Thank you very much, Mr. Chair. Thank you for this invitation to appear before the committee.
My name is Maxime Faille. I am a partner with the law firm of Gowling Lafleur Henderson, where I head our firm's aboriginal law group.
I appear this morning as a member of the board of directors of the Canadian Council for Aboriginal Business on behalf of its president and CEO, J.P. Gladu, who could not be here today.
CCAB is a national member-based business organization working to drive business opportunities and relationships between aboriginal businesses, aboriginal communities, and the broader business community. This is achieved through a variety of tools, including CCAB's progressive aboriginal relations certification program, aboriginal business mentorship, awards programs recognizing excellence in aboriginal business, as well as through original research on the aboriginal economy and aboriginal-owned businesses. This research has provided some insights into the issues you are addressing. We are honoured to share it with you today.
It's clear that access to capital is a major issue for both start-up aboriginal businesses as well as established firms. Needless to say, historically the Indian Act restrictions on private ownership of real property on reserves as well as restrictions on taking security in on-reserve real and personal property, while having their own very important historical basis, have undoubtedly had the effect of inhibiting access to capital for on-reserve status Indians and first nation bands. By restricting private ownership of property on reserves, the Indian Act inhibits first nation entrepreneurs from accumulating collateral and credit necessary to access private financing—and, of course, the inability of banks to seize assets on reserve prevents inhibits businesses from leveraging collateral
I do want to emphasize, however, that these limitations are grounded in a long history that, in my view, remains an important one and that the risk of dispossession, particularly of reserve land, remains a complex issue that defies easy solutions. When compared to American reservations, for instance, reserves are exceedingly small, as it is, and play a vital role in maintaining vibrant cultural and economic first nations communities. So navigating this reality along with the need for greater access to collateral and capital is a treacherous voyage in my view.
CCAB's research suggests that knowing where to find and apply for financing and knowing how to meet the necessary requirements remain obstacles to growth for aboriginal business. When asked what barriers restrict access to capital, a majority, or some 56% of aboriginal businesses cite the following: lack of collateral, being a new high-risk business, and having too much debt or a poor credit rating. The anecdotal evidence suggest that many give up on outside financing. Certainly, this seems to be supported by the high proportion of aboriginal businesses that rely mostly or entirely on their personal savings for their business enterprises. Indeed, 65% of aboriginal business owners rely heavily on personal savings for start-up financing and 74% rank it as the top source of ongoing financing. Over a third of aboriginal businesses identify access to capital as a major obstacle to growth in the next two years of their business cycle.
Business loans and lines of credit from financial institutions are more important among the larger businesses, those with over half-a-million dollars in revenues, while government loans and grants are rated as being of greater importance to businesses without other employees. Younger entrepreneurs place greater importance on financing from aboriginal lending agencies according to CCAB's research.
In Ontario, 44% of aboriginal economic development corporations, which are community owned corporations, as you know, identify accessing private financing as a major hurdle for business start-ups due to the lack of credit history, the Indian Act regulations, limitations regarding land ownership, and the stigma surrounding aboriginal business, a point to which I wish to return. Some 56% of economic development corporations have overcome this problem by accessing band money from land claim settlements or from existing band-owned businesses, but this is not always possible or indeed sustainable.
This is complicated by the discretionary nature of those community funds and also by the difficult task that communities face. Since these are community funds, they must balance the desire to fund businesses within their community with the need to take a hard look at whether or not those businesses are indeed sound investments for the community. There can be a bit of a push and pull in that regard. There can be a real desire to invest in a local business, but of course the reality is that the majority of start-up businesses fail. Because these are community funds, it remains important to have sound investment strategies in that regard.
As to solutions, they're obviously multi-faceted. There is a big need for greater capacity-building, and organizations such as CCAB and AFOA, from which you will also hear, can play a vital role in that regard. Loan guarantee programs are essential.
I do want to highlight a couple of issues. Speaking more in a personal capacity in this regard, since I haven't necessarily vetted these next remarks with my colleagues, first, the barriers to access to capital are numerous. However, I do want to suggest that stigma, as I mentioned, should not be overlooked as an important impediment. In my experience as a lawyer working with aboriginal communities across Canada, it is clear to me that there remains a great deal of mystery and lack of understanding in the minds of many about aboriginal business and about working with aboriginal communities. Now, certainly as more businesses and financial institutions become aware of the opportunities and business necessity of working with aboriginal communities, that is slowly changing.
I also want to mention, as my friend and CCAB's former CEO, Clint Davis, will tell you, there is in Canada, despite the significant barriers to growth, an emerging aboriginal economy of some considerable size. Here I want to suggest that while support for the aboriginal economy must come from all quarters, we would do well to optimize the opportunities, mechanisms, and incentives for aboriginal communities, businesses, investors, entrepreneurs, and individuals to reinvest in that aboriginal economy. There's a great desire to do so, and one of the ways, of course, this can be accomplished is through tax policy. In some respects, the tools are already in place in that regard. So while the section 89 restrictions of the Indian Act constrain the use of on-reserve property as collateral, the twin provision to section 89, section 87, provides for an exemption from taxation in relation to on-reserve property of status Indians and bands. That can create a major incentive for investment by bands and by status Indians in other communities across Canada, as well as in their own communities, since that tax exemption is not limited to one's own community. This should provide a first nation investor with greater risk appetite in relation to such an investment since the return promises to be quite significant if that return is in fact tax-exempt.
A major advantage of encouraging this is that the section 89 restrictions on taking collateral in on-reserve property only apply to non-Indians. So a band or a status Indian may take and enforce security in on-reserve property of another status Indian or of a band. The problem with this, however, is that in my experience the tax exemption rules are notoriously nebulous and that CRA, to be quite honest, is very aggressive in seeking to limit access to that tax exemption. Far from encouraging investment income in that manner, in my experience as someone who works in this area, the CRA acts to discourage it through lack of clarity in the rules and through very aggressive measures in that regard.
So greater clarity, support for such investments, I think, would assist in that regard, and of course, consideration could be given to providing tax incentives to non-aboriginal Canadians as well, to provide greater support and access to capital to aboriginal communities.
I thank you for your time and your important work in this area.
Thank you, Mr. Chair, and members of the committee. It's an honour to be here to provide TD's perspective on issues and challenges regarding access to capital.
By way of personal background, I'm an Inuk from Nunatsiavut, a region in northern Labrador. Nunatsiavut was the last Inuit land claim to be settled in Canada, and it's going celebrating its tenth year of the land claim implementation this year.
While I'm the vice-president for aboriginal banking at TD, I also have the honour of serving as chair of the Nunatsiavut Group of Companies, which is the economic arm of the Nunatsiavut government.
TD proudly banks many aboriginal governments and their businesses across the country. Our goal is to be the bank of choice for aboriginal families, businesses, and communities. We try to be innovative and flexible in tailoring our services around the diverse needs of aboriginal communities and their peoples, and we're working hard to earn the trust and confidence of aboriginal communities from coast to coast to coast.
TD's original aboriginal banking strategy began nearly 20 years ago when we partnered with two first nations organizations to create an aboriginal bank. In 1996, the Saskatchewan Indian Equity Foundation and the Federation of Saskatchewan Indian Nations chose TD as one of the founding partners of the First Nations Bank of Canada and the provider of management support and back office capabilities.
We believed in creating an aboriginal bank that would be owned by aboriginal people, managed by aboriginal people, and serving aboriginal people.
A shared governance model was developed to transition the First Nations Bank toward aboriginal control and self-sufficiency.
In 2012, FNBC launched its own banking platform and became fully independent of TD. Today, FNBC is a competitive financial institution widely owned by many aboriginal shareholders and TD remains as a minority shareholder.
In the last year and a half TD has recently embarked on a journey to further strengthen our commitment to aboriginal peoples with the creation of the Aboriginal Banking Group. This group, which I lead, provides specialized banking expertise in support of commercial banking teams across the country that service aboriginal customers. We are dedicated to making banking more convenient for aboriginal communities, businesses, and people by developing new products and services, and by enhancing existing ones at TD.
Wealth creation and accumulation continues to positively impact those aboriginal communities through successful negotiations of claim settlements, and impact and resource revenue-sharing agreements. A preferred and very effective solution for managing this new wealth is through the utilization of trusts.
In 2007, TD Aboriginal Trust and Investment Services have provided support and advice to aboriginal communities in planning and implementing these trust and investment solutions. TD has over $1.5 billion in assets under administration and under investment management, making us an industry leader in this segment.
In 2011 TD Economics released a report that quantified the aboriginal market, which included the purchasing power of aboriginal people, businesses, and governments. It is estimated that by 2016, just next year, the combined income of those three sectors will be $32 billion, which represents a growing market for financial institutions and indeed many other private sector companies.
But frankly, this number could higher if the stakeholders—for instance, the Government of Canada, aboriginal governments, and the financial sector—could collectively identify and act on innovative ways to address issues around access to capital.
We at TD, like my peers in the other banks, provide capital to aboriginal governments and their economic development corporations primarily in the form of lending facilities and more recently raising capital in the Canadian and U.S. bond markets. To date we have over $600 million in business banking relationships across the country and this number continues to grow.
The deals we see involve financing for an array of different needs and opportunities, anywhere from community infrastructure such as schools and water treatment facilities, to renewable energy, to construction equipment for an economic development corporation.
But I can tell you that we're not able to provide financing in all circumstances. In some cases, an aboriginal customer is looking to participate in a business deal that we would consider as beyond our risk appetite. In this situation access to capital would be severely restricted regardless of whether the borrower was aboriginal or not.
When determining if we are able to provide financing to an aboriginal project, we will particularly focus on three things: the strength of the borrower—in this case the aboriginal government or its economic development corporation—the source of repayment or the ability to service the debt, and security.
As we all know, and as Max previously mentioned, section 89 of the Indian Act prohibits lenders from taking any security of real and personal property on reserve. While this has been a significant barrier in the past, I think it's obvious now that all the major banks are comfortable with this reality and we provide financing on reserve.
The other considerations, strength of the borrower and source of repayment, may prove to be difficult obstacles to overcome, which will unfortunately result in a lack of access to capital for a community that's in serious need of infrastructure and investment. It’s in situations like this where the federal government could provide additional support that could help to offset some of those concerns.
One area I believe warrants consideration is federal government guarantees. Currently, federal ministerial guarantees are offered for on-reserve housing only. For any other investment in infrastructure, either the first nation is the sole funder or it receives some level of grant support from the federal government over a multi-year time frame, which will normally not cover the total cost of the asset. I believe some creative thinking is necessary to determine how the federal government could use this tool to open up access to capital for those first nations that need to address their infrastructure gap.
One example of loan guarantees being used effectively is that of the aboriginal loan guarantee program offered by the Government of Ontario. According to the website of the Ontario Financing Authority, the guarantee supports aboriginal participation in renewable green energy infrastructure including transmission projects and wind, solar, and hydroelectric generation projects. The program was announced in 2009, and it provides a provincial guarantee for a loan to an aboriginal corporation to purchase up to 75% of an aboriginal corporation's equity in an eligible project up to a maximum of $50 million. As of July 2014, the aboriginal loan guarantee program had leveraged significant investments, with loan guarantees supporting investments in eight aboriginal communities representing over 10,000 people. Those numbers are probably a little dated; it's probably more than that now. This program provides alternative non-government funding sources to a first nation to participate in an economic venture. I’m proud to say that TD has financed a number of aboriginal equity loans for renewable energy projects and we continue to look at other deals.
While an expanded application of federal government guarantees is definitely not a panacea that will address all issues around access to capital, it could be an important piece of the puzzle that will enable more communities to make the necessary investments that will build sustainable local economies.
Thank you. I look forward to your questions.
Good morning. My name is Terry Goodtrack, and I'm the president and CEO of AFOA Canada. We've been formerly known as the Aboriginal Financial Office Association of Canada, and about a year ago we changed our name to AFOA Canada.
Thank you, Mr. Chair, vice-chairs, committee members, colleagues, and friends for this opportunity to speak on access to capital.
I'm going to scope my presentation to who we are as AFOA Canada and what we do in relation to capacity-building and financial literacy. You've already heard from two experts here from CCAB and TD bank.
AFOA Canada is a not-for-profit association formed in 1999. We serve over 1,500 members across the country. We also have eight local chapters located in the Atlantic region, Quebec, Ontario, the Northwest Territories, Manitoba, Saskatchewan, Alberta, and British Columbia. AFOA membership spans the country from the Pacific to the Atlantic to the Arctic. AFOA members are leaders in their communities, their organizations, and their companies. What binds them together is their commitment to finance and management excellence. The association has a volunteer board of directors. Our chapters also have volunteer boards of directors. We are not-for-profit and non-political.
AFOA Canada provides capacity-building training to individuals working in aboriginal organizations and communities. We provide training in finance, management, and leadership. Our training is targeted toward supporting aboriginal communities, progressing towards economic prosperity and self-reliance. After more than 16 years in operation, AFOA Canada has become the centre of excellence in innovation and aboriginal finance management leadership and is the only organization in Canada that focuses on capacity development and the day-to-day needs of those aboriginal professionals who are working in these areas.
Our certified programs and workshops are developed in concert with communities and the needs of our members. The programs are designed by our communities for our communities. At AFOA Canada we are building a community of professionals. AFOA Canada welcomes any and all individuals interested in advancing aboriginal communities through sound professional, financial, and management training and certification.
Our vision is to be the centre of excellence, information, and certification for aboriginal management. Our mission is building management proficiency and connections that enhance effective aboriginal governance, administration, and self-reliance. We undertake our mission through delivering certified programs in finance and management, and we link with other professional associations and universities and colleges. We deliver capacity-development workshops aimed at the needs of aboriginal professionals in their communities' journeys towards economic prosperity and self-reliance. We hold an annual conference that provides our members and other interested parties with an opportunity to learn from each other, network, and further develop their skills.
We publish The Journal of Aboriginal Management. I've brought a copy here and have tabled one with the committee in French and English. As Canada's only professional aboriginal management journal in these areas—finance, management, and leadership—we promote best practices. We participate in the development of aboriginal financial management, accounting, and reporting standards. We undertake management-focused research, and we encourage our aboriginal youth to enter the finance and management professions.
We have two certification programs: the certified aboriginal financial manager, which we refer to as the CAFM; and the certified aboriginal professional administrator, which we refer to CAPA. In terms of the CAFM program, our target market is aboriginal financial professionals. The program is comprised of 14 courses. Five of these are offered online by AFOA Canada. The other nine are delivered through colleges and universities across Canada. The intent is to increase the level of knowledge and skill within our communities in the area of financial management.
AFOA Canada had a strategic alliance with CGA-Canada, and now, upon the unification of the profession, we are engaging in a further alliance with CPA Canada. AFOA Canada has commenced discussions with CPA Canada on how the CAFM program can be part of the CPA Canada program. I look forward to signing a memorandum of understanding with CPA Canada at our upcoming conference on February 16-18, 2016, in Montreal, Quebec.
To date, we have certified 527 CAFMs across this country.
Due to the success of the CAFM program, our members also wanted AFOA Canada to develop a certified program for senior administrators of aboriginal communities and organizations. One of our most powerful and promising innovations is the certified aboriginal professional administrator, or CAPA program, as I referred to earlier. Our target market for this sort of program and certification is aboriginal senior administrators and their successors. The program comprises 16 courses, guided by a grassroots council. The CAPA program sets high-quality competency and certification standards. A holder of the CAPA designation has demonstrated his or her attainment of high ethical, governance, finance, and management competency.
Our goal is to make the CAFM and the CAPA designations the choice for those individuals working in aboriginal finance and management. In 2013, at the Assembly of First Nations annual general assembly, the chiefs in assembly endorsed the CAPA program as their preferred credential when hiring first nation administrators within their communities. This already occurred for our other designation, the CAFM designation, in 2008.
There are currently 36 CAPA graduates. AFOA Canada is also creating a ladder of success with universities and colleges that will allow the CAPA graduates to receive advance standing in degree programs.
AFOA Canada has a number of capacity development workshops. These workshops are designed to further the knowledge and skill levels of our members. We have workshops for financial management, management for elected leaders, and management proficiency. Upon the invitation of a community, these workshops are delivered at the community, and as a pre-conference workshop to our national conference.
As I mentioned earlier, in addition, twice a year we produce our Journal of Aboriginal Management for our members. The JAMs, which is the acronym we use, complement the theme of our conference for that year. Last year it was business development. In our upcoming year it will be leadership and governance. The other JAM, in the fall, highlights a specific knowledge and skill area. As an example, I mentioned our JAM on business development was released at our conference, and our upcoming fall edition will be on communications. The JAM is intended to be thought-provoking and to provide additional knowledge to our members about a specific area, as well as hot topics of the day.
Once a year we have a national conference for our members and other interested parties. Typically we attract about a thousand delegates. We have five skill level tracts that include financial management, first nations administration, human resources management, leadership, and business development. This upcoming year our theme for the conference is on leadership and governance.
One of AFOA Canada's key initiatives is to encourage aboriginal youth to enter the financial profession. Many Canadian corporations, professional associations like CPA Canada, share a common challenge with aboriginal communities: the need to hire aboriginal financial professionals. At AFOA Canada we want to develop the next generation of financial and management professionals. We undertake a number of specific initiatives in this area.
At AFOA Canada-PotashCorp we have the youth financial management conference awards, which provide a learning opportunity at our conference and a $5,000 scholarship to three recipients to pursue their post-secondary education in these areas. We also have the Norman Taylor Memorial Scholarship and Bursary programs. AFOA Canada's charity, the Indigenous Learning Centre, provides bursaries to four students each year who attend post-secondary education in the areas of business, commerce, or accounting. We also have the Dollars and Sense program. With the financial support of TD Bank, we have developed a financial literacy product for aboriginal students in grades 3 and 4, 7 and 8, and 11 and 12. AFOA Canada believes financial literacy needs to begin with our youth.
In the last few years, AFOA Canada has worked on developing financial literacy products for our members. Certainly, the Dollars and Sense program for youth is one such product. We have undertaken a literature review of products that exist for indigenous people in the countries of the United States of America, Australia, New Zealand, and Canada. We have just completed our data collection on financial literacy needs of aboriginal Canadians. We will be developing, in the upcoming year, products for retirement planning and building wealth for aboriginal Canadians. At AFOA Canada we believe financial capability training is essential to the ideal of financial wellness. It has a significant amount of transfer value to individuals who wish to operate a business or operate aboriginal government programming.
I would like to conclude by stating that investing in training is essential to building management proficiency in finance management leadership. I would encourage the Government of Canada to make training dollars available to aboriginal Canadians to take the AFOA Canada certified programs, workshops, and certainly attend our AFOA Canada national conference. Some of this has been done in the past; however, more needs to be done in this area.
Here I speak from personal experience as a lawyer. I work with a lot of aboriginal communities, businesses, and so on. My take on the matter, to be very blunt, is that the CRA has long taken a very suspicious view of section 87 of the Indian Act and has consistently tried to restrict its application. So, individuals have had to go to court time and time again to try to open up those opportunities for tax exemption.
The reality is that there's not an approach, I would say, that encourages the use of that mechanism to support greater investment within aboriginal communities. Obviously, I can't get into any specific examples without breaching privacy and solicitor-client privilege, and all kinds of things that would get me into lots of trouble. But my impression is that there is a very aggressive stance on their part.
In my view, the rules should be clear in a way that says that aboriginal communities themselves need to reinvest in themselves. Also, aboriginal entrepreneurs, small business owners, and so on need to have those mechanisms to be able to reinvest in themselves. They understand aboriginal business better than anyone else does. So, if you have the Crees in Quebec wanting to find appropriate investment opportunities in other aboriginal communities, they are in many ways ideally situated. Their membership is also motivated to see them find those opportunities supporting other aboriginal communities.
I think it's a win-win here for everyone. But the rules need to be clear, and people need to understand that if they are going to invest in an on-reserve economy, that is going to be encouraged, including by not creating needless roadblocks when it comes to claiming the tax exemption that I believe should be available if a status Indian under the Indian Act is investing in an on-reserve business opportunity. That opportunity should clearly fall within the tax exemption of the Indian Act and should be encouraged rather than discouraged. The position of CRA, in my view, right now is largely to discourage that sort of investment.
I could talk about the third-party management a bit I suppose.
With regard to accountants, whatever the skill level, I think the thing you have to realize about the third party manager is that when they do go in, they're certainly representing the Government of Canada. Initially it was sort of AANDC funding and it would be scoped to that. Now under the common government reporting they're also getting Health Canada funding, so there will be one individual overseeing this. They don't actually oversee funds that are outside that scope, so it's very specific to the funding that is derived from the Government of Canada to ensure that that isn't at risk.
The third party managers are there for a specific purpose, which is to ensure that essential services are delivered. Going a little bit to your point, the issue I have with third party managers and certainly co-managers is that there are no real indicators of success within those agreements. So a third party manager can be there for quite a long time and not necessarily move the yardsticks too far.
I've certainly recommended to Aboriginal Affairs and Northern Development that we really need to come up with some better metrics of how exactly these people address whatever the default is, whether it's debt, a term or condition, or health and safety of individuals, as well as the capacity issue. The idea is to transfer capacity back to the community, so how exactly is that done?
I would argue in that case that they're probably not well trained to do that transfer. There has to be some other sort of area that is able to transfer that management capacity and financial management back to the community to maintain sustainability of the community in the longer term.