It’s no secret to anyone that comes from a rural area that some amenities – and some necessities – are hard to come by. Add the words “Indian Reservation” to the word “rural” and the problem compounds itself dramatically.
Take banking, for instance. Even those of us who grew up in small, rural agricultural communities across the Great Plains generally had access to privately-owned banks because farming is heavily debt-dependent. But few rural tribes have had enough organized business activity to attract any banks – privately-owned or large financial institution branches – to rural Indian Country. Even with the $32.4 billion generated by tribal casinos, millions of that coming from even the more remote reservations, few banks have taken the leap into establishing brick and mortar facilities to fulfill basic, unmet financial service needs in tribal communities.
A few large banks with recognizable names like Wells Fargo and Chase, have specialized sectors within their institutions to work with the Native American and other underserved communities to provide commercial loans and lines of credit, mortgages, and other services to tribes. Yet access at the individual tribal member level lags. Part is due to a lack of understanding of tribal culture by the banks themselves and trust in institutions at the individual tribal member level. In addition, historically tribes and tribal members have not been a lucrative enough market for big banks to serve. Other challenges to accessing banking at the tribal member level can be as simple as not having Internet or cell phone access to conduct online banking — to a more serious lack of financial education on how money and related financial instruments work. Worse, banks shrink from dealing with sovereign entities out of worry that sovereign immunity might be invoked to avoid paying a loan. Banks also tend to avoid clients that cannot secure loans with assets, or who secure them with assets that lie on tribal land, which cannot be liquidated if the loan cannot be repaid.
Multiple solutions have begun to pop up across Indian Country to fill in consumer demand for savings and lending on tribal land. These include Indian-owned banks that are self-funded by tribes and interested parties to provide sufficient capital to fuel community economic growth, traditional banks in larger towns and cities, and more recently, banks like the Lakota Federal Credit Union (LFCU).
By its own account, LFCU is a dream come reality which started in January 2009. The 45,000 member Oglala Sioux Oyate (people) had no financial institution on the 2.2 million-acre Pine Ridge Reservation since the tribe had accepted the Indian Recognition Act in 1935. After three years of concerted effort on the part of Lakota Funds, its not-for-profit organizational sponsor and a “knowledgeable, energetic, and hard-working” steering committee, LFCU opened its doors in November 2012.
Finally this February, LCFU began offering checking accounts. While there was no stampede at the door to open accounts – only 26 were opened that day and one loan was made – by the end of two weeks, the count stood at 250 checking accounts and growing. Today LCFU counts more than 518 checking account customers.
“Having access to a credit union, Like Lakota Federal Credit Union, is really important because it helps build inter-generational wealth,” Jered McEntaffer, regional economist with the Knowledge Network, told KOTA-TV. “It helps long term planning. It helps long term development that can lad to successes 50 years down the road, a hundred years down the road that can’t necessarily be imagined today.”
Creating a Credit Union: A Deliberate Choice
The choice of a credit union rather than a traditional bank was deliberate on the part of the steering committee and critical to understanding why credit unions might be a more feasible choice over traditional banks for rural tribal communities. While banks are for-profit entities driven by their need to satisfy their investors’ – rather than their customers’ – expectations and their return on investment, credit unions are, in large part, directly capitalized by their members who are, in effect, shareholders. Translated, that means that every time a member makes a deposit, s/he is actually buying shares in the credit union. In other words, the members are part owners of the bank, and like investors in traditional banks, elect the board of directors and vote on all major decisions for the credit union.
So an entire level of administration is essentially cut out from the traditional banking structure, leaving, in theory, a larger margin of profit that is directly distributed to the credit union members. Lending rates are, consequently, usually lower as are fees, and all profits are distributed to the members directly. This contrasts distinctly with banks who pay out the majority of their profits to their investors, and offer a small percentage as a premium to customers who have savings accounts with the bank. Lending rates are established by the investors with the customers having little say. Both banks and credit unions offer the same products, though, and both are federally-insured. The community’s defining mood to the credit union and its ability for its members to directly control it and directly profit from its success are huge incentives for small communities looking for financial institutions to locate within their region.
LFCU has added one additional perk for its members – Rolling Rez – a mobile unit that makes regular stops across the Reservation on a set schedule and which provides all of the services available at the credit union in Kyle, South Dakota. Given the size of the reservation, this is a pragmatic and much needed mechanism for providing services to the Lakota people and connecting with them at the same time.
Educating young Lakota on economics and finances is critical to the growth of the credit union. Oglala leadership holds out confidence that this can be done, with LFCU leading the way.