Thank you very much, Mr. Chair. Thank you for this invitation to appear before the committee.

My name is Maxime Faille. I am a partner with the law firm of Gowling Lafleur Henderson, where I head our firm's aboriginal law group.

I appear this morning as a member of the board of directors of the Canadian Council for Aboriginal Business on behalf of its president and CEO, J.P. Gladu, who could not be here today.

CCAB is a national member-based business organization working to drive business opportunities and relationships between aboriginal businesses, aboriginal communities, and the broader business community. This is achieved through a variety of tools, including CCAB's progressive aboriginal relations certification program, aboriginal business mentorship, awards programs recognizing excellence in aboriginal business, as well as through original research on the aboriginal economy and aboriginal-owned businesses. This research has provided some insights into the issues you are addressing. We are honoured to share it with you today.

It's clear that access to capital is a major issue for both start-up aboriginal businesses as well as established firms. Needless to say, historically the Indian Act restrictions on private ownership of real property on reserves as well as restrictions on taking security in on-reserve real and personal property, while having their own very important historical basis, have undoubtedly had the effect of inhibiting access to capital for on-reserve status Indians and first nation bands. By restricting private ownership of property on reserves, the Indian Act inhibits first nation entrepreneurs from accumulating collateral and credit necessary to access private financing—and, of course, the inability of banks to seize assets on reserve prevents inhibits businesses from leveraging collateral

I do want to emphasize, however, that these limitations are grounded in a long history that, in my view, remains an important one and that the risk of dispossession, particularly of reserve land, remains a complex issue that defies easy solutions. When compared to American reservations, for instance, reserves are exceedingly small, as it is, and play a vital role in maintaining vibrant cultural and economic first nations communities. So navigating this reality along with the need for greater access to collateral and capital is a treacherous voyage in my view.

CCAB's research suggests that knowing where to find and apply for financing and knowing how to meet the necessary requirements remain obstacles to growth for aboriginal business. When asked what barriers restrict access to capital, a majority, or some 56% of aboriginal businesses cite the following: lack of collateral, being a new high-risk business, and having too much debt or a poor credit rating. The anecdotal evidence suggest that many give up on outside financing. Certainly, this seems to be supported by the high proportion of aboriginal businesses that rely mostly or entirely on their personal savings for their business enterprises. Indeed, 65% of aboriginal business owners rely heavily on personal savings for start-up financing and 74% rank it as the top source of ongoing financing. Over a third of aboriginal businesses identify access to capital as a major obstacle to growth in the next two years of their business cycle.

Business loans and lines of credit from financial institutions are more important among the larger businesses, those with over half-a-million dollars in revenues, while government loans and grants are rated as being of greater importance to businesses without other employees. Younger entrepreneurs place greater importance on financing from aboriginal lending agencies according to CCAB's research.

In Ontario, 44% of aboriginal economic development corporations, which are community owned corporations, as you know, identify accessing private financing as a major hurdle for business start-ups due to the lack of credit history, the Indian Act regulations, limitations regarding land ownership, and the stigma surrounding aboriginal business, a point to which I wish to return. Some 56% of economic development corporations have overcome this problem by accessing band money from land claim settlements or from existing band-owned businesses, but this is not always possible or indeed sustainable.

This is complicated by the discretionary nature of those community funds and also by the difficult task that communities face. Since these are community funds, they must balance the desire to fund businesses within their community with the need to take a hard look at whether or not those businesses are indeed sound investments for the community. There can be a bit of a push and pull in that regard. There can be a real desire to invest in a local business, but of course the reality is that the majority of start-up businesses fail. Because these are community funds, it remains important to have sound investment strategies in that regard.

As to solutions, they're obviously multi-faceted. There is a big need for greater capacity-building, and organizations such as CCAB and AFOA, from which you will also hear, can play a vital role in that regard. Loan guarantee programs are essential.

I do want to highlight a couple of issues. Speaking more in a personal capacity in this regard, since I haven't necessarily vetted these next remarks with my colleagues, first, the barriers to access to capital are numerous. However, I do want to suggest that stigma, as I mentioned, should not be overlooked as an important impediment. In my experience as a lawyer working with aboriginal communities across Canada, it is clear to me that there remains a great deal of mystery and lack of understanding in the minds of many about aboriginal business and about working with aboriginal communities. Now, certainly as more businesses and financial institutions become aware of the opportunities and business necessity of working with aboriginal communities, that is slowly changing.

I also want to mention, as my friend and CCAB's former CEO, Clint Davis, will tell you, there is in Canada, despite the significant barriers to growth, an emerging aboriginal economy of some considerable size. Here I want to suggest that while support for the aboriginal economy must come from all quarters, we would do well to optimize the opportunities, mechanisms, and incentives for aboriginal communities, businesses, investors, entrepreneurs, and individuals to reinvest in that aboriginal economy. There's a great desire to do so, and one of the ways, of course, this can be accomplished is through tax policy. In some respects, the tools are already in place in that regard. So while the section 89 restrictions of the Indian Act constrain the use of on-reserve property as collateral, the twin provision to section 89, section 87, provides for an exemption from taxation in relation to on-reserve property of status Indians and bands. That can create a major incentive for investment by bands and by status Indians in other communities across Canada, as well as in their own communities, since that tax exemption is not limited to one's own community. This should provide a first nation investor with greater risk appetite in relation to such an investment since the return promises to be quite significant if that return is in fact tax-exempt.

A major advantage of encouraging this is that the section 89 restrictions on taking collateral in on-reserve property only apply to non-Indians. So a band or a status Indian may take and enforce security in on-reserve property of another status Indian or of a band. The problem with this, however, is that in my experience the tax exemption rules are notoriously nebulous and that CRA, to be quite honest, is very aggressive in seeking to limit access to that tax exemption. Far from encouraging investment income in that manner, in my experience as someone who works in this area, the CRA acts to discourage it through lack of clarity in the rules and through very aggressive measures in that regard.

So greater clarity, support for such investments, I think, would assist in that regard, and of course, consideration could be given to providing tax incentives to non-aboriginal Canadians as well, to provide greater support and access to capital to aboriginal communities.

I thank you for your time and your important work in this area.

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