Indigenous Banking: A New Niche

Introduction

As First Nations continue to settle outstanding grievances with the federal government, and enter into lucrative revenue sharing agreements, the fast-emerging niche of Indigenous or Aboriginal banking has become an incredibly competitive segment of business for Canadian financial institutions. Demographically, First Nations people are the youngest and fastest growing segment of the Canadian population; they are entrepreneurial and eager to grasp economic activity. Indigenous communities are in increasing need of loans to fund infrastructure projects, to participate in resource development and other investment opportunities. This trend is likely to continue and accelerate as First Nations communities move to become more active participants in Canada's economy.

Canadian financial institutions continue to partner with and lend to Indigenous communities, but are faced with a number of legal and administrative barriers when lending to First Nations. The Indian Act, R.S.C., 1985, c. 1-5 ("Indian Act") creates a unique legislative framework that governs security interests and the personal property of Indians1 on reserves. As a result of these outmoded and paternalistic provisions, First Nation communities have had to grapple with a lack of access to capital. This is the first article in a series of articles which will examine some of the barriers financial institutions face, as a non-First Nation secured creditor, and will also discuss a variety of approaches that can be taken to mitigate the perceived risks of financing on-reserve.

This issue, we will be reviewing a hypothetical situation in which a financial institution wishes to loan funds to a First Nation in advance of the First Nation receiving a large settlement amount from Canada.

Review of Relevant Legislation

Section 89(1) of the Indian Act states that the on-reserve real or personal property of an Indian or Indian Band is not subject to charge, pledge, mortgage, or attachment and is protected from levy, seizure, distress or execution. It further provides that a creditor, other than an Indian or Band, cannot seize a Band's on reserve assets in order to satisfy a judgement or contractual obligation. In determining whether or not the personal or real property of an Indian or Indian band is protected by s. 89(1), the situs of the property is main factor to be considered.

Both s. 461 of the federal Bank Act (S.C. 1991, c. 46) and s. 447 of the federal Trust and Loan Companies...