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Loan interest rates linked to Indigenous outcomes in Australian first

A syndicate of banks have provided the NSW Lands Registry Services with a $300 million loan with an interest rate which can be reduced by meeting indigenous reconciliation targets.
A syndicate of banks have provided the NSW Lands Registry Services with a $300 million loan with an interest rate which can be reduced by meeting indigenous reconciliation targets. Under the new plan, the NSW Lands Registry Services will set a number of targets ranging from increasing Aboriginal and Torres Strait Islander (ATSI) employment within an organisation to procuring more items from ATSI-owned businesses. Successfully hitting these targets will result in a lower interest rate being applied to the loan. This reconciliation-linked loan is the first of its kind in Australia, and comes as banks (including Westpac, part of the syndicate responsible for the loan) are seeing an acceleration in sustainable finance growth. Westpac’s head of sustainable finance, Eliza Mathews, told Sydney Morning Herald issuance of sustainability-linked finance (including loans and green and social bonds) has reached close to $800 billion in the first half of this year, already more than the total for the full 2020.  “We’re set for an enormous year,” she said.

An untapped opportunity in Indigenous business

In 2020, Australia’s leading venture capital firms raised an estimated $1.6 billion from investors, according to research from Indigenous business accelerator Barayamal. While that’s certainly a positive for Australia’s small business sector, Indigenous communities are lamenting the fact none of this money was invested into First Nations businesses within the same period. Vets on Call founder and CEO Morgan Coleman – himself a Torres Strait Islander – said this dearth of new capital likely stems from a lack of visibility Indigenous business leaders have within broader corporate circles.  “The reality is that raising money for investment requires a strong network of wealth, whether that be your own private network or being introduced to a network that has access to wealth such as a venture capital firm,” Mr Coleman wrote in an editorial for National Indigenous Times. “Most entrepreneurs will follow a similar path to raise capital. First, they’ll approach friends and family, then as they grow, they’ll approach larger, more sophisticated investors such as venture capitalists for subsequent rounds.”
“Without access to these networks, Indigenous entrepreneurs are forced to rely on traditional lending methods, such as banks, though this method presents its own set of challenges,” Mr Coleman said.
“The problem is these institutions very rarely lend to innovative start-ups or businesses that don’t have tangible assets such as plant or property. And if they do, they of course require collateral to secure the funding such as a property or other asset they can secure the loan with,” he said.  “According to research by Indigenous Business Australia, home ownership amongst Indigenous Australians is approximately half that of non-Indigenous Australians and this lack of access to wealth remains a significant barrier to securing funding to assist with growing a business.”
Sources:  

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