Building Credit, Building a Nation

Reprinted from Initiative Foundation website: https://www.ifound.org/initiative-quarterly/energy-matters/building-nation/

An innovative financial program aims to boost the Leech Lake Band of Ojibwe’s economic self-sufficiency.

For Missy Bowstring, a member of the Leech Lake Band of Ojibwe, Leech Lake Financial Services (LLFS) has been more than a place to get a personal loan. She received the loan in May, but she often gets in touch for other kinds of financial help.

“I can always call LLFS and ask questions, even if I don’t need money,” Bowstring said. “I can ask credit questions or other financial questions.”

While it’s not a bank, LLFS does provide loans to Band members. LLFS also has expanded its services to include workshops on credit building and other financial topics. Bowstring attended one and found the experience “awesome.” She’s now putting what she learned to work in managing her domestic finances.

LLFS, meanwhile, is pursuing certification as a federally designated Community Development Financial Institution, or CDFI. That could open up numerous economic opportunities among a people who could make good use of them. When certified, LLFS will be the second CDFI in the region, along with the Initiative Foundation.

It’s a designation that has many benefits to Central Minnesota. “A CDFI certification affirms that as a financing entity we are meeting our mission of promoting community development through services primarily in target markets, including low-income areas,” said Lynn Bushinger, the Initiative Foundation’s chief financial officer and treasurer. A CDFI certification is important to the region’s economy, she added, “because it helps us draw resources from outside the region into our 14-county service territory.” This helps the foundation recapitalize its loan fund when needed.

A Fresh Start

For the Leech Lake Band, CDFI certification will add to its existing financial service capabilities. The Band has long provided loan service to its members. It also administered a small-business revolving loan fund from the U.S. Department of Agriculture dedicated to helping Band members “who for a variety of reasons weren’t ready to make use of the traditional banking system, or had tried and were rejected,” said Kyle Erickson, an LLFS director and Blandin Foundation program officer who has a background in banking.

Despite hard work and the best of intentions, the loan fund never quite took off. A new approach was needed, and that’s what Leech Lake Band member and attorney Robert Aitken came in to provide when he was named executive director of LLFS in November 2012. Before becoming an attorney, Aitken worked in human resources for the Leech Lake Band in the 1990s. He knew how the tribal loan process had worked—and that it needed some repairs.

What attracted Aitken to running LLFS was the opportunity to create a financial institution that would be “a backbone of nation-building.” According to a 2003 study conducted by the University of Arizona and Harvard University, a successful reservation is one with low unemployment and crime rates, along with high wage rates. One commonality is a strong financial institution to which members had access.

When he came on board at LLFS, Aitken found that his legal background was helpful “for the loan collections that needed to get done and cleaned up” to help prepare LLFS to become certified as a CDFI. Among other virtues, certification will allow LLFS to partner with banks. It also will help it raise money from foundations and other sources, including state and local governments. This kind of access is “critically advantageous to funding new businesses,” Aitken said.

For LLFS to become certified, it needed to demonstrate that it had the stability to become a financial institution, Aitken said. Some council members worried if an independent LLFS would be best in fully serving the entire community. Aitken added that it’s not “a knock” on the Tribal Council—simply an acknowledgement that “every two years, we have an election,” which results in a changing leadership structure and different political goals. In short, LLFS needed to become independent of the band and have a board, computer system and payroll “clearly separate from the Tribal Council,” Aitken said.

The process began in 2010. In September 2014, LLFS became officially independent. “It was a very courageous step the Tribal Council took in allowing us to become separate,” Aitken said.
To reassure leadership, LLFS had an audit done after its first month “for the Tribal Council to look at to make sure that everything was set up properly and that we have the controls in place.” Aitken added with a laugh: “We had to overcome their concern that we’d screw it up.”

Currently, LLFS offers consumer loans for those employed with the tribal government, which includes employees in the Band’s casino, health service, police force, technical college and so on. The applicant needn’t be a tribal government employee, but he or she needs to have a job to obtain a loan.

New Collateral

LLFS benefits the lendee in ways that extend far beyond funding. Having worked in a lending department of a Cass Lake bank, Band member Erickson frequently saw “people who wanted to build or repair a credit history but didn’t have any usable collateral” to secure the loan.

That’s why Aitken advocated for a new type of collateral for LLFS, where any member who’s an employee of a Leech Lake entity may secure a loan using their balance of personal-leave hours. “It has worked fantastically,” Erickson said. “It’s basically securing a form of cash.” While some members use the loans for bills, cars and housing, others “take one out purely for the purpose of building their credit.”

As a condition for receiving any kind of loan, the financial services team introduced a program for teaching Band members about credit and financial management. Erickson described it as a “Credit 101 workshop.” During these two-day workshops, participants “learn about factors that affect their credit scores,” he added. “They learn what bumps it up, what drags it down.”

According to Aitken, that’s the kind of financial education few Band members receive. The response, he added, has been positive. In addition to the workshops, LLFS has made presentations on financial savvy at the local high school. After one presentation, Aitken said, “every one of the juniors and seniors opened savings accounts” at the area bank.

The Initiative Foundation, which has worked with the Leech Lake Band since the Foundation’s inception three decades ago, provided $10,000 to help LLFS acquire books and other materials for its financial skills workshop. Initiative Foundation president Kathy Gaalswyk said the work in which LLFS is engaged allows people to pay bills and buy houses, but “in the end, it also helps individuals and businesses that can grow jobs and, ultimately, employ others in the community.”

Affordable Capital

Though now an independent entity, LLFS continues to work closely with the tribal government. For instance, the government’s payroll staff works with financial services team members on loan payments. Before, loans were managed by the tribal council and had to be paid back within a few months. Under LLFS, the payback period is a year.

LLFS expects CDFI certification to be finalized this fall. In the meantime, it has been making consumer loans, and is now planning a commercial loan portfolio that will be quite productive for the community, Aitken said. LLFS has hired an additional loan officer to handle consumer loans. Aitken and another officer are starting to build the commercial side and complete the certification process.

Aitken hopes that clients like Missy Bowstring will one day be interested in business loans. To him, that’s an integral piece of LLFS’s nation-building mission.

“We provide affordable capital to those who otherwise would not qualify or have access to consumer loans or commercial loans,” Aitken said. “We’re essentially helping others help themselves.”