From Policy to Practice

How Native CDFIs grew from federal study into a sovereign finance movement

In 2001, the U.S. Treasury Department released the Native American Lending Study, identifying 17 structural barriers to capital access in Indian Country. The report helped catalyze what would become the modern Native CDFI movement.

Fifteen years later, Treasury published a follow-up report, Access to Capital and Credit in Native Communities (2016), examining how the sector had evolved.

In this episode of Difference Makers 3.0, researcher Miriam R. Jorgensen of the Harvard Project on Indigenous Governance and Development and the Native Nations Institute joins Brian Edwards and Pete Upton to discuss:

• Why the 2001 study was pivotal
• How Native CDFIs grew from roughly 10 institutions to nearly 70
• Why capitalization remains a challenge
• The role of tribal government investment
• How Native CDFIs evolved from microloans to complex capital stacks
• What happens if federal support changes

🔗 Read the 2001 Native American Lending Study (U.S. Treasury PDF).

🔗 Read the 2016 report, Access to Capital and Credit in Native Communities. Written by Miriam R. Jorgensen, Research Director at the Native Nations Institute and the Harvard Project on American Indian Economic Development. Funded by the U.S. Treasury’s Community Development Financial Institutions Fund, with additional support from the Morris K. and Stewart L. Udall Foundation. 

🎧 Listen now:
 https://www.buzzsprout.com/2352819/episodes/18718249

Difference Makers highlights how Native community development financial institutions (CDFIs) work alongside their small business clients to accelerate change and create economic opportunities in Native communities. Join the Native CDFI Network and Tribal Business News as they shine a spotlight on the people accelerating economic change in Indian Country.

Transcript

brian edwards: 0:05

There was a time not that long ago when capital simply didn't move in Indian Country. Banks didn't lend investments, didn't reach tribal communities, and it wasn't for lack of ideas or opportunities, but because the system wasn't built to work there. In 2001 the Native American lending study put that reality into writing, identifying 17 structural barriers to capital access. It helped spark what would become the modern native CDFI movement. 15 years later, in 2016 a new study asked a tougher question, what had actually changed today on difference maker 3.0 we're joined by Miriam Jorgensen, a leading scholar of indigenous governance and economic development, and one of the researchers behind that 2016 study, she's going to help us trace how native CDFIs grew from a handful of loan funds into a national sector, and why that progress has never been linear. We're going to talk about growth, holding steady, capital stacks, tribal investment, and how native CDFIs evolve from the federal program into a sovereign finance movement. I'm Brian Edwards alongside Pete Upton, here's our conversation with Miriam Jorgensen. Miriam, welcome to Difference Makers 3.0

Miriam Jorgensen: 1:30

Thank you so much, Brian. Pete, it's great to be here.

brian edwards: 1:34

So you were not part of the 2001 Native American lending study, right?

Miriam Jorgensen: 1:41

That's right, I got a phone call in, I don't know, maybe 99 or 2000 to provide some comment and be interviewed, but I was one of many people. I don't know, something like 700 people were invited to provide comment or participate in working groups or respond to surveys that there was just a lot of information that gathered, and I was just one of many who provided a little bit of information. So I was an eager reader when the report was released in 2001

brian edwards: 2:06

so why was the 2001 Native American lending study so pivotal, and what did it reveal about financial exclusion in Indian country?

Miriam Jorgensen: 2:15

I think the thing that I was just remarkable to so many of us was that the numbers were known in terms of the low levels of Community and Economic Development. We understood that there were high levels of poverty, low levels of employment, lower per capita income than on average, but not a lot of information about the like financial sector and what its role was in either correlating with or causing some of those concerns. And the Native American lending study really was a splash that pointed out not just one or two problems, but it had a list of 17 barriers to access to capital and credit in Indian country that ranged from legal barriers to institutional and governmental barriers, to economic and financial barriers to educational barriers. And I think really laid bare that there were a lot of concerns about how finance could flow, and just that understanding of, if you don't have the financial capital to get things going, it's really hard to get things going. Where did the data come from? A lot of different places. So I would say that most of it was qualitative data, although there was a very strong effort to get quantitative data out there as well. A number of round tables and convenings that brought together people who were experts in banking and equity, a number of folks who did community development work, surveys of tribal leaders, of folks who are in the housing sector, people working in community development in native communities. I think in one place in the survey, they cite that a survey was sent to 1600 people, and they got a response rate of about 30% which is very good. And got a lot of confirming data, of demonstrating that the the impressions that people had were were true from what people on the ground were seeing.

brian edwards: 4:00

You know, some of the folks that were around during that time period and started some of the early Native CDFIs that came out of this, there was not a lot of confidence, necessarily. There was absolutely 100% need. But coming out of this, native CDFIs didn't just sprout out of the ground in 2002

Miriam Jorgensen: 4:22

no and in fact, one of the things that the CDFI Fund did was create this process of certification, which made entities eligible to receive funds from the CDFI Fund. And at the time of the native initiatives founding, which was a really big byproduct of the Native American lending study, as you get this native Initiatives Program within the CDFI Fund of us, Department of Treasury. There were the numbers a little hard to nail down, but something like 10 native CDFIs that, you know, became certified at that point and they had grown out of things like loan funds, or, you know, some of those old BIA revolving loan funds, or some programs focused on business startup and things like that. I. Think one was the Hopi credit union. Another was Lakota funds, the four bands Community Fund, I think, was already somewhat extant at that point, and so there were around 10 or so. The numbers like I say, are a little bit vague. But then by 2015, 16, when the report that I wrote came out, we had around 70 native CDFIs. So that is a remarkable amount of growth within the sector. And you're right, Brian, that that did not just happen. There was conscious development of the sector, investments by the CDFI Fund, and frankly, the blood sweat and tears of community members to get these institutions up and running.

brian edwards: 5:36

So let's talk about that period between that 2001 study in the one you authored in 2016 what were the breakthroughs that kind of led to that growth during that 15 year time period?

Miriam Jorgensen: 5:47

One of the big breakthroughs was the understanding that there needed to be investment in training people how to start native CDFIs. So it had to kind of go through that growth and development period, and in order to just get things going, these non native partner organizations kind of incubated those training programs and then pass them off to a lista when it was ready to operate them. But it was that understanding of you need to train people to take on this task and really walk them through what it is to start one what participation you need from your tribal government, how to if you're how you're going to be incorporated or organized, how many staff you need, what financial capital you need, what it means to start development programs, how to do a market study for those development programs that you might not start lending right away. You might not even start lending for five or six years. And so there was a lot of training that went into getting programs off the ground. And realistically, once native CDFIs got started. A lot of hand holding to say, you know, your experience might be slow. It might happen in fits and starts.

brian edwards: 6:46

But not everyone was patient with that timeline, right?

Miriam Jorgensen: 6:49

There was a lot of pushback, I got to tell you, because there was pushback from the mainstream sector saying, you know, we can get a CDFI going in downtown Los Angeles in 18 months. How come it's taking four or five years in Indian country to get things going. And so there were a number of us who were involved in I was doing a lot of evaluation work at the time, and a lot of my evaluation was focused on the success and progress that was happening of getting CDFIs off the ground, native CDFIs off the ground, and really justifying to the sector that there were barriers specific to Indian country, to move things forward, and it that the response shouldn't be to pull back, but to keep supporting the development and growth. And if some sometimes things stop, sometimes things failed. The fact that there were then approximately 70 by 2016 demonstrates that that stick to itiveness, stick with it, stick with the current training, provide the support that's necessary.

brian edwards: 7:41

Pete, I can see the gears turning over there. What's your question?

Pete Upton: 7:49

You know, the growth period from 2001 to 2016 you know, we're going from just a few to up to 70. We're kind of in that holding pattern right now where we were at 70, and a few of them have dropped off, and we're at 64 currently certified native CDFIs. Have you ever given any thought to the stagnation of the growth there?

Miriam Jorgensen: 8:13

Yeah, and I'm not sure I'd call it stagnation of growth. One of the big findings from the 2016 study is the challenges of capitalization. Running a native CDFI is a costly business because the necessary investment in Development Service, financial education, credit repair, home ownership, education, home buyer, education, business startup, education, business counseling, and you need staff to pay for it. That's operating costs, and then you have to worry about your loan capital too, and that you might not have cheap sources of loan capital, and you might not have ways to sell that, so that there are lots of high costs associated with running a native CDFI. And one of the big criticisms that really arose in the teens was that there were too many native CDFIs, and with so many of them. And in fact, this wasn't just in the native CPI sector. It was in the sector overall. This question of, would it be better off for there to be fewer institutions that can be larger and support more services?

brian edwards: 9:11

So was the field overbuilt, or was it still maturing?

Miriam Jorgensen: 9:15

I think you saw a little bit of this pulling back of maybe we'll have some more regional service, and you see things like the CDFIs doing a little bit more regional outreach, like four man's Community Fund, for instance, moves outside of the confines of the Cheyenne River Sioux Indian Reservation and serves its broader population in western South Dakota. I think another way we saw some bulking up was in the kinds of specialization that began to occur to some degree where we have some CDFIs that are focusing, say, more on mezzanine level finance, or, you know, the growth of the the Ag fund and and some of those, you only need one or two of those kinds of national level native CDFIs. So just the fact. That we don't have a native CDFI in every community isn't necessarily field stagnation. I mean, I think it's switching the question from we need the native CDFI to is there a native CDFI that would serve our community? That's kind of where we're at now. That doesn't mean there shouldn't be more growth, but I think maybe we're kind of in a in a holding and growth getting ready for growth pattern, as opposed to a stagnation point.

brian edwards: 10:22

One of the things you talked about was this kind of fit to "community purpose," — is that what you're talking about here absolutely.

Miriam Jorgensen: 10:29

So that happens in a number of different ways. I think the very first way is just coming from that idea of doing a market study. And that was one of the first things that the trainings focused on, is when you have a desire to start a native CDFI, the trainings developed by first CFD and then ofn, and then a list of were do a market study. And the market study has to help you determine what it is that your community needs like you can't you can't imagine that you're going to go out necessarily and start to do lending right away. If what your community needs is financial education to prepare for lending, or it needs an assessment of what kinds of businesses are people most interested in starting and capable of starting, and what is the, what is the sort of market going to bear there? And so you immediately, from sort of the day one, get this idea of there has to be specialization to the community served, and then create programming from there, both development services programming and loan loan programming that's appropriate for that community, and that's tailoring. It's all tailored to the to the population to be served. That doesn't mean that one CDFI, one native CDFI, like I said, can't serve more different native nations, but it might do so then, by serving a niche of a type of lending, and that's also tailored. What it is that it is that Indian country needs, can this native CDFI meet that need?

brian edwards: 11:51

You know, at this point, we don't even know what the future of the CDFI Fund looks like, if that disappears, what actually changes on the ground for native CDFIs.

Miriam Jorgensen: 12:02

Remember, the Treasury certification was to allow those entities to receive Treasury dollars and support for operating costs and for loan capital. It was basically, kind of getting them into the treasury system. But you're 100% that we had community development financial entities, so we call them CDFIs now institutions, but we had community development corporations and community credit unions and all kinds of things before, and we will have after. I think that the if the CDFI Fund really does go away, and I touch wood that it does not, but if it does, I think it's simply we it's not we're going to see, not going to see community development finance institutions, native community development finance institutions go away. Instead, I think we'll see a sector that is maybe a little less it will even more diversified as different native CDFIs seek to figure out what it is that's going to allow them to survive, whether or not that's even more tailoring to a specific portion of their client group, or if it's merging and melding with maybe a community development organization that does even more than finance. So I think we'll see sector change and evolution, but not sector debt.

brian edwards: 13:23

You know, Pete and I were talking about this. When you look at the collective balance sheets of the 65 certified native CDFIs, and then you compare that to the roughly $28 million in annual NACA funding, it's actually just a small portion of the total capital. So the federal dollars do matter, but they're not the whole balance sheet. They're actually just a small part of it.

Miriam Jorgensen: 13:43

It really is. And I think this is an opportunity for other funders to step up. So one of the funders that I think always has needed to step up more, and this is not trying to throw shade on any one in particular, so I'll just do it as a collective, is tribal governments. I think tribal governments need to support native CDFIs more as a place where they say, this is where we've seen effectiveness in community development, and we need to be putting some of our own revenues into these entities for them to invest in community change and growth. We know that native CDFIs can be effective, and I think it's a place where tribal government dollars are really critical. I look back over some of my notes, and it is clear that native CDFIs that received injections of capital from their tribal governments were up and running faster than those that did not receive those injections of capital. Now that's going to tell you something about the kind of having an environment of support for the work of the native CDFI, if those tribal governments stepped in. But I think it's really saying more than that. It's also saying that there's some sense of a joint future. It's that a native community has its future. The. A tribal government, it sees its citizenry and its constituency and the future of that tied also to the future of the native CDFI, that they're going to grow and reach new heights together, as opposed to seeing them as competitive organizations. And so that idea of tribal government investment, I think, is something that going forward, we it would be good to see even more of

brian edwards: 15:23

When you talk about tribal government investment, though, you're not just talking about writing a check.

Miriam Jorgensen: 15:29

Well, writing a check would be good, but, yeah, you're right. There are other ways that tribal governments need to help out, but I would argue, a tribal government that just creates the environment for growth. It's done a good thing, but it hasn't, in a sense, done enough. So a tribal government always should have this role of saying, we need to be creating an environment in which our citizens want to invest their time, money and talent, and we do that by having clear procedures for zoning and for business startup and for a rational taxation and regulation system of businesses that start in our community. We have clear ability to lease land or to otherwise use tribal lands through land assignment system. We have a fair dispute resolution system that is also pretty fast, so that people aren't waiting around for decisions to be made. And those kinds of infrastructural issues just around how government operates, were actually identified in the 2001 Native American lending study, and were emphasized again in the 2016 report that I helped write, that these issues around how tribal government operates, really do create an environment in which a native CDFI can have more or less success, because it means that their clients will have more or less success even something simple like, is there a clear procedure if a native CDFI wants to organize under tribal law? Is there a way for it to do that as a nonprofit entity? None of that should dismiss the fact that actually writing a check is useful.

brian edwards: 17:04

Policy frameworks and legal frameworks are great, but getting a check is even better.

Miriam Jorgensen: 17:10

And I think that this is a place where tribes also can support each other. Now, remember, I'm pointing out there are a number of CDFIs that serve multiple Native nations, that serve national indigenous purposes, and so those native nations that have the ability to be generous to these kinds of activities, I think there is some responsibility to be generous to those activities. I also think that there's a lot of funding that can come from the foundation sector. The Foundation sector has substantial resources at its disposal, and even more recently, because of the way that endowments have been growing and to really commit to these kinds of broad based community development entities, is, I think, something very important that foundations can do. Now, here's a reason that I think foundations investing with various kinds of cash, they can get grants, they can make equity investments, and they do other kinds of partnership with indigenous nations and a native CDFI. Remember, go back to this tailoring thing. It's, it's not asking the program officer to come up with some great idea like they, they know how community development is going to proceed. You know, I know this is going to work because we're going to put a McDonald's in somebody's town, and that's going to bring great going to bring great, great pro it's not that. It's not about the program officer as great brain that's going to figure out how to do things. It's actually investing in a proven strategy for communities themselves to come up with the idea of what works for them. And it's that kind of ability to invest in a known entity that can have success. That's what the community itself needs, rather than having that idea dictated from outside. And I think you can't ask for a better kind of investment to make as a foundation than in something you know works, as opposed to you having to come up with the idea and imposing it.

brian edwards: 18:57

Pete, did you have something?

Pete Upton: 18:59

You know with that being said about tribal investment, the do you see the with the political change every two years within tribal councils, there's still a great, important element of being organized outside of the controlling government, just due to the fact you don't want to, every two years you have a new government calling the shots. And I, what I have seen over the years is sometimes that political change can hamper the growth of a CDFI. So is there, in your opinion, like a structure within if you're going to get an investment from a tribal entity, how would be the best way to structure that

Miriam Jorgensen: 19:46

So you're hitting on sort of one of my favorite topics, which is the separation of business from politics. So I do think that those kinds of separations are critical, and therefore, having a CDFI that's organized separate from the tribal government, it might be like I said. It might be organized under tribal law, but it is a separate entity from the federal government that has all kinds of advantages. It means that it's not under pressure, for instance, well, it might be under pressure, but it can more easily resist the pressure of having to make its investments with certain individuals or certain families. So it's not kind of caught up in that political cycle. Its own existence doesn't necessarily depend on a certain person or council being in power. So that separation is useful, but it does mean that when investments are made, they should be made in a fashion that says, hey, the tribal government is giving you some budget support for this year, or we're investing in your capital pool, and then that should be it. You're done, right? The Tribal government has done it's a bit for that year, for and and it shouldn't get the right to sort of dictate necessarily, who gets that money. It could have some choices about how that money is invested. It could say, We want you to do this and do housing investment with it and support home ownership, but we want you to do business investment with it. So those kinds of broad strategies are appropriate for tribal councils to set. That's the that's the political level of decision making. Who gets it, how it's specifically run. That's for the CDFI to do. Back to your point, though, about turnover in tribal governments, I'm going to quote Lance Morgan, who's the CEO of Ho Chunk Inc at Winnebago Tribe of Nebraska, and say that if you're not thinking about staggered terms, you're not thinking about economic development. So I really do think that tribal governments that haven't really thought about how to institute better institutional knowledge within their councils are not on a as a as positive of a development pathway. That said, of course, we know there are nations like many of the traditional pueblos, that have a complete turnover every year, but they also have built in institutional memory in the ways their governments are structured. But a lot of those Ira governments that have very short terms fulsome entire turnover of their council, you're right. Pete, that that is a recipe for, you know, a lot of political wind blowing, like this direction and then that direction, and you don't want your native CDFI to get caught up in that. One thing that native CDFIs can do, and this is learning from development corporations, is like, by that, I mean, like holding companies, like big tribal enterprises, where they really have to practice separations and politics from business as well, is to regularly educate council. So a native CDFI and a native community, a tribal community, should, when a new council comes in, do their best to get on the tribal council agenda and just educate here's who we are, here's what we do in the community, here's the success we bring. I think, though, that that really puts some pressure on a native CDFI to do something that at least back in 2016 and I'm going to credit your organization, the native CDFI network, for helping change this, which is it puts pressure on a native CDFI to have good data, and I know that's when one of the things that native CDFI network has worked on with native CDFIs, is to help them figure out, how do you how do you measure your impact, what is your impact data? And how do you talk about what you do? How do you sell yourself? And that's selling yourself to a foundation, to the federal government and to your own government. I love the stuff that says, This is the number of jobs we've developed in this community. This is the number of houses we've helped build. These are the number of people we've helped train for business development. Reporting those kinds of numbers to Council makes the work of the native CDFI feel tangible and valuable in that political context.

brian edwards: 23:29

Pete was saying the other day, whenever he talks to anybody in Congress, any policy makers, you know, question number one is like, well, what are you doing in my community?

Pete Upton: 23:38

Brian's been to a number of our events. And the thing that I always like to let our industry partners know is to always speak to us before you speak for us, because so many times as we roll, we're just a check mark. And then after they get us engaged, they don't ask us to walk with them, but walk behind them. So we're and I think it's very important for the native led organizations and tribal nations to have a strong voice and advocate. Our position is we're going to advocate for ourselves, and if you're going to advocate for us, then communicate with us, because we don't want them sending the wrong message. And we really struggled hard here in the last six months of making sure that we weren't thrown in the DEI bucket and and we finally have everybody educated on that for the most part. But you know, that is something that is new. But, you know, as you've worked in the industry, have you, have you seen that before, to where groups just want to market the box that we got natives involved, and therefore, you know, funding, but then we get the trickle down effect?

Miriam Jorgensen: 24:59

Yeah, for sure. Sure, and I think that, because I think so strongly in the tribal government space, sometimes I forget that people are doing that. And I really have to catch myself and say, Oh, no, you you need to understand, these are tribes. Are tribal governments, and that the work that the effort that's undertaken with them is is about political entities and political rights, and not race based rights. But yeah, I think that there is a great tendency, both in federal government and in foundations, to think of this as dei when it's not at all. And I will say that one of the things that is it's diminishing, in the sense of diminishing who indigenous individuals are as part of the United States, right? That they're original citizens whose rights stem from separate sovereignties and inherent sovereignty of Native nations. So there's that sort of just basic fact that's missed when there's that box checking activity that goes on. But you're also missing this incredible opportunity to take advantage of the fact that tribal governments have separate authority, right? And that there's a lot of things that can be done where native city of eyes, working through and with their tribal nations, have opportunities to do more. So I think one of the things that I've seen in the sector, for instance, that is nifty to see, is the collaboration of native city of eyes to actually do lending to either tribal governments or to tribal entities to help get things going that might not otherwise happen, and that's possible because they're tribal governments, because there's a separate governing body there and and that's this multi faceted kind of development that's possible. So building a hospital or putting in a highway or putting up utility infrastructure that those are some of the kinds of things that native city of eyes can get involved in because they're working with drugs,

Pete Upton: 26:52

You know, the and we've been part of that movement. I also run native 360 loan fund in Nebraska, so we serve four states. But recently, we were involved in a $65 million wheat mill loan in Pendleton, Oregon, and the native CDFIs were part of the capital stock at 10,000,060 5 million, and Native American bank was in at 25 million. But models like that, the duplication of those models, and the blueprint of those models is what needs to be shared with tribal councils and other native businesses. Because no longer are we, you know, we're dealing with maybe the $500 loan, but then again, we can be dealing with a $65 million loan. So elevating that and getting the capital involved. Strategy wise, if the CDFI fund would go away, you know, strategy wise, what are your thoughts on investments, continued investments in native CDFIs to fund some of those large projects.

Miriam Jorgensen: 27:59

So Pete, I'd ask you to clarify investments by whom.

Pete Upton: 28:04

Philanthropy and banks. There's a report that was just out last year, 48% of Indian country still resides in a banking desert. Yeah.

Miriam Jorgensen: 28:18

So I think native CDFIs are a critical player in that in part, because of the flexibilities that they have, the fact that they understand these kinds of unique capital stacks that can be created, and that there aren't other sources of financing to bring that kind of Finance to the table, and that they can be a key player in helping organize those more complex deals. If anything, that, to me, is the story of the last 10 years. I mean, we talked a little bit about this stabilizing in the number of native CDFIs, but just the creativity that has come about, about the different kinds of capital deals that have happened. Like, you know, when I was really deeply involved in studying in the sector, we were looking at the $500 loan. Up to $100,000 might be a really big loan, but now we're talking about the spread of the field, right? That there are some down there still doing the smaller loans, the micro loans, the mezzanine kinds of loans. And then there are these big deals that are going on as well. And I think that those deals that we've started to see happen in the last five to seven years that you've been critically involved in heat, you know, if we want those things to continue in Indian Country native CDFIs are critical, because they're not going to happen with just the banks. They're not going to happen with private equity. We need players like the native CDFIs who know how to put those things together, who know Indian country and native communities, and who have made it their job to know the different players and connect the players.

brian edwards: 29:38

That actually may be the clearest definition yet of what Native CDFIs have become. They're not just lenders, they're connectors. They're institutions that understand capital, they understand sovereignty, and they certainly understand native community, and they have this ability and knowledge of how to bring all three together. Native CDFIs have really come a long way over the past two and a half decades. But as Professor Miriam Jorgensen reminded us today, this story isn't finished. Access to Capital remains uneven, and the next phase depends on who steps up, tribes, banks, philanthropy, or investors that are willing to meet native communities on their own terms. Next time on difference makers 3.0 we're going to turn to a hard truth, why philanthropy has long overlooked Indian country and what becomes possible when funders finally get it right. That's episode three, philanthropies, blind spot, difference makers. 3.0 is a co production of the native CDFI network and tribal business news thanks to Pete Upton and his team at NCN: Kristen, Wagner, Shauntel Hogan, Pamela Boivin and Stephanie Prater. Thanks also, of course, to the Native StoryLab team, especially Kristin Lilya, a proud member of the Bois Forte Band of Chippewa. She's our project manager, wrangler in chief, and recording expert. Thanks also to the incomparable Elyse Wild. She's working behind the mic this season as her sound editor, and she's become our podcast Maven. Check the show notes for links and more. Thanks for listening. See you next time you.