Published in Finance

CDFI helps bridge financing gap for Native entrepreneurs

BY Sunday, July 19, 2020 05:17pm

DOWAGIAC — After they prepared for the opening of the Four Winds Casino in New Buffalo, the leaders of the Pokagon Band of Potawatomi years ago sought ways to use the revenues to assist tribal citizens to achieve self-sufficiency.

The Tribal Council was planning to create an economic development entity “but wanted to provide a capacity-building platform for individual entrepreneurs to develop new and existing businesses,” according to Sean Winters. Their hope was “to provide the opportunity of synergy between the two organizations when possible,” Winters said.

Sean Winters COURTESY PHOTO

Tribal leaders settled on forming Mno-Bmadsen, the non-gaming investment arm of the Pokagon Band, and Chi Ishobak Inc., a federally designated community development financial institution, or CDFI, that provides affordable loans and capital for citizens starting or expanding their own business.

“Any community, but in our community, Native Americans have a lot of barriers or challenges, so we kicked around a lot of different ways that we could responsibly assist folks,” said Winters, executive director for Chi Ishobak, which the tribe formally incorporated in 2009.

“Ultimately, we realize that’s the way we’re going to strengthen our nation as a whole by individual citizens doing fantastic things, either personally or professionally,” Winters said. 

Finding a niche

After taking a few years to organize, build an operating infrastructure, earn designation and secure funding from the U.S. Department of Treasury’s CDFI Fund, Chi Ishobak awarded its first business loan in March 2012 for $15,000 to a small company that makes spaghetti sauce sold at local, state and regional outlets.

A year later, Chi Ishobak extended into consumer loans for tribal members who need reliable transportation, and then to emergency home repairs and loans to consolidate personal expenses.

Today, Chi Ishobak has an active business loan portfolio of 20 business loans totaling $468,000. Consumer lending to tribal citizens has grown to far exceed commercial lending, totaling $2.8 million through 376 loans as of June 30, 2020.

Borrowers run across economic sectors and include a high-end tattoo studio, the spaghetti sauce maker, a resale store, a commercial flooring company, a yoga studio, lawn care, a trucker who owns his own tractor-trailer, food trucks, a commercial accountant, a hotel operator, and a virtual reality studio.

In seven years, Chi Ishobak overall has deployed $1.7 million through 47 commercial loans to tribal entrepreneurs and $5.2 million through 640 consumer loans.

Chi Ishobak is one of three Native American CDFIs in Michigan — along with Northern Shores Community Development in Harbor Springs and Lake Superior Community Development Corp. in L’Anse. Nationally, 61 Native CDFIs operate in 20 states.

The Native CDFIs help to fill in the gap for tribal citizens lacking access to a bank or credit, particularly on reservations where there’s often not a traditional lender, said Michou Kokodoko, project director for community development with the Center for Indian Country Development at the Federal Reserve Bank of Minneapolis.

“On some reservations, they’re probably the only source of capital,” Kokodoko said.

Making strides

Many of the Native CDFIs are small. A 2017 Indian Country Development report Kokodoko authored said more than two-thirds of the Native CDFIs at the time had loan or investment portfolios of less than $5 million. About four in 10 had less than $1 million in assets.

Chi Ishobak, with $4.4 million in assets, offers two forms of micro loans — up to $10,000, and from $10,000 to $35,000 — as well as small business loans of more than $35,000. As with any CDFI, its loans are designed for small businesses and entrepreneurs who lack the track record or collateral to qualify for a traditional commercial loan from a bank or credit union, or who have a poor credit history.

For commercial borrowers, Chi Ishobak pairs loans with assistance such as business coaching or classes intended to hone borrowers’ business skills and heighten their chances of success, or to sharpen their business plan or conduct additional market research.

“We don’t ever want to give a loan just to give a loan. We want to make sure that we’re truly helping somebody and not putting someone in harm’s way or placing financial adversity upon them,” Winters said.

The Native CDFI had been “making very nice strides” in achieving self-sustainability through earnings until COVID-19 hit, Winters said.

As with banks and credit unions, Chi Ishobak worked with borrowers. When the tribe’s casino shut down, temporarily ending disbursements to members, directors decided to provide borrowers 90-day deferrals on loan payments “where we basically pressed pause on everybody’s debt,” Winters said. The pandemic affected “virtually all” of the small borrowers with an outstanding business loan, he said.

“It was something to really show our clients we’re behind them 100 percent. We’re going to be with them through thick and thin and we’re going to work with them,” Winters said. “We understand that this is uncharted territory we’re in right now and we’re going to get through it together. That seems to be a common theme everywhere and more so for our community. Our financials have taken a little bit of a hit, but we know those will rebound because of the relationships we’ve created with our folks.”

Developing relationships

The pandemic has affected most Native CDFIs. The Washington, D.C.-based advocacy group Native CDFI Network reported in March that more than 86 percent of tribal CDFIs that make loans to businesses were affected by the COVID-19 shutdown. Among those that restructured loans, nearly 90 percent expected it to affect lending capital.

Chi Ishobak recently received an infusion of capital with $900,000 in funding from the U.S. Department of Treasury’s CDFI Fund that will go to loans, operations, technical assistance to borrowers and loan-loss reserves.

Chi Ishobak also recently partnered and has formed a “very close relationship” with Citizen Potawatomi Community Development Corp., a larger and “very successful” Native CDFI based in Shawnee, Okla., Winters said. The two partnered for a consumer loan for a citizen of the Oklahoma tribe who lives in South Bend, Ind.

The two CDFIs are now looking to partner on a pair of commercial loans, including for a commercial flooring company that moved into a new facility two years ago that it leases and now wants to buy. The business loan could reach $375,000 to $400,000.

By partnering with Citizen Potawatomi Community Development, Chi Ishobak can share the risk for larger credits, Winters said.

“They’ve opened the door to say, ‘Hey, we’d love to learn more about these projects. We did the one.’ So the door is open to that and it looks like one or both of these will be participation projects with Citizen Potawatomi,” Winters said. “We’re getting ready to start using that and hopefully continue that impact and goodwill.”

Read 4424 times Last modified on Friday, 17 July 2020 14:23
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