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Finance and Public Administration Legislation Committee
25/05/2018
Estimates
PRIME MINISTER AND CABINET PORTFOLIO
Indigenous Business Australia

Indigenous Business Australia

[09:34]

CHAIR: I welcome Mr Viswanathan, chief executive officer of Indigenous Business Australia, and officers. Mr Viswanathan, do you have any opening statement?

Mr Viswanathan : Yes, I do.

CHAIR: Please.

Mr Viswanathan : Good morning, senators. I would also like to acknowledge the traditional owners of the land on which we meet today, the Ngunnawal people, and acknowledge their elders past, present and emerging. I would also like to acknowledge that tomorrow will be National Sorry Day.

In our previous hearings, I've advised you of a significant increase in IBA's performance and outcomes over the past 18 months. I'm pleased to advise that, since the hearing in March this year, this has continued through the hard work of our staff across the country. We remain on track to deploy more than $350 million of capital in 2017-18 through investment and lending, which I believe is the largest amount of capital deployed by IBA in any one year in our history. This amount is well over 10 times the government funding we receive to use this capital. We're able to do this because we recycle our loan repayments and investment returns into supporting more Aboriginal and Torres Strait Islander people with their economic aspirations. We are not a large organisation, yet through our main three divisions—housing solutions, business solutions and investments—we support a portfolio of almost 5,000 home loan customers, work with hundreds of entrepreneurs and small to medium businesses and have over 50 indigenous organisations co-investing with us into commercial ventures and assets. Across these areas of work, we support over 800 customers in remote areas, over 4,000 in regional areas and over 2,000 in urban areas.

With housing affordability remaining a major issue for many Australians, including Aboriginal and Torres Strait Islander people, we are proud of the results we're achieving in our housing solutions division. We have now written more than 800 home loans this year, which is a record and significantly more than our annual target of 580 loans for 2017-18. This equates to over $276 million in home finance, adding to the over $2 billion in wealth created in Aboriginal and Torres Strait Islander hands since the program commenced in 1975. Ninety-five per cent of loans were to first home buyers and more than 75 per cent were outside major cities. In doing this, we maintain a responsible approach to lending so that our customers have the opportunity to succeed in home ownership. Our loans are structured so that our customers can transition to mainstream lending over time as they build their credit history. Already this year we've supported 5.9 per cent of our home loan customers to transition to mainstream lenders against an annual target of 4.5 per cent. At the same time, we've enhanced our operating platform, introducing online expressions of interest and online home loan applications, reducing red tape.

Our revitalised business solutions division works with Indigenous entrepreneurs and small and medium sized enterprises and is funded mainly by way of an agreement with the Commonwealth. As at 30 April 201, we've already met or are on track to exceed all the performance targets in the funding agreement with the Commonwealth. We were funded with $10.2 million to provide 80 instances of business finance for the full year, but we've already approved 124 business loans. On top of this, we've provided well over 100 instances of business finance, including a number of new products we've launched to meet our customers' needs, such as performance bonds for Indigenous construction businesses. In total, we've approved over $40.5 million in business finance, reflecting our reinvestment of loan repayments and investment returns into supporting entrepreneurs to achieve their business goals. Having invested in revamping the program and developing a suite of products that meet customer needs, we are keen to secure our funding for the long term so that we can continue to meet growing demand from our customers.

In addition to providing loans and finance, we have also delivered over 600 instances of business support, exceeding our full year target of 500 supports. We're also innovating in other ways. We're running two more accelerated programs in Sydney and Alice Springs to help people bring their start-up ideas to life. Along with the development of an app for Indigenous business owners to access information and advice to support their business, a digital platform is also under development which will provide a community of support to Aboriginal and Torres Strait Islander women who want to start a business or who are in business, especially in remote and regional Australia. This builds on the Strong Women Strong Business conference we held in Adelaide in early May, an inspiring event bringing together 180 Indigenous women in business from across urban, regional and remote areas and livestreaming to many more people. In addition to sharing knowledge and experiences, women at the conference were able to forge connections with each other that I'm sure will last well beyond the event.

This year, we've attracted more than $50 million in new co-investment from Indigenous organisations investing in our trusts or joint ventures, also a record. Over 50 organisations now hold close to 40 per cent of our investment portfolio, a significant increase from just a few years ago. Construction has commenced on the large-scale solar facility we're investing in alongside our Indigenous and private sector partners in Perth. We're also in due diligence on a number of exciting investment opportunities alongside Indigenous organisations, such as in telecommunications, renewable energy, water rights and other industries.

Whilst I've outlined our results, as we know, this is not just about numbers. Behind these statistics lie real stories of families buying their first home, people starting and growing businesses, often against the odds, and communities making impactful investments. These are the often hitherto untold stories that we're now sharing through our networks and social media channels, highlighting the experiences, hard work and success of so many of our customers and partners across Australia. Thank you. I look forward to your questions.

CHAIR: Thank you very much, Mr Viswanathan.

Senator McCARTHY: Good morning. I listened to your statement. I want to go over the figures that you provided. If we could receive a copy of the statement for all senators—

CHAIR: Yes. If you could make available a copy of the opening statement, that would be helpful.

Mr Viswanathan : Sure.

Senator McCARTHY: You said 800 customers in regional areas in terms of loans. Is that correct?

Mr Viswanathan : Across all our programs, we have over 800 in remote areas.

Senator McCARTHY: And you said was it 4,000?

Mr Viswanathan : Over 4,000 in regional areas and over 2,000 in urban.

Senator McCARTHY: I'm taking these figures down. Over 4,000 in regional areas?

Mr Viswanathan : Correct.

Senator McCARTHY: You had a third figure.

Mr Viswanathan : Over 2,000 in urban areas.

Senator McCARTHY: These figures relate to home loans? What do they relate to?

Mr Viswanathan : They relate to all of our customers, so our home loan customers, business customers, whether they've received support or finance, and investment partners.

Senator McCARTHY: You said, though, you had 5,000 home loans?

Mr Viswanathan : Total, yes.

Senator McCARTHY: In total. And that is this year so far?

Mr Viswanathan : The home loan customers are currently our home loan book.

Senator McCARTHY: In total, over the years?

Mr Viswanathan : Correct. So some of them would have been new loans this year. As I mentioned, we've done over 800 home loans this year.

Senator McCARTHY: So 800 this year and 580, was it, in 2017?

Mr Viswanathan : So 580 was the target and 800 is how many we've already done.

Senator McCARTHY: So you've exceeded your target?

Mr Viswanathan : Correct.

Senator McCARTHY: What is the value that the home loans range from?

Mr Viswanathan : On average it's about $330,000. That's the average home loan.

Senator McCARTHY: And whereabouts are we talking in terms of the average? Is this right across Australia? You've broken it down into three areas—urban, regional and remote.

Mr Viswanathan : The average would obviously differ in urban from regional because of house prices in major cities.

Senator McCARTHY: So what would your average be in an urban area?

Mr Viswanathan : I don't have that precise figure. I can provide that on notice.

Senator McCARTHY: If you could. What about your average in regional?

Mr Viswanathan : Again, I would have to provide that. If you want the averages for remote, regional and urban—

Senator McCARTHY: Yes, please.

Mr Viswanathan : I would have to provide that on notice.

Senator McCARTHY: If you could. Would you have some idea in terms of remote?

Mr Viswanathan : I wouldn't want to speculate. I guess the other thing to note here is every market is unique. So even within regional Australia, regional communities on the eastern seaboard are going to have a different average price to other parts of the country. It really comes down to house prices in those locations. But we service the entire country.

Senator McCARTHY: All right. Let's look at your remote housing loans. Are you able to identify where in the remote areas you have provided those housing loans?

Mr Viswanathan : Yes. I can provide them on notice. They are all across the country.

Senator McCARTHY: You don't have that with you?

Mr Viswanathan : I don't have the list of every remote location with me. I can tell you that, out of the 5,000 overall home loans, 475 are in remote or very remote areas.

Senator McCARTHY: So 475 in very remote areas?

Mr Viswanathan : Remote or very remote.

Senator McCARTHY: Are you able to provide those 475 home loan locations, such as state and territory jurisdictions?

Mr Viswanathan : We can provide a detailed breakdown on notice.

Senator McCARTHY: Could you also provide the average home loan provided for those areas?

Mr Viswanathan : We can do that.

Senator McCARTHY: You said in your statement that part of the development is also to progress loans to mainstream banks. Is that correct?

Mr Viswanathan : That's right.

Senator McCARTHY: So which banks?

Mr Viswanathan : It can be any of the major banks. It's ultimately up to the customer where they want to refinance to. We don't dictate which bank a customer has to go to.

Senator McCARTHY: Which one do you predominantly work with?

Mr Viswanathan : We work with all of the major banks and even the mid-tier banks. Over time, the customer's credit history builds up and then they're in a position to refinance. We work actively with our customers to speak to them about when the time might be approaching, and then they will make that choice as to which bank is appropriate for them.

Senator McCARTHY: Are you informed which bank that is?

Mr Viswanathan : We wouldn't always find that out. If they do refinance, obviously we'll receive discharge paperwork, so we would find out through that mechanism.

Senator McCARTHY: Do you keep data on where your loans have progressed to?

Mr Viswanathan : Beyond our refinance?

Senator McCARTHY: That's right.

Mr Viswanathan : We know when they are refinanced. Beyond that, the customer moves to a bank and we won't have continued information from that customer.

Senator McCARTHY: But of the information that you do have, do you maintain data on that?

Mr Viswanathan : Yes, we do.

Senator McCARTHY: Would you be able to provide for the committee data on which banks the home loans go to?

Mr Viswanathan : I will endeavour to provide that.

Senator Scullion: We just indicated that there probably isn't a lot of that material because it is a choice of the individual which bank they actually go to.

Senator McCARTHY: Thank you, Minister. Mr Viswanathan just said that they do keep it, so I'm asking for what they do have.

Senator Scullion: I am indicating that as long as it's not an expectation, because it is quite a small number. It's a voluntary process. I'm not sure what the public interest is in which bank they actually go to. I think the important thing is that we don't—

Senator McCARTHY: He has introduced it to the committee, so we're just questioning it.

Senator Scullion: It might have to be of interest.

Senator KENEALLY: Given the behaviour of the banks that has been on display at the royal commission, this committee has the right to ask questions about migrating people who have been vulnerable and unable to access credit.

Senator Scullion: But which bank they've chosen to go to? We will provide that information.

Senator KENEALLY: We have a right to ask these questions.

Senator Scullion: Absolutely. I am just damping down expectations—

Senator KENEALLY: It's not for you to determine, Minister, what is in our interests.

Senator Scullion: that we would be able to provide every one of them.

Senator DODSON: Maybe we could get some indication of the equity arrangements that you may be entering into with states or banks or with Indigenous corporations which are just not the normal, 'Let's go to a bank. Let's get a loan. Let's try and meet things.' Have you got any innovative ways in which you are approaching the home ownership question? It would be useful, I think, to help us understand some of that as well.

Mr Viswanathan : Yes. We are certainly looking at new ways of facilitating home ownership. One idea that I think has been discussed more widely, which we're also looking at, is shared equity. That's where we can have some of the equity interest in the home. I know a lot of the other major lenders are looking at that as well as a way of trying to tackle affordability. But we've still got a lot of work to do to look through that and look at how that would be structured.

Senator DODSON: I suppose my question is more whether the states and territories are showing any enthusiasm to enter into those arrangements with the corporation and the applicants, of course.

Mr Viswanathan : Our exploration is directly with Indigenous housing providers and organisations, where we might be able to find ways to unlock some of the equity in their housing portfolio and facilitate their members to get into home ownership.

Senator DODSON: So the brokerage of those sort of equity arrangements between yourself and the state or territory is really in the hands of an indigenous corporation of some type?

Mr Viswanathan : We're working more with the housing providers at this stage, so not-for-profit organisations that manage housing portfolios. Obviously, we'll engage with states as part of this, but our—

Senator DODSON: All I'm trying to get clear is whether this is an initiative that has been driven or whether it's one that is being responded to by your corporation.

Mr Viswanathan : It's our thinking and our innovation that we're driving.

Senator DODSON: Thanks.

Senator McCARTHY: I want to ask a question again about your statement. You made reference to a large-scale solar facility in Perth.

Mr Viswanathan : Correct.

Senator McCARTHY: Could you provide details on what exactly that is?

Mr Viswanathan : Yes. That is in Northam, which is in the Perth area. That's coming through our impact investment program. We are investing alongside the Perth Noongar Foundation and a private company called Carnegie Clean Energy. It is to develop a solar facility that will then sell power to the grid. It will provide financial returns to us and our Indigenous partner. We are bringing Indigenous organisations into the supply chain—the construction and maintenance of the facility.

Senator McCARTHY: Mr Viswanathan, I want to take you to where the IBA sits financially in the 2018-19 budget. This is more for clarification. On page 195, I think it's in budget paper No. 4, I'm looking at the net capital investment table. It says that IBA under 2017-18 received $52 million. In 2018-19, it's $2 million. I'm wondering what kind of impact that must have.

Mr Viswanathan : I might ask our CFO, Mr Hure, to join us. While he's joining us, I'll just say that we're in a very healthy financial position profitability wise and through the investments we've made. We've got a very strong balance sheet. But I'll ask Mr Hure to respond.

Senator McCARTHY: Mr Hure, I'm just looking at the net capital investment table. I wonder if you can walk the committee through it.

Mr Hure : Which page is that?

Senator McCARTHY: That's page 195. IBA has $52 million under the 2017-18 column. Then in the 2018-19 column, it's $2 million. I am wondering what that means for IBA.

Mr Hure : I don't think I've got that table here, sorry, Senator. I'll probably have to take that on notice.

Senator McCARTHY: You don't have the budget book there?

Mr Hure : I do have it here, but I don't seem to have that page.

Mr Tongue : Senator, are you referring to the portfolio budget statement?

Senator McCARTHY: Yes.

Senator Scullion: References to the budget papers at estimates sometimes take government by surprise.

Senator DODSON: So do the amounts.

Senator Scullion: I shouldn't be surprised by this, Senator.

Mr Viswanathan : Senator, would you mind pointing me to it?

Senator McCARTHY: It's table 3.2, the net capital investment table.

Mr Viswanathan : Table 3.2 is the equity table. This is the portfolio budget paper for 2018-19, which is paper No. 1.14.

Senator Scullion: Is that the same?

Senator McCARTHY: If you have that budget book there, I will take you to another table in that area. Let's go to the departmental expenses table at 3.1.

Mr Viswanathan : Yes.

Senator McCARTHY: Do you have that there?

Mr Viswanathan : Yes, we do.

Senator McCARTHY: With IBA, in the first column, with 2017-18, it's $202 million. In 2018-19, it's $190 million. In the forward estimates, it's $181 million. It goes up a bit to $186 million.

Mr Viswanathan : Correct.

Senator McCARTHY: And then $190 million.

Mr Viswanathan : Yes.

Senator McCARTHY: Can you let the committee know what that means for IBA.

Mr Viswanathan : What is important to note is these are our consolidated financial statements. So they're not just for IBA. They also include our subsidiaries. So those figures reflect the consolidated forecast expenditure across IBA and all of the subsidiaries. There are many operating businesses in different industries. Depending on their expected level of activity, that will determine the expense base for those forward years.

Senator McCARTHY: When you say subsidiaries, who are you referring to?

Mr Viswanathan : We invest alongside Indigenous organisations in a range of ventures. We've got co-investments in the Kakadu properties and Wilpena Pound Resort.

Senator McCARTHY: What are the Kakadu properties?

Mr Viswanathan : Cooinda Lodge and the Crocodile Hotel. We have similar investments in different industries around the country. That would include the solar investment that we just talked about. So the expected financial performance of all those subsidiaries is consolidated into these figures.

Senator McCARTHY: And how many would there be?

Mr Viswanathan : We have 12 direct investments in ventures or assets and then we have five trusts that we also manage.

Senator McCARTHY: All right. Could you provide for the committee on notice those 12 direct investments and your assets?

Mr Viswanathan : Sure.

Senator McCARTHY: Thank you very much.

Senator KENEALLY: I have some questions regarding the home loans. Do you keep data on 30-day debt defaults?

Mr Viswanathan : Yes, we do. We keep arrears data, yes.

Senator KENEALLY: Are you able to provide that to the committee?

Mr Viswanathan : Yes. We can provide a breakdown on notice, if required.

Senator KENEALLY: That would be helpful. Take this on notice as well; do you have any comparisons between your 30-day debt default rates and that of the traditional, for lack of a better word, banking sector?

Mr Viswanathan : We do, recognising that our portfolio is very different and our charter is very different. But we do have that, yes.

Senator KENEALLY: Thank you. Have you considered making a submission to the banking royal commission?

Mr Viswanathan : We haven't done that. We're obviously monitoring it very closely and keeping a very active interest in where it's headed. But we haven't made a submission.

Senator KENEALLY: It would seem from some of the testimony you've given here today that some of your experience in home lending might be of benefit to the banking royal commission.

Mr Viswanathan : It might be, but we'll have to consider that offline.

Senator KENEALLY: Thank you.

CHAIR: We are three minutes away from the break. There is a reconciliation event. We've moved the break earlier so that senators and officials can attend it, if they wish, in the Mural Hall next door.

Senator McCARTHY: Are you able to provide on notice some more details about the solar panels in Perth,?

Mr Viswanathan : Sure. We will. That's been reported widely in the press as well. But we're able to do that.

Senator McCARTHY: Thank you.

CHAIR: I know that Senator Stoker has some questions. Senator Siewert, do you have questions for IBA?

Senator SIEWERT: No.

Proceedings suspended from 09 : 57 to 10 : 13

CHAIR: Thank you to everyone who managed to step out to attend part of the reconciliation week activity.

Senator STOKER: Mr Viswanathan, I have some questions about the ANAO audit report into IBA's home ownership program. It was delivered, I believe, before the start of your tenure on 3 December 2015. Are you familiar with that report?

Mr Viswanathan : Yes, I am.

Senator STOKER: That report essentially said that between 2011 and 2014 the home ownership program had some problems with the way it was being run; that, during that period, around 60 per cent of home loans that IBA provided were going to people who weren't low income earners; that there wasn't a strong focus on targeting areas where there is high need for home ownership; and that the number of loans approved by the IBA has declined over the last three years. What steps have been taken to deal with these criticisms and to try and make some improvements?

Mr Viswanathan : Thank you for the question. There has been a really active process of management in IBA to revitalise that program. I've outlined the results in my opening statement. But there are three broad areas of work that we've pursued. One is the making the process more efficient and productive. As I mentioned in the opening statement, we've now introduced online expressions of interest and online home loan applications. They've significantly reduced red tape and paperwork for customers and made the process much easier. The second broad area of work is targeting our home loans. We had a good look at how that was being done. As a result of some internal policy changes, we're now seeing a much greater proportion of home lending go to those in need. So that's been a significant focus of management. The third broad area is really looking at innovation for the future. I touched on some of the new product types and solutions that we're looking to develop to support more people into home ownership.

Senator STOKER: You mentioned the targeted nature of the way loans are being directed at the moment. I hope that means that the percentage of higher income earners receiving IBA home loans isn't still around 60 per cent. Where are the percentages now?

Mr Viswanathan : Over 95 per cent of our loans are going to what we define as our three lowest income bands. That's where the total household income is under $119,000. Over 95 per cent of the loans go to first home buyers.

Senator STOKER: There was criticism that the way of doing business wasn't as responsive to customers' needs as it needed to be. Of the things you have changed, what in particular is directed to dealing with that criticism?

Mr Viswanathan : I think the streamlining and greater productivity and efficiency in the processing is critical. I think the program, to be fair, has always delivered a lot of good results. But we definitely needed to change. We needed to modernise and move from being very paper based to using digital technology better. So that has been a significant focus. It hasn't just been IBA coming up with that in its office. We have engaged with customers to understand their experience and what they're looking for. For a second year in a row, we've done an online customer survey of all our customers, and that's people who have gone through end to end and got a loan as well as those who've not proceeded all the way through the process. The satisfaction levels are very high. I'm advised by the firm that helped us conduct that that mainstream lenders would be envious of those results. They've improved this year from last year. So there's a very structured process we're going through to engage with customers and continuously get better at what we do.

Mr Tallis : I will add to that. IBA has made a significant concentration in the capability and capacity work to inform a lot of our lower income customers about the benefits of home ownership and what it actually does. We're also informing and engaging. We talk about IBA local connect and building relationships with our communities and sectors. Home ownership is not for everyone, but it's about making sure, for those who are ready, that we're able to equip them and make sure that they understand the process and have the financial discipline to succeed. IBA, as Rajiv mentioned in his opening statement, is still very much committed to making sure we're a responsible lender. That base doesn't necessarily blow out low income earners. Our role is to make sure that we're targeting those areas and they're actually equipped with the information so that they're much more likely to come to IBA and seek a home loan.

Mr Viswanathan : I will add one more thing. It's important to mention that we're doing more than just loans. We've just introduced a Preparing for Home Ownership workshop that is being rolled out around the country. That's about getting people ready—making sure they understand what it's going to involve and whether it's for them or not.

Senator STOKER: That sounds really sensible. Congratulations on the progress you've made.

Mr Viswanathan : Thank you.

CHAIR: Are there any further questions for Indigenous Business Australia? If not, I thank you very much for your time and your evidence this morning.