Investing in Native American Communities

> Posted by Rafael Chapman, Analyst, UpSpring

Based on the latest report from the Giving USA Foundation, philanthropy efforts in the United States hit a record high in 2014 with total contributions reaching about $360 billion. Charitable giving is on the rise in the United States, as this figure represents a 7 percent increase over 2013. However, contributions to nonprofits serving Native American communities remain persistently low, representing well under 1 percent of philanthropy in the country.

The need is growing, however. The Native American population grew 27 percent from 2000 to 2010, almost three times the national average. Based on 2012 data, there are over 5 million people in the U.S. who identify themselves as American Indian or Alaskan Natives, and this number is expected to exceed 6.5 million by 2020.

More than 20 percent of Native Americans live on reservations where living conditions are far from tolerable. In these lands that have been inhabited for centuries, the average unemployment rate is well over 10 percent and nearly a third of reservations consider themselves considerably overcrowded. Moreover, due to lack of formal financial history records and conventional employment information, most residents in these reservations lack access to the traditional banking system, which has contributed to a severe unmet need for accessible capital among Native American communities.

All of this leads to the question: If living conditions are so deplorable in this growing community, why haven’t we increased our charitable contributions and attentions towards Indian country?

Myth #1: Indian gaming brings a lot of money to Native American communities

This is probably one of the most common erroneous assumptions made by philanthropists and investors across our nation when dealing with Native American-focused nonprofits. Under the 1988 Indian Gaming Regulatory Act (IGRA), about 40 percent of the 566 federally-recognized tribes in the U.S. are allowed to operate gaming facilities in 28 states. This means that well over 330 tribes cannot count on gaming profits to support Indian community development. For those tribes that have gambling revenues, much of the take is destined to pay for the debt financing used to cover start-up costs, potentially taking away significant gains that could be used to help Native American communities. The working agreements with the casino management companies are also a source of financial shortcoming. Although, of course, there are some tribes that do profit from Indian gaming, the situation is complicated and there is a large percentage of tribes that simply do not have the gaming rights or revenue to provide for their communities.

Myth #2: Investing in Indian country does not generate significant social impact

Another widely accepted (and highly problematic) misconception is that Indian country is too far removed from the rest of society and that supporting its economic development yields no significant social impact. This could not be farther from the truth.

As mentioned, Indian reservations experience an average unemployment rate of 10 percent, and, in 2010, 25 percent of all Native American families in the U.S. earned income below the poverty line. The percentage of all Americans who lived under the poverty line last year, according to the U.S. Census, was just under 15 percent. With these figures it is evident that investing in job-creation would radically improve the lives of hundreds of thousands of Native Americans who reside in or near Indian reservations. Increasing employment rates, in addition to offering steady sources of income would help Native American communities address local needs more effectively.

Economic development in reservations would not only benefit Indian country, it would also have a positive effect on the market landscape of surrounding urban communities. It would integrate more buyers into local marketplaces, increasing the demand for local goods and services, while promoting sustainable rural-urban economic cooperatives that would keep profits in the region and generate even more employment.

Myth #3: Available investment vehicles are inadequate to help these communities

Some investors and philanthropists are well aware of the need and benefits of investing in Indian country, however, they believe that there are not adequate channels or organizations to support Native American initiatives. The reality is that there are many innovative funding models that make supporting Native Americans easy and accessible.

For example, Community Development Financial Institutions (CDFIs) such as Opportunity Finance Network or Cha Piyeh Inc. pool private funds to finance services to Native American communities across the U.S., such as financial literacy or affordable housing. Some CDFIs also offer traditional banking services to Native Americans with thin or no credit history. Similarly to CDFIs, several foundations also fund Native American initiatives through grants or provide in-kind goods and services to nonprofits that address needs in Indian country. Between CDFIs, foundations, and nonprofits, there are a vast number of organizations in need of private capital to support their impact investment initiatives. Additionally, along with other financial services providers, microfinance institutions, given their market positioning and expertise with base of the pyramid clients, might be well-suited to serve under-banked Native American populations. Finally, new innovative lending models such as peer-to-peer (P2P) lending and crowdfunding offer a more direct alternative to conventional donations and investments. Sites like Prosper, Kickstarter, and Kiva are all examples of platforms that allow those interested in supporting Indian country to give and track the impact of their money from the convenience of their home.

Whether you are compelled by the opportunity to improve conditions on Indian reservations or by the prospect of spurring local economic development, one truth remains constant: investing in Indian country can be both socially impactful and profitable.

Native American communities represent a key component of the United States, and as data suggests, this population will only grow with time. Only by debunking the myths and educating the philanthropy and investment communities will we be able to help millions of families have access to the economic opportunities required to thrive in the land of their ancestors.

Image credit: Drriss & Marrionn

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