Canada: Indigenous Banking: A New Niche


As First Nations continue to settle outstanding grievances with the federal government, and enter into lucrative revenue sharing agreements, the fast-emerging niche of Indigenous or Aboriginal banking has become an incredibly competitive segment of business for Canadian financial institutions. Demographically, First Nations people are the youngest and fastest growing segment of the Canadian population; they are entrepreneurial and eager to grasp economic activity.  Indigenous communities are in increasing need of loans to fund infrastructure projects, to participate in resource development and other investment opportunities. This trend is likely to continue and accelerate as First Nations communities move to become more active participants in Canada's economy.

Canadian financial institutions continue to partner with and lend to Indigenous communities, but are faced with a number of legal and administrative barriers when lending to First Nations. The Indian Act, R.S.C., 1985, c. 1-5 ("Indian Act") creates a unique legislative framework that governs security interests and the personal property of Indians1 on reserves.  As a result of these outmoded and paternalistic provisions, First Nation communities have had to grapple with a lack of access to capital. This is the first article in a series of articles which will examine some of the barriers financial institutions face, as a non-First Nation secured creditor, and will also discuss a variety of approaches that can be taken to mitigate the perceived risks of financing on-reserve.

This issue, we will be reviewing a hypothetical situation in which a financial institution wishes to loan funds to a First Nation in advance of the First Nation receiving a large settlement amount from Canada.

Review of Relevant Legislation

Section 89(1) of the Indian Act states that the on-reserve real or personal property of an Indian or Indian Band is not subject to charge, pledge, mortgage, or attachment and is protected from levy, seizure, distress or execution. It further provides that a creditor, other than an Indian or Band, cannot seize a Band's on reserve assets in order to satisfy a judgement or contractual obligation. In determining whether or not the personal or real property of an Indian or Indian band is protected by s. 89(1), the situs of the property is main factor to be considered.

Both s. 461 of the federal Bank Act (S.C. 1991, c. 46) and s. 447 of the federal Trust and Loan Companies Act (S.C. 1991, c. 45) state:

For the purposes of this Act, the branch of account with respect to a deposit account is:

  1. the branch the address or name which appears on the specimen signature card or other signing authority signed by a depositor with respect to the deposit account or that is designated by agreement between the bank and the depositor at the time of opening the deposit account (emphasis added).

As such, a properly drafted agreement between a First Nation band and a bank or trust company designating a branch off of reserve as the "branch account" may be used to avoid the exemption outlined in s. 89(1) the Indian Act, provided the property is not captured by the deeming provisions in the Indian Act. Section 90 of the Indian Act deems certain property of an Indian or Band to be situated on reserve:

90. (1) For the purposes of sections 87 and 89, personal property that was

  1. purchased by Her Majesty with Indian moneys or moneys appropriated by Parliament for the sue and benefit of Indians or bands; or
  2. given to Indians or to a band under a treaty or agreement between a band and Her Majesty,

shall be deemed always to be situated on reserve (emphasis added).

Risks Identified

It is very important to review the settlement agreement to determine whether or not the agreement stipulates that the funds will be deemed situated on reserve in accordance with s. 90(1)(b) of the Indian Act, as this is a very common provision. Even where an express provision is not contained within the settlement agreement, the settlement amount is likely to be deemed situate on reserve where the settlement amount is being paid to the First Nation as compensation for the Crown's failure to provide benefits under Treaty. 

In the event that the settlement amounts are deemed situated on reserve, and therefore exempt from seizure, how can the financial institution obtain security? 

  1. Seek security from any corporations owned by the First Nation.  A corporation is not entitled to protection from seizure under s. 89 of the Indian Act. A corporation does not constitute an "Indian" within the meaning of s. 2 of the Indian Act, even if the corporation has its registered office on reserve and all shareholders are registered Indian and band members residing on reserve.
  2. Take security in all of the First Nation's off-reserve property. Pursuant to McDiarmid Lumber Ltd. v. God's Lake First Nation, 2006 SCC 58, off-reserve property cannot be deemed to be on reserve through the application of the "connecting factors" test.

Solutions where there is greater flexibility with respect to timing:

  1. Obtain a guarantee from the Minister of Crown-Indigenous Relations and Northern Affairs.
  2. Seek consent from the First Nation and the Government of Canada to assign the debt associated with the final Settlement Agreement under the Financial Administration Act (R.S.C., 1985, c. F-11).


1 For the purpose of this article, I have used the term "Indigenous", "Aboriginal" and "First Nation" when speaking about Indigenous people generally, and "Indian" only for the purpose of speaking directly about Canadian jurisprudence.

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