Reserve Bank Governor Adrian Orr. Photo/Mike Scott
The Reserve Bank of New Zealand (RBNZ) is asking members of the public to give their views on what can be done to improve Maori businesses’ access to capital and what it can do to help.
The banking regulator today released a 27-page document on the matter, which includes data and commentary from Maori businesses.
The document also details options on what can be done to make it easier for Maori businesses to access debt and equity finance, which the RBNZ called a “starting point for a conversation” rather than formal policy recommendations.
One of these “potential pathways” includes creating targets for Maori access to capital and requiring banks and other lenders to report on their progress towards achieving these targets.
Others include expanding the scope of investment opportunities made available to Maori entities using public procurement processes, a Maori owned and managed investment fund and/or increasing the availability existing loan products and services for Maori businesses.
Another option identified by the RBNZ is to promote greater Maori representation in organizations and invest in cultural awareness education.
The background paper comes as the RBNZ faces criticism from opposition parties and former central bankers for allegedly being distracted by issues like this at the expense of its core job of controlling inflation.
The RBNZ took the lead, beginning its article with a foreword from Governor Adrian Orr, who explained why the RBNZ should devote resources to research on Maori access to capital.
Orr noted that the objectives of the Reserve Bank Act are “to promote the prosperity and well-being of New Zealanders and to contribute to a sustainable and productive economy.”
He also highlighted the relevant parts of the RBNZ’s monetary and financial policy remit, which require it to encourage new investment and financial innovation that increases the productive potential of the economy, and to encourage the allocation of resources financial resources in a way that maximizes the sustainability of the economy. economy.
Turning to the specifics of the document, the RBNZ found that Maori-owned businesses face higher financing costs than non-Maori businesses.
“The annual rate of interest implied on Maori corporate debt is about 50 basis points higher than that of non-Maori corporate debt,” the RBNZ said.
He noted that Maori businesses tend to have characteristics that hinder their access to capital.
“On average, Maori businesses have higher debt ratios, less shareholder debt funding and slightly lower productivity compared to non-Maori businesses,” the RBNZ said.
“Maori businesses are also more likely to operate with negative equity, while working owners of Maori businesses tend to be younger than non-Maori businesses.”
Additionally, the RBNZ noted that 8% of companies had at least one Maori shareholder or director, despite Maori making up 17% of the population.
The RBNZ arrived at these figures using census data from the Inland Revenue and Statistics New Zealand.
Contacts with 42 Maori capital seekers, 14 banks and capital providers and eight government agencies also led him to identify barriers to Maori access to capital.
A key problem is that lenders are reluctant to lend on community-owned land. This is because they may find it difficult to sell the land against which the loan is secured in the event of default.
Maori land ownership is extremely fragmented, with an average of 111 owners per block of land, the RBNZ said.
In addition, Maori businesses may find it harder than Pakeha to get loans on their homes, as the Maori home ownership rate was 31% in 2018, lower than the 52% rate for all of Maori. population.
The RBNZ also said that many Maori capital seekers felt the financial sector did not understand their intergenerational orientation and long-term investment horizons.
“This requires a broader focus beyond short-term benefits and consideration of the transformative effect an entity can have on local employment and the wider community,” the RBNZ said.
“Capital seekers believed that a lack of experience and knowledge of the financial sector within Maori communities added to the difficulty of accessing capital.”
The RBNZ also identified “a lack of scale, coordination and understanding in the Māori corporate finance system” and “systemic deficiencies in leadership and decision-making in the financial sector” as problems.
Orr said the issue is important because it puts Maori “at risk of missing out on all the benefits of the financial system and of incurring unrewarded risks and costs”.
“Negative outcomes could include growing exclusion, inequality and degradation of general well-being.”
The public has until September 20 to comment on the document.