Native American Bank Provides Crucial Financing to Indian Country 

RSF’s Donor Advised Funds are invested in funds, community banks, and companies that are mission-driven and focused on climate change solutions and social justice. Rather than seek market-rate returns as an exclusive goal, we make appropriate risk and return trade-offs to optimize for impact-first. Since the COVID crisis began, we have increased our investment in Native American Bank (NAB) to help meet the increased need seen in its communities. 

In 2018, the Red Lake Band of Chippewa Indians desperately needed a grocery store. The rural Northern Minnesota tribe had a trading post on the reservation, which stocked basics like milk, chips, and toilet paper. But if someone wanted lettuce in January, they had to travel a snowy 60 miles round trip to get it.

The tribe had long dreamed of expanding its trading post into a full-service grocery store. But getting financing for projects in Indian Country—the accepted term for U.S. reservation land—is always a challenge. Fortunately, they could turn to the Denver-based Native American Bank (NAB) for help.

NAB—the country’s only tribally owned nationwide bank—put together a deal that gave the Red Lake Band the best loan possible by pairing the lending with the Federal New Markets Tax Credit program and a U.S. Department of Agriculture loan guarantee. It was the first of its kind in Indian Country, and the deal was so innovative it won the Native American Financial Officers Association 2019 Small Deal of the Year.

Responding to communities in crisis

The COVID-19 pandemic hit Indian Country particularly hard—for example, the Navajo Nation is seeing higher rates of infection and death than the rest of the U.S., and its healthcare facilities are overwhelmed. When the federal government announced the Payroll Protection Program (PPP), the bank acted right away to ensure its community members would get their fair share of the Small Business Administration loan pool.

Staff reached out across Indian Country, leading trainings and webinars and partnering with Native organizations on outreach to both businesses and nonprofits. They also provided individual attention to small-business owners and tribal corporations—many of them would be left out because other banks were unresponsive, wouldn’t lend to non-customers or couldn’t because they were not familiar with the unique structures of tribally owned enterprises or businesses incorporated under a tribal government instead of a state.

“This is where Native American Bank has particular expertise,” says Joel Smith, NAB’s senior vice president and chief credit officer and a member of the Caddo Nation of Oklahoma. “We have been committed from the start that we need to be there for businesses across Indian Country—they need services they can’t get elsewhere.”

The outreach paid off: NAB secured 134 loans totaling $39.8 million, saving more than 4,700 jobs as of May 31, 2020. Over 92% of the money stayed in Indian Country; 78% of that was loaned to tribal businesses. It also increased the number of the bank’s commercial customers by 200%.

The deep community outreach and creative financing exemplify what makes NAB, a community development financial institution, unique. “Native American Bank is a change agent working on a system level,” says Carolyn Ezelino, RSF investment manager. “They’re truly a partner to the underbanked within Native communities, making sure they get the attention and services that they deserve.”

Building a bank to address unique needs

Historically, Native American tribes have struggled to become self-sufficient partly because they lacked access to financial capital and services. Banks are reluctant to work with tribal and reservation communities because their land is technically held in trust by the federal government, which means it can’t be mortgaged. Financial institutions are also scared off by tribal sovereign immunity, which leaves them wondering whether laws and contracts can be enforced on the reservation.

To address this, 20 tribal nations and Alaska Native corporations banded together in 2001 and bought a small Montana bank, Blackfeet National Bank, to form Native American Bank. Each pitched in $1 million in capital. One of the main drivers behind the project was the late Native American activist Elouise Cobell, who passionately believed that tribes need banking services tailored for Native people.

Today, 35 tribes, tribal corporations, Alaska Native corporations and nonprofit organizations govern the bank, including the Navajo Nation in Arizona, the Mohegan Tribe in Connecticut, and the Seminole Tribe of Florida. Half the bank’s 30-person staff is Native American.

“We know the ins and outs of how to finance on-reservation projects, which are not nearly as straightforward as the kind of transactions that most other banks are used to,” says Smith.

Nearly all the loans that NAB makes are to entrepreneurs and tribal businesses in Indian Country. (The bank does not lend to gambling operations.) What’s more, none of its loans to tribal communities has ever defaulted. That, says RSF’s Ezelino, debunks “a common misperception that you can’t lend to these communities, that they’re high-risk.”

Plenty of projects, not enough capital

One project in the bank’s portfolio is an affordable housing complex the Tule River Indian Tribe is building in Porterville, California. NAB recently issued the tribe a $2.7 million loan for the project; when completed, the development will house 40 families in 15 single-family homes and 25 townhouses.

There’s a tremendous demand for capital for projects like this in Indian Country—there are many in NAB’s pipeline. But the bank has only $150 million in assets, not nearly enough to fund them all. (The bank provides personal loans as well.) Because the bank restricts its ownership to tribes and tribally owned corporations, it can’t take on outside investors, as other banks and CDFIs often do.

A few years ago, however, the bank realized that it could help fund reservation projects by raising deposit balances, mainly through what Smith calls “social depositors”—outside entities that could make a substantial deposit in the bank without becoming a shareholder.

After connecting with NAB at conference for the First Nations Oweesta Corporation last year, RSF became one of those social depositors. RSF did its due diligence on NAB and at the end of 2019, invested in a $1 million certificate of deposit from NAB. That deposit allowed NAB to help fund the Tule River project.

And RSF went even further, providing NAB with incentives and technical assistance to develop impact management practices and goals instead of tracking generic or predefined metrics. By defining its own impact outcomes, NAB will be better able to articulate the significant impact it makes in its communities and attract other social depositors.

“We’re a small bank, and it’s tough for us to go out and hire a full-time person who has all the requisite experience and expertise to do this right,” says NAB’s Smith, “but RSF has the resources to help us develop more of our tracking methods and practices.”

As NAB improves its impact measurement, RSF has made a commitment to increase its investment in the bank, from $1 million to as much as $3 million. In fact, NAB has met a number of its goals, so RSF has already increased its investment by $500,000 via a money market account, which helps lower NAB’s cost of capital.

That’s good news for Native American Bank. “We continue to source a lot of deserving tribal and community member needs, and we need deposits to be able to meet that need,” says Smith. “There are more deserving projects than we have the capacity for as a small bank. In Indian Country, the need is just tremendous.”