We have created this helpful FAQ to address questions that have been raised in previous workshops and presentations.
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What is the First Nations Finance Authority?
The First Nations Finance Authority (FNFA) is a non-profit, statutory institution built to provide all First Nations, big or small, urban or remote, resource rich or not, with the same financial instruments that other levels of government in Canada have at their disposal to build safe, healthy and prosperous communities. It was created by First Nations for First Nations.
What does the FNFA Do?
The FNFA has three main operational areas: raising long-term, low-cost capital on the financial markets on behalf of Borrowing Member First Nations governments for their infrastructure, economic and social development financing needs; providing First Nations governments and their organizations with flexible, low-risk, high yield, cash-surplus management services; and providing First Nations capital planning support and advice. Simply put, the FNFA does loans, investments and advice.
Who owns and controls the FNFA?
The FNFA’s Board of Directors is composed of First Nations Chiefs or Councillors elected by the FNFA’s general assembly, made up of its Borrowing Member First Nations representatives. FNFA policies, procedures and programs are decided by the board and reflect Borrowing Member First Nation priorities and interests, within the framework of its enabling legislation, the First Nations Fiscal Management Act, and within the financial market requirements to maintain its credit rating.
Who can benefit from the services of the FNFA?
FNFA advisory and investment services are open to all Aboriginal governments and their organisations in Canada and can be accessed on demand.
Financing services are open to all Aboriginal governments established through the Indian Act, treaties, land claim settlements or self-government agreements with Canada. In order to become Borrowing Members, these governments must be scheduled under the First Nations Fiscal Management Act; in the case of Aboriginal governments that are not established under the Indian Act, enabling regulations may be required.
What is the First Nations Fiscal Management Act (FNFMA) and how can my community become part of it?
The FNFMA is a federal law that came into effect in 2006; it established a suite of institutions: the First Nations Finance Authority, the First Nations Tax Commission, and the First Nations Financial Management Board. Each of these institutions has a specific mandate, structure and mission; where they overlap is the creation of a powerful qualification, borrowing, oversight, safeguards and default regimes for borrowing through the FNFA both on the basis of property taxation; as well as borrowing on the basis of Other Revenues is dealt with through regulations provided for in the FNFMA legislation.
What can FNFA loans be used for?
Loans serviced through property-tax income can only be used for the financing of economic and community infrastructure related to the provision of local services on reserve land. Loans serviced through other stable, ongoing sources of income can be used for economic and community infrastructure tied to the social and economic development of First Nations, subject to restrictions tied to the income sources. FNFA loans cannot be used to finance business ventures or to fund program operations.
How is the FNFA different from banks?
Typically, government finance authorities such as the FNFA finance large one-time infrastructure and land servicing costs with low-cost, fixed-rate, long-term capital from the capital markets. Local and regional governments use banks to finance operations, housing, short term projects and business activity; interest rates tend to be higher and variable; however decision turn-around time is short and legal costs low for conventional transactions.
How does the FNFA loan First Nations money?
The FNFA is modeled after the Municipal Finance Authority of British Columbia. The FNFA loans money by pooling the borrowing needs of many First Nations together. Once a sufficient amount of loan requests have been pooled together, the FNFA approaches investors on the bond market. The investors buy FNFA bonds and the proceeds are then loaned to First Nations.
Are there limits to the amount of money a First Nation can borrow?
No. The amount of money a First Nation can borrow is only limited by the amount of stable, secure, ongoing revenue available to repay the loan.
Does the FNFA collect collateral before it loans to First Nations?
No. The FNFA does not collect collateral and your community does not have to put up any assets as security on the loan.
What are the repayment terms of the FNFA loans?
The FNFA will work with First Nation communities to develop the best possible loan terms. FNFA loans can range from 5-30 years, First Nations choose the term that suits their specific needs. The interest rates of the loans can also be locked-in for the duration of the loan, making financial planning easier.
What happens if a community defaults on its loan?
The FNFA has several safeguards in place to make sure that both First Nations and the bond holders are protected against loan repayment default. The FNFA has established a Debt-Reserve Fund (DRF) to assist in the event that a First Nation cannot meet a loan payment. The DRF is funded by all the Borrowing Members and is enough to cover approx. 1 year of payments for each loan. In addition, the FNFA holds a $10 million Credit Enhancement Fund (CEF) as a second line of defense if a community’s DRF should ever be exhausted. The First Nations Financial Management Board holds intervention capabilities to assist a defaulting First Nation get back on track with debt service requirements.