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Finance and Public Administration Legislation Committee
Indigenous Business Australia

Indigenous Business Australia


CHAIR: I now welcome the Minister for Indigenous Affairs, Senator the Hon. Nigel Scullion, and Mr Chris Fry, the chief executive officer of Indigenous Business Australia. Minister, do you wish to make an opening statement?

Senator Scullion: Not at this stage, no.

CHAIR: Mr Fry, do you wish to make an opening statement?

Mr Fry : While it is not my normal practice, Senator, could I have 90 seconds, given new members of the committee?

CHAIR: Please proceed.

Mr Fry : Thank you. In recognition that there are a few new members on the wider committee, I thought I would spend 90 seconds providing an outline of IBA and our purpose.

IBA's purpose is set out in our enabling legislation and is to improve the economic self-sufficiency of Aboriginal and Torres Strait Islander people. We want Indigenous Australians to have the same financial opportunities as other Australians. Through IBA's programs we attempt to remove some of the obstacles that may prevent our clients from generating wealth, accumulating assets and fulfilling their aspirations. These programs assist Indigenous Australians buy homes, own their own businesses and invest in commercial ventures that provide sound financial returns.

With our home loan program, there has been a bit of commentary in the media in recent times. I just wish to acknowledge that IBA supports the findings from the recent ANAO report, which was handed down in December, and IBA accepts the ANAO recommendations and has commenced actions on all four recommendations of the ANAO. Indeed, we take them very seriously, particularly given that in recent years we have witnessed structural changes within the housing market, particularly around reduced affordability for all clients and higher bank deposit requirements. This has meant many homebuyers, particularly those in the lower income bands, are unable to service a home loan in most parts of Australia as a result of rising house prices and state governments' significant reduction in homeownership grants—and these issues impact on both Indigenous Australians and non-Indigenous Australians.

IBA tries always to ensure that our home loans can be repaid without creating a financial burden for our customer. This sometimes means the potential customers in the lowest income bands are not able to secure a loan large enough to buy a house at current prices in the area they live, because they cannot afford the repayments. However, we agree that we need to do more to deliver on the objective of increasing homeownership among Aboriginal and Torres Strait Islanders in order to close the gap. We see this as a large part of our responsibility. Over the last 18 months we have been exploring alternative ways to utilise capital and resources more efficiently and deliver better, more modern banking products to service our customers.

IBA are also committed to addressing specific recommendations relating to business improvement of the home loan program and are rectifying, as a matter of urgency, improvements identified by the audit. In fact, we have set up a task force to do that, which reports to me every month. Finally, I would like to say that I am personally proud of our Indigenous home loan program. It was established over 40 years ago with an initial $5 million capital injection of government funds, and it is now over $1 billion. Through that period we have assisted over 17,000 Aboriginal and Torres Strait Islander families to purchase their home, which has resulted in an estimated $2 billion of wealth generation into our clients' hands that otherwise would not have occurred.

CHAIR: Thank you, Mr Fry. We will now go to questions. Senator Moore.

Senator MOORE: Hello, Mr Fry. It is good to see you again. You started with comments about the ANAO report. We have got some questions, standardly, about your standard loan figures and things, but I thought that, as you raised the report, we would go straight there, because you would expect there to be some questions about it. You have said that the IBA accepts the major recommendations of the ANAO. Have you formally done that in a response back to ANAO?

Mr Fry : Yes, we have—last December.

Senator MOORE: So that has gone back. I have read the report. The audit found that IBA does not verify that its customers cannot access mainstream finance. That was one of the statements in the report. Can you work through with us that process of working with your customers. I think everyone here is well aware of the history of IBA and its absolutely worthwhile goals. It is there for a reason. So that is a given. The audit found that it does not verify that customers cannot access mainstream finance. What is the process for determining that? When an applicant comes to you, what is the process for determining that that threshold is not met?

Mr Fry : To provide some broader context to this, we have a two-stage process for our clients. The important point is to differentiate between the inquiry stage and the formal loan application stage. If I could speak to some statistics on that—

Senator SIEWERT: What stage?

Mr Fry : The inquiry stage and then the formal loan stage.

Senator MOORE: So that is the initial contact.

Mr Fry : We, in the last 12 months as at December, received—by website, telephone or face to face—inquiries from our clients that say they would like to explore homeownership. We have had 5,266 such inquiries.

Senator MOORE: On notice, can you let us know, if you can, what the breakdown is between website, telephone and face-to-face inquiries?

Mr Fry : Certainly. We will take that on notice. I do not have it at the moment. As a consequence of those 5,266 inquiries, we sent out an inquiry pack to the clients so that they understood what was involved in home ownership, to get some basic information. We sent out 2,217 inquiry packs. Upon receipt of that information we then assessed approximately 1,041 applications of inquiry, where there was some basic information from clients, such that we could assess the next stage, which is whether they are in a position to look at home ownership in the formal application.

Senator MOORE: So the only way you can get into the system is through the inquiry pack, which is the process you have to go through first?

Mr Fry : No. Sometimes what happens is that in the inquiry we receive in the first instance we can quickly identify that those clients, we believe, are eligible for a home loan application, and we bypass the system.

Senator MOORE: Would they be some of that 1,041, or a separate lot?

Mr Fry : They would be elements of the 1,041. I do not have the breakdown.

Senator MOORE: There would be some crossover.

Mr Fry : Yes.

Senator MOORE: Literally, you have had effective loan applications from 1,041 people?

Mr Fry : That is correct. The next step after that is formal applications in the written format that we require. We received 887 formal loan applications. Sometimes, when clients start to think through what is involved in home ownership and what is happening with home prices where they may be looking to live, they may then put it on hold for a while. To get to the core of your question, the ANAO looked at 64 files at the loan application stage, and they have commented in the report that in 92 per cent of those files IBA had evidence the clients would not be able to access finance from the bank.

Senator MOORE: So, on a spot check, 92 per cent would not meet the threshold?

Mr Fry : We have had evidence that IBA had gone to lengths to determine that they would not meet the threshold.

Senator MOORE: That they could not access mainstream finance?

Mr Fry : Yes. That is into forms. Our staff are experienced ex-bankers in this space. We have close contact with the banks and we are aware of what the banking guidelines are. We have kept up to date. In some of those applications, our staff were able to identify that they would not meet the bank's minimum deposit requirement, or the minimum income requirement, or in fact sometimes it was their credit history. Our staff are then required to make a note on the file, either the electronic file or the handwritten file. In eight per cent of examples our experienced staff thought the clients were in a position where they could get bank finance, and we wanted that verified by the banks in a formal written format. We have also had a larger percentage of the other group where we would pick up the phone and talk to our contacts in the bank without divulging the client's name. We would say, 'We have a client who has these characteristics in a financial sense. Do you think we can send the loan to you?' We would get some guidance that way.

Senator SIEWERT: In the key findings it says that IBA generally does not verify that its customers cannot access mainstream finance—that was the statement.

Mr Fry : What I am doing is differentiating between the inquiry stage and the formal loan application stage. Having said that there is still a portion of files that they identified—eight per cent of the files at the application stage—where our staff did not make an adequate level of notification on the file, sufficient to what the ANAO was looking for. We have already started to address that. So there is room for improvement in that aspect.

Senator SIEWERT: Did the key findings refer to the inquiry stage?

Mr Fry : What is written in the report refers to both. When we have gone back and pulled the actual files that they looked at, and then verified it with ANAO, I am speaking to the formal approval stage.

Senator MOORE: Have you had that discussion with ANAO?

Mr Fry : Yes, we have. We have formally picked up each of the files. Mr Clements is in charge of our home loan era. He is closer to the process.

Mr Clements : Yes, in their commentary and recommendations the ANAO were in the sense alluding to that initial inquiry stage. They do not come, and we do not suggest, that we will not consider your inquiry unless you are able to show us that you have been to the bank and been declined. As Mr Fry said, we have experienced lending officers, and rather than getting those 1,000-odd clients to go to the banks, in the vast majority of cases to be rejected, we are able to do that assessment. Then, when it is clear that the client could perhaps, without knowing all of their details—perhaps their credit record, because at that stage we may not have done that—we have suggested that with the amount of the deposit and the income they have they would appear to be able to get mainstream finance. There are cases where we did so. They are then formally required to produce evidence from a lender that they cannot access the finance. That is the differentiation.

When looking at our policies, perhaps we can see that some clarification for our internal staff, and on our website, may be applicable so that it is clear that at the initial inquiry stage it is not incumbent upon the inquirer the first go to the lender to get that rejection. We think it unnecessarily creates a burden on the clients. It is not something that would be a positive experience for many of them, because we can see that they wouldn't but should be able to achieve bank finance.

Mr Fry : Can I just close this for further questions. It has actually been very good having the ANAO go through and look at our program and pull out specific files, because it has forced us to reassess the level of detail our staff are putting on the file notes. As I said, in eight per cent of the cases we need to lift our game in that regard. We have already started training our staff on what is now required, and the high level of expectations. I think that is a positive that has come out of the audit review.

Senator MOORE: I have a lot of questions about the particular issues that the audit raised, but I am aware of the time. Rather than go through this now, can we get a formal response? I would like more details than we have on the public record now about the four recommendations that the audit put up and the way that you have gone through with us now about how you then went back and had that discussion. Where it is possible, I want to ask about were mainstream finance accessibility and, also, low-income earners, which was the particular comment that perhaps the IBA loan record was focused on people at the middle and high levels rather than low-income earners. In your opening statement you began to address the importance of that element. The original expectation of IBA was that this was going to be for people who were on a low income and could not access finance. So, could we get something back from you on that particular statement from the audit. Next, targeting of areas where there is a high need for home ownership assistance. How exactly do you do that? One of the expectations was that the IBA would be focusing on where there was a high need home ownership assistance. I am wanting to know how you define that. Then, when you had the audit recommendation how did you then justify it. If they said that you should be looking at areas of high need, how have justified that to the audit? Also, IBA reporting overstates the number of loans that have led to a new home ownership outcome, and income figures reported do not reflect total customer intake, which is a fairly direct comment.

Mr Fry : I am happy to come back in writing, but if I could address the last one.

Senator MOORE: The last one is probably the one that I think needs more establishment on record. The others were about processes to which you can respond—about definition. But when it actually says that 'Audit found the number of loans approved by IBA has declined during the past three years and IBA reporting overstates the number of loans that led to a new home ownership outcome, and the income figures reported do not reflect total customer intake.' That is a fairly serious understatement to have on record. If you could briefly address that that would be good.

Senator SIEWERT: Which ties in with the comment on focusing on low-income earners, as well.

Senator MOORE: You know what they said, so I am not going to read that into it. What is your response?

Mr Fry : With regard to the question around low income, one of the good things to come out of the ANAO report is that it took us to a position where we had to further segment out the loan portfolio and analyse where the loans were going to. That is a positive thing. We then referenced the Housing Industry Association median house price. They put out a report in December which looked at the level of income required to service a median house price across Australia. The median house price across Australia, according to the report—and I think it is more focused on non-regional areas—is $530,000, and they were saying that you need an average family income of $103,000 per annum. When we then segmented our client base, as to how it matched up against those median figures—and I have some information that I can present to you later, or now if you require—we found that 65 per cent of our loans went to people below that median increase and therefore the balance, being 35 per cent, went to people you could classify as having higher income, above the median. All of those clients were unable to get bank finance. It could be for income, it could be for deposit barriers, it could be for credit history and it could be that they have not been in the job long enough. There are a variety of reasons.

If we look at our lowest income quadrant, if that makes sense, the median annual income of our clients is $75,000. They had a median deposit level on application of 1.6 per cent and they were purchasing a median house price of $330,000. We will follow up with some further questions.

Senator MOORE: I would also like to know, just on notice, the regional distribution of the loans as well. I think that makes a massive difference.

Mr Fry : I can speak to that figure now if you wish.

Senator MOORE: No, I do not, because of the time element. I will put that on notice. I am particularly interested in the audit report that said that ANAO identified 80 instances, or 3.1 per cent, of expended funds that did not directly relate to a new home outcome. That is the one I really want to get some information on. We can talk about the others. I thought that saying that the actual loan itself was not being appropriately focused was one of the more serious statements in the report.

Mr Fry : I have some information here on that, if you wish me to put it on the record.

Senator MOORE: Yes.

Mr Fry : In the financial year 2014-15, 91 per cent of the loans went to first-home buyers and eight per cent of loans went to previous home owners. This might be where we have given someone a first home loan and family circumstances have changed—for example, there might be a family break-up or a relationship break-up, they have gone into renting, they are unable to get finance from the banks and then they come back to us for a loan. It is not technically a first-home loan. Zero point six per cent of loans were refinancing. This is where the client had financial difficulties with the banking sector and were in a real area of need and we were able to assist them.

Senator MOORE: That could be what the ANAO is referring to, which is not, strictly speaking, a new home loans; it is refinancing of a loan.

Mr Fry : There are two other elements: 0.8 per cent were for home improvements, where existing clients of IBA had severe problems with their house not being up to accommodation standard. We do not do home improvements for a swimming pool—

Senator MOORE: Essential renovations.

Mr Fry : Essential renovations.

Senator MOORE: That is all documented, Mr Fry?

Mr Fry : We can provide that to you.

Senator MOORE: We will put these on notice. That would be useful, rather than taking the time here. There were the ANAO recommendations. You have said you accept them and you gave us an indication of the kinds of things you were doing within the agency to respond. I would like a more fulsome explanation to what you have given us in brief of some of those things, just so that the statement that the loans are not being effectively targeted does not stand unchallenged. You can accept, as you have done, that there is work to be done, but you cannot have your professional reputation put out in such a way that there is an inference that you are not doing your job. That would be good.

Mr Fry : The ANAO, from my background—I had many years of auditing before I came to the public sector—did a very good job. They were very thorough, very engaging and respectful. They have a right, and we expect them, to make findings as they see fit. We have accepted all of their recommendations. There is some work to be done from our side, but we look forward to putting those responses in formal records.

Senator MOORE: That is them doing their job, Mr Fry. I have some questions for the Minister arising out of this. Were any of the issues that were canvassed in the ANAO report raised with the government prior to the audit?

Senator Scullion: We, as you would know, have been considering all of these matters, certainly for the time I have been in government. Your direct question was: have they been raised with government? We are always discussing the number of parties but, to my recollection, not specifically. The officers may be able to take that on notice in a moment. Without verballing you, the question is: has anyone specifically written to me or brought up with me the fact that they have not got a loan or brought up some other problem with it? No, not to my recollection. There has always been a general clutter around this issue. I welcome the report; I think it is a really important report. I intend to meet with both IBA and ILC to discuss with the whole board a number of issues. This is a very important issue for me. I think there is an opportunity to reset a few things.

Senator MOORE: Yes.

Senator SCULLION: One of the issues not mentioned in the report and cannot be nuanced in the report is the importance of deposits. We are very lucky to have someone like Senator Peris here, with her background and experience. It does not matter how much you earn, invariably, as an Aboriginal person, it is far more difficult to get a deposit because, generally speaking, your family is a much wider family than in non-Indigenous cultures, so that actually getting a deposit, no matter how much you earn, is really difficult. In mainstream, it is a function of how much you earn, how long you save and those sorts of things, but because of the different aspects of culture, there is a requirement. Very often it is very difficult to say, 'I am going to save $60,000 or $80,000' because there are issues that come up with extended members of your family who need assistance. This is an extremely important point. I think the fact that so many of the people who we want to move from poverty are on welfare means that we need to look very carefully at how someone on welfare could purchase a house. There has already been a lot of work done in the past, so we are not reinventing the wheel. Mossman's Family Income Management system allowed a number of people living in a house, it might be a family with two children, on welfare payments—now CDP payments in that context—who might normally find getting a deposit difficult could get a deposit with the assistance of Centrepay because if you have sign up for that the repayments get taken out first. I think there are a number of possibilities. We have been doing this for long enough that we have an opportunity to come back and revisit some things. It is a matter for IBA and I intend to speak to IBA about these matters to seek an exchange of views to see if we need to commission some work. We have done a lot of things in the past, and I think that is an important element of the spectrum of opportunities to basically revamp. When this was started, there was a great deal of work done and it has done a fantastic job of allowing Aboriginal and islander people to have some equity in their own lives where they may otherwise not have, as you indicated. But, again, no doubt there will be clutters of bits and pieces around this program. People have written to me and said, 'I haven't got a loan and I should have', or something like that. If you have evidence contrary to what I have just said, I apologise. We have a lot of clutter, but I am not sure if that is what your question was about.

Senator MOORE: Clutter is part of the job, Minister. In terms of the process, I particularly want to know whether you have had the chance to speak with IBA about the audit since it came down. I allow for the fact that it was late last year, but I am wondering whether you have had the chance to speak with IBA about it?

Senator Scullion: I have not met with IBA. I met with the chair of IBA and, amongst a whole range of issues, I asked about how it is all going with the ANAO. We had a discussion about those matters, as we would in the normal course of events.

Senator MOORE: Are you planning a follow-up meeting? You seemed to indicate that you would.

Senator Scullion: I am meeting with the ILC, I think, next week. In a couple of weeks I intend to schedule a meeting with IBA. That is my intention.

Senator MOORE: Are you considering or was there any discussion around a review of the whole program?

Senator Scullion: No, not so much a review of the whole program, but no doubt I will be able to—

Senator MOORE: It is under constant review, I would imagine?

Senator Scullion: You have heard that they are looking at it now and reviewing it, so I would like to get a bit of a heads-up on the scope of what they are doing. I intend to get that update in the next little while.

Senator MOORE: In the audit report, and IBA has also discussed it, it says that a change in business model might be required. Is there any work currently being done to address that kind of issue? Is that the kind of committee work you talked about, Mr Fry, where you are reviewing what is going on and looking at what is happening?

Mr Fry : I suppose your earlier comment is the salient one; we are always reviewing different models. In the home loan program I can speak to the fact that we have been engaging, at serious levels, with a number of the banks to see whether there is a different intersection of what we do and what they do. Those discussions have been going on for the best part of two years. We are into about the third or fourth iteration of different models there.

In terms of the service delivery model, we have done some pilots and have identified some better efficiencies through the ANAO review. We were able to discuss with them some of their thoughts and we have put more people into our remote area, that home loan area. But we have also created a new marketing position where, for the first time, an IBA senior staff person goes out and engages with the employers of Aboriginal and Torres Strait Islander people. His responsibility is to speak to the likes of the police force, the army, the Defence Force and the major corporates, and to talk to the actual employees at their workplace. That has been very successful. In the last lot of data that I looked at, I recall that 25 per cent of our enquiries were driven by the particular activity of that person.

We are always reviewing our model, because the market is changing and the expectations of our clients are changing so we just have to keep changing.

Senator MOORE: Okay. I only have two more questions about some of the comments around the funding process in this area. The corporate plan—which I have read—notes that an additional 65,000 Aboriginal and Torres Strait Islander homeowners are required to close the gap under the Close the Gap process, with a rapidly-increasing population. The Forrest review actually made a number of recommendations around IBA as well. I just have two questions about that. The Forrest review suggested that the IBA has:

… an insufficient capital base to match its ability to increase wealth and reduce welfare dependency for a large number of first Australians through lending.

Is that a statement with which IBA or the minister agrees? The capital base—the Forrest review's suggestion that the IBA's capital base is insufficient?

Senator Scullion: I would have to ask Mr Fry, because I would not really have a clue.

Senator MOORE: That should be raised in that meeting, Minister.

Mr Fry : There were two important points I believe you touched on there. The first one is the gap.

Senator MOORE: Yes.

Mr Fry : As of the 2011 census data, for non-Indigenous people housing rates sit somewhere between 70 and 72 per cent. The Indigenous experience, being Aboriginal or Torres Strait Islander, is closer to 36 to 37 per cent. So the gap is real.

But the gap is closing. Back when the home loan program started, the Indigenous participation rate was closer to 22 per cent, so progress is being made. However, we have done an analysis for the demographic change that you spoke of which indicates that in the next 10 years there will be a much higher proportion of younger Aboriginal and Torres Strait Islander people coming through into the homebuyer-market-phase of life, greater than the proportion of the rest of Australia. The challenge is not only what we do now and into the next 10 years in terms of our existing capital to keep closing the gap but to recognise the population demographics. To be honest, that is why we are continuing to look at how we can access new capital outside traditional norms, to be able to make an increased contribution.

Senator MOORE: You are aware of the capital issue?

Mr Fry : IBA has always been aware of it.

Senator MOORE: The flat statement that you have an insufficient capital base is something that you may or may not agree with, but you think there needs to be some work done to increase capital?

Mr Fry : If the Forrest review is saying, 'Does IBA need more capital to close the gap from 36, 37 per cent to 70 per cent?' we would say yes. My personal view, either side of government, is that we recognise that capital in the budgetary sense is always tight, and that the challenge is how to get access to that and make the best use of it. We are all, collectively—everyone in this room—working hard to close the gap on homeownership. The goal is there. It is a question of how we do that most effectively.

Senator MOORE: My final question about the Forrest review in this area is the suggestion that IBA could accept private capital to sell off housing loans as they become marketable. Has IBA done any work in investigating that as an option?

Mr Fry : Yes. It is part of the discussion that we have had with a range of the major banks in the last 18 months to two years. It is a very complex area. The reason it is complex is that our home loan portfolio characteristics are significantly different from the banks, and we have been engaging with the banks at the very highest level on this. There is a sense of goodwill to try to understand what both parties can do. By way of reference to three characteristics, our average loan value ratio at approval is 97 per cent. For the banking sector, it is closer to 60 per cent.

Senator MOORE: Is that across the board—the 60 per cent?

Mr Fry : Yes.

Senator MOORE: You are not talking about Indigenous clients.

Mr Fry : No. It is across the board.

Senator MOORE: In the interests of time—and I can feel the tension around the desks—would you be able to give us some information about the work you have done on this particular issue? This concept of sell-off has created some interest in the community. If you could, on notice, give us some more information about that. That would be very useful.

Mr Fry : Happily, Senator.

Senator MOORE: We are particularly interested about the effect of such an action on the client base, and how the secondary mortgage market would operate—I am sure Mr Clements and the team have looked at that—so if we could get that on notice that would be very useful. Minister, I would not be doing my job if I did not ask you to guarantee the future of the homeownership program. Are you able to do that?

Senator Scullion: First of all, that is a matter for IBA. They are an independent body. I have been on the record for a very long time: there is no intention from, I think, any government to get rid of it but, from time to time, we do need to make sure that it is reaching the base and targets the clients that we wish it to. As I said, we are working assiduously towards that goal. Whilst you have asked the question on notice about the sale of the book, if you like, or those sellable parts of the book, I think that has to be in the spectrum, because, if we are going to ensure that we increase that capital base, that has to be a part of the process. Those are all options that we should look at and look at properly. I suspect the answer that you will get now will not be as fulsome as an answer, perhaps, you will have at the next set of estimates, because that will give us sufficient time to have this conversation. I am very interested in the answers to those same questions.

Senator MOORE: So you have not had a conversation before around those recommendations from the Forrest report?

Senator Scullion: Not directly with IBA. Of course, we have talked about it in the office and in the department, but I have yet to have a meeting with the IBA to discuss that.

CHAIR: We are under some time pressure. We have spent 40 minutes on this now. Senator Peris.

Senator PERIS: I just want to go back to the Forrest review. Where are you currently at with the discussions? Has anything happened?

Mr Fry : We have had a range of discussions over the last 18 months, since the report came out. In fact, before the report was handed down, we were in these discussions. One of the elements, of which we will come back on and which we have scoped, is the current level of capital markets and working through the differentiation between the characteristics of our loan portfolio, how it aligns to the risk of capital markets when you go to securitisation and other capital markets. It means it is looking really challenging, so we are trying to assess new ways to get capital to try to get an outcome. It would be imprudent and misleading of me to suggest that we will have the answer within four weeks, for example. This is a very complex area. It will take some time.

Senator PERIS: Are the terms of agreement contract conditions for a home loan something that you would be pushing as the discussions go further? And, in terms of the conditions, do you want these new private capital institutions to take over what you currently have?

Mr Fry : There are two steps. The first step is that we need to identify if it is possible. When we have done that, we then need to identify if it is optimal. We are still not through the first stage, so conceptually we have an open mind, but we need really rigorous due diligence to determine, whatever the options, the best way forward.

CHAIR: Mr Fry, may I thank you and your officers for your attendance this morning. We will now go to the Office of the Registrar of Indigenous Corporations.