle without eventually having a brother or sister or parent in the circle, and that made it very awkward."
But the Lakota's earliest stumbling block was the lack of a commercial or debt collection code on the reservation, meaning it could not collect debts under tribal law.
That came to a head early on, when many young men with the smaller loans suddenly stopped paying them back. The fund ceased making micro-loans and made a big deal about collecting what it could so that it did not set a precedent of loans as entitlement. And it worked with the tribal government to put in place a debt collection code.
"We were willing to put the time and effort into figuring out why something was not working so we could make it better," recalls Sherry Salway Black of the National Congress of American Indians, who worked at First Nations at the time. "Putting this early framework in place is the reason the fund exists today."
Tanka Bar
Business loans range from $500 to $1,000 micro-loans to artisans and artists like Gerald Cournoyer to a $200,000 line of credit to help a firm such as Murdock Electric, a 20-year family-owned business with 45 employees, to secure bonding. In spring 2011, the fund began its Su Owojupi Project in order to establish a healthy food infrastructure on the reservation. To encourage gardeners to create a business, it supports them with grants up to $2,000 and loans up to $1,000.
The fund also made an equity investment in Native American Natural Foods, whose first product is the wildly successful Tanka Bar made of dried buffalo and cranberry found in places like REI Coop and Whole Foods.
But while money is the carrot for these entrepreneurs, technical assistance is the key. The fund teaches financial literacy, how credit works and business planning.
"These are very hands-on courses," Brunsch says. "Most of them are three weeks long, and we also do one-on-one coaching. Because transportation is an issue, we usually go to them."
Building A Stronger Foundation
Brunsch, a seasoned credit union loan officer and branch manager before she came home to Pine Ridge in 2008 to join Lakota Funds, is a huge fan of NCUA policies. "They do everything by the book," she says, "and today we are running Lakota Funds just like any insured institution."
But, she says, there is little understanding on the reservation regarding how credit works or what bad credit can do to somebody.
For many tribal members, checks from the federal government for earned income tax credits can amount to up to one-third their annual income.
So, in the absence of any other financial institutions on the reservation, Lakota Funds has developed consumer programs to help tribal members build credit and wealth:
* Through its individual development accounts, or IDAs, it matches savings three-to-one after six months. Funds must be used to purchase wealth-building assets–a house, education, or to start or expand a business.
* Child development accounts, or CDAs, are matched savings accounts that allow kids starting in kindergarten to grow up knowing they have savings accounts in their own name, coupled with financial literacy/awareness for the whole family.
* Credit builder loans up to $2,500 accompanied by financial literacy to allow potential clients that don't qualify for loans due to bad credit scores to pay off bad debts.
* Asset protection (or predatory protection) loans to help tribal members avoid refund anticipation loans and their hefty $700 fees at Christmas time. Tax refunds for tribal members amounted to $453,000 in 2011, Brunsch says. "When that refund comes," she says, "they can now automatically deposit it in the IDA, and in as little as six months, triple their money."
Native Control Over Own Assets
Lakota Funds has worked for three years to get an NCUA charter–something difficult to achieve–for the Lakota Federal Credit Union. Brunsch expects it to be live in early August, and as that happens the credit union will take over many of the fund's consumer programs.
"This changes everything," Brunsch says, alluding to the fact that tribal members for the first time will finally have access to free or reasonably priced financial services on the reservation. For investors, the power of the multiplier effect means that a $1 deposit can allow the credit union to make four to seven times the deposit in loans, depending on its existing capital.
And in many respects, it will be an historic moment at Pine Ridge.
"The focus of our work was always around Native control of assets," Black says. "It was a brand new idea in the l980s, and a lot of it still is today."
And it frees up Lakota Funds to devote all its energies to its primary mission.
"The asset development work is definitely needed and makes us feel good," Brunsch says. "But at the end of the day, our work better be about business creation. It will only be through new and expanding businesses the Oglala Lakota people will have the means to provide for themselves and their families, through job creation."
A former investment banker, Ellie Winninghoff is a writer and consultant specializing in impact investing. Her stories are linked at her blog, DoGoodCapitalist.com, and she can be reached at: ellie.winninghoff(at) gmail (dot) com.
