The $500 Billion Gap: Understanding Indigenous Finance Challenges in Canada

The $500 Billion Gap: Understanding Indigenous Finance Challenges in Canada

Published on: April 29, 2025

Category: Insights

In October 2024, the responsible investing world converged on Toronto for the PRI in Person conference, where the United Nations-developed Principles for Responsible Investing (PRI) network gathered to share and advocate for best practices. Taking advantage of this moment, Addenda Capital, the First Nations Major Project Coalition (FNMPC), and the First Nations Financial Management Board (FNFMB) convened Indigenous leaders, debt issuers, asset owners, and sustainable finance leaders for a focused roundtable discussion.

Under Chatham House Rules, participants learned, engaged, and shared ideas on how to leverage the success of the sustainable bond market to support the financing needs of Indigenous Peoples. The roundtable explored whether developing an Indigenous Sustainable bond framework could drive more interest and capital from investors, while ensuring that proceeds would be used to finance projects with endorsed benefits to Indigenous communities.

This groundbreaking discussion led to the development of a comprehensive discussion paper and three articles examining key aspects of this initiative. The next two articles will focus on lessons to be learned from the emergence of green bonds and actions required to move forward. 

The Scale of the Challenge

Indigenous Peoples in Canada (Inuit, Métis and First Nations) and the world often face significant and long-standing socioeconomic gaps when compared to non-Indigenous populations. These gaps stem from a long history of colonialism, economic structural discrimination, and marginalization, which have had a profound impact on Indigenous people, their communities and their Nations and continues to affect their lives today.

The funding gap in housing, public infrastructure, and economic development for Indigenous Peoples in Canada alone ranges from $350 to $500 billion[1]. Many Indigenous communities lack financing for basic community needs, including adequate housing, healthcare, community facilities and water infrastructure. In addition, many rely on high carbon-emitting energy sources like diesel-power generators for power production or lack access to telecommunication services.[2]The funding gaps are often due to barriers to accessing financing for these needs and to Indigenous businesses. While Indigenous Peoples in Canada account for approximately 5% of the population, Indigenous businesses hold less than 0.2% of the available credit. Access to market capital for Indigenous businesses is 11 times lower than that of non-Indigenous business peers.[3]

Structural Barriers to Access Financing

This financing gap faced by Indigenous businesses and entrepreneurs stems from the systematic destruction of cultural, economic, and trading systems. The Indian Act, for example, drove the systemic exclusion of Indigenous Peoples from the mainstream economy and trading systems, resulting in damage to the Indigenous way of life. Until 1940, the Canadian government enforced a policy that required all First Nations people living on reserve to obtain written permission from an Indian agent to leave their community or sell goods off reserve. Those caught without a pass were either incarcerated or returned to the reserve. A permit was required to sell agricultural goods.

These restrictions created barriers to commerce. Residential schools were designed to educate workers rather than businesspeople. Attending university or becoming a professional would lead to the loss of Indian status and rights and connections to the reserve and First Nation, deterring people from seeking higher education. Sadly, First Nations people or communities could not challenge these restrictions—they were prohibited from hiring a lawyer until 1951.[4]

Ongoing challenges continue to exist today.  For example, clear property rights are necessary for accessing financing. However, Indigenous households, businesses, communities, and Nations encounter legal and regulatory barriers, such as section 89 of the Indian Act, which prohibits use of Indigenous property on reserve as collateral.

As for project finance, Indigenous governments and entities often face higher borrowing rates—frequently exceeding the expected return on projects due to a misperception of greater risk. Indigenous Nations also often lack the ability to leverage assets or revenues to borrow against due to having a very small “balance sheet” compared to other levels of government or minimal or no tax or business revenue that could be leveraged.

In the past, the high cost of doing business on reserve has therefore led to “bungee economies,” where economic gains flowing into communities bounce out to benefit non-Indigenous communities, as goods or services are sourced off reserve.

Signs of Progress and Successes to Celebrate

Despite these challenges, many exciting new developments and growing opportunities have emerged. Indigenous communities have reclaimed partial control over their resources from governments. Federal and provincial governments have implemented, or are discussing, revenue-sharing and royalty-sharing frameworks for projects in Nations’ traditional territories.

One example is the First Nations Fiscal Management Act (FMA, established in 2005) allowing qualified First Nations communities to jointly borrow from capital markets for infrastructure investment and community development. Under the FMA, four complimentary institutions work together to enhance access to lower-cost capital:

• The First Nations Tax Commission (FNTC) helps Nations increase the flow of own-source revenues through property tax;
• The First Nations Financial Management Board (FNFMB) helps Nations implement sound financial management and governance to develop their own capacity to borrow and service debt (the FNFMB’s certification is a requirement for FNFA borrowing);
• The First Nations Infrastructure Institute (FNII) provides expertise to improve infrastructure investments and projects; and,
• The First Nations Finance Authority (FNFA) helps secure low-cost financing by monetizing community revenue streams with credit enhancements and issuing highly rated debt in the public bond market. The program has issued over $2 billion in bonds, financed at rates comparable to or lower than Canadian municipalities.[5]

While important challenges and barriers remain, we see multiple pathways and opportunities to address the financing needs of Indigenous Peoples. For a comprehensive analysis of Indigenous finance challenges and opportunities, please refer to our full discussion paper.  For a discussion of the possible lessons to further unleash financing and creating an Indigenous Sustainable Bond Framework please see the next two articles in this series.