Can Banks Lend in Indian Country? Yes - but Making Loans to Native Americans on Reservations Often Takes Flexibility and Patience, and - Sometimes - Diplomacy

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Speak the words "Indian reservation" to the typical non-Indian and the image he will conjure will resemble something out of a John Ford western--desert and towering red rocks, like the scene from the Navajo Reservation above.

Sure, there's lots of reservation land like that out West, but there are reservations all over this country. You could just as easily find yourself on one and be wading in Pacific Coast surf, strolling through Midwestern farmland, or losing your shirt at a huge Indian-owned casino in Connecticut.

Speak the words "Indian reservation" to some bankers and what might come to their minds is "trouble."

Sure, there's some of that. In many ways doing credit business on a reservation can seem like lending to or in a foreign country. Yet some bankers find this market can be served-- even profitably.

Others should consider themselves on notice that more attention will be paid to their efforts to serve the country's nearly 2 million Native Americans (the term includes Eskimos and Aleuts too) and the reservations many of them live on.

Comptroller of the Currency Eugene Ludwig visited the Navajo reservation at the end of March at the invitation of tribal President Peterson Zah. Zah and other Navajo officials have testified to Congress and to regulators regarding the need for more bank credit and services on Indian homelands. Last fall the Justice Department filed suit against $18 million-assets Blackpipe State Bank and obtained a detailed settlement that included commitment of $125,000 to compensate Indians for alleged bias. (Under terms of the settlement, detailed in our March issue, the bank admitted no guilt.) Aggressive lobbying by the Navajo and others resulted in inclusion of several specific mentions of Indian issues in pending community development financial institution legislation.

Bank-Indian business dealings play at several levels. Banking services are needed by tribal governments as well as tribally owned and operated businesses, housing authorities, and such. Individual Indians want both business loans and consumer loans. And the intricate issue of mortgages granted on Indian land could fill a book.

With respect to sovereignty

Many years ago, the Saginaw Chippewa Indian Tribe of Michigan received a huge cash settlement from the federal government in reparation for past wrongs to the tribe. The tribe, whose reservation is near Mount Pleasant, deposited this sum--$7 million--into a large Michigan bank.

Not long afterward, the tribe wanted to obtain a small loan from that bank. The bank was willing to lend the money, but only if the tribe would waive its "sovereign immunity," so it could be sued, in the event of default.

The tribe didn't care to do that, and called Mount Pleasant's Isabella Bank & Trust. Would Isabella Bank, the tribe asked, insist on a waiver to obtain credit?

Not at all, the bank responded. The next day, quite unexpectedly, the tribe wired the $7 million into the bank.

"We have never asked the tribe to waive its sovereignty, and subject themselves to federal and state courts," says Brian Maes, commercial loan officer at the $237 million-assets bank.

Since that contact, the relationship between bank and tribe has blossomed. In the intervening years, Isabella has made personal, business, and tribal loans on the reservation and recently began leasing automated teller machines to the tribe.

At one time much of the tribe's economy resolved around arts and crafts items and manufacture of wooden shipping pallets. Now that the tribe's foray into casino gaming is paying off, it asks for investment and cash management advice as well.

Needed: Very small loans

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