Session 8 Ethnic Minority Finance

7/28/2019 Session 8 Ethnic Minority Finance

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ENTREPRENEURIAL

FINANCEEthnic Minority Entrepreneurship andFinancing Ethnic Minority Businesses

Dr. Yong Wang


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Objectives

To explore the nature of ethnic minority entrepreneurship

To examine the situation ethnic minority entrepreneurs

face in securing debt/equity finance

To outline the enterprise support offered by the

government


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Ethnic minority businesses

Significant growth in SME activity and self-employment

within this group over last two decades (Kloosterman

and Rath, 2003; Ram and Jones, 1998)

Often embedded in local communities

Perhaps linked to low wage low skill levels of activity

Perhaps pushed into this activity (self employment)

because of the decline in traditional industrial jobs

through de-industrialisation


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Entrepreneurship and Minority Issues

There are similar issues in minority areas ofentrepreneurship including: Female entrepreneurship Ethnic minority entrepreneurship Social entrepreneurship

Issues in minority entrepreneurship include: Participation rates Motivation Networks

Diversification Integration into the mainstream Location Access to finance


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Participation Rates

Ethnic minority participation rates are variable acrossdifferent ethnic minority groups

In the UK, there are 5 important ethnic groups: Indians

Pakistanis Bangladeshis

Chinese

African-Caribbeans

Self-employment rates vary from 7% up to 30%: with SouthAsians up to 5 times those of Whites

- Deakins and Freel (2006)


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Participation Rates

0

5

10

15

20

25

30

White Black Indian P/Bs Chinese

%

all

men

women


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Questions

Why some people within a community appear to be more

successful in running businesses than others?

Why some ethnic groups appear to have a higher level of

entrepreneurial activity?


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Participation Rates

Self-employment rate is higher amongst Indian/Pakistani andChinese groups, but relatively low amongst African/Caribbean's group.

Self-employment rates are likely to vary between the first andsecond generations of a particular ethnic group.

- Storey and Greene (2010)

Reasons for the differences in self-employment rate:

Cultural differences

Discriminatory barriers and the nature of the entrepreneurialopportunities captured by ethnic entrepreneurs

- Jones and Ram(2007)


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Participation Rates

Why are African/Caribbeans under-represented in theentrepreneurship?

Low level of family resources

Lower levels of social capital

Differences in communal networks (Absence of these inACs?)

The value base of the AC family unit may not be pre-

disposed to running a family business The legacy of slavery has impacted upon AC culture

-Ram and Barrett (2006)


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Participation Rates

High levels of unemployment in the AC group can shiftthem into low-skill, highly competitive areas No-choicebusinesses

Negative stereotyping of AC in the UK Less preferential

treatment by banks, racist customer behaviour Greater dispersal of the AC group compared with theAsian groups may limit market potential

Low level of home ownership, reducing collateral



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Participation Rates

Will the gap between AC and Asian levels of

entrepreneurship be closed?

Perhaps happening already. Why?

Squeeze on traditional shops by the supermarkets. Increase in the number of Asian young people who want

professional careers

Perhaps also an indication that Asian businesses are

moving up the value chain.



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Participation Rates

Will the ethnic groups with higher rates of self-employment be more

likely to have fast-growth businesses?

Successful entrepreneurs regarded as role models in the

community

Particular ethnic communities may have denser cultural

connections enabling business growth

About 25% of high-tech firms in Silicon Valley have their CEOs

originally from either India or China (Saxenian, 2000)

-Storey and Greene (2010); Jones and Ram (2007)


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Motivation

Interesting question: Is the discrimination faced by ethnic

minority the predominant motivating factor in business

ownership?

Ethnic minoritiesmotivations change across different

generations:

1st generation--negative motives

2nd generation-positive motives

3rd generation-do not see themselves as ethnic minorities


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Networks

South Asian ethnic minorities --networks are welldeveloped e.g. Asian Business Forums.

African-Caribbeans--networks are under-developed,

although parts of London and Birmingham have BlackBusiness Forums

Chinese: strong close knit community--difficult to break

into community networks.



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Diversification and Sector

Ethnic minority businesses (EMBs) concentrate on traditionalsectors

Retailing (South Asian) Wholesaling (South Asian)

Clothing manufacturing (South Asian) Restaurants (Chinese/South Asian) Construction (African/Caribbeans)

Face declining demand due to increased competition

New markets are difficult to break into for EMBs due tohostility

Result: requires a specific coping strategy



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Integration into the Mainstream

Ethnic enclaves limit opportunities

-1. Resources: dependent on ethnic labour

-2. Markets: limited in size and scope

-3. Inward-looking Lack resources and channels to integrate into mainstream

bodies; e.g. support, finance, business associations etc.

Formal Institutions seen to be dominated by white,

middle-class and institutionally racists



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Location

EMBs tend to concentrate on particular locations: Inner city

areas in the UK

Problems:

Poor conditions such as physical dilapidation, inadequate

parking, and vandalism.. (p.154)

EMBs have to battle against such barriers as poor access to

credit facilities, an impoverished customer base, out-dated

run-down premises and, because they are often operating ininsecure crime-ridden environments, expensive insurance

cover (p.154)

- Ram and Smallbone (2003)


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Access to Finance

EMB owners rely more heavily than otherbusinesses on personal sources and friends or

family for finance.

Formal external sources:

Banks

Venture capital

Alternative grants/loans


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Discrimination against Ethnic Minority

Businesses (US case)

Denied credit % Denied creditthat owned ownhome %

Denied credit notowning ownhome %

All 28 24 59

White 24 21 53

African-American

62 58 100

Hispanic 50 35 87

Asian 52 48 65

- Cavalluzzo and Wolken (2005)


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Evidence of Ethnic Discrimination in the Credit Market

UK: EMBs were more likely to be rejected by bank managers than

white-owned counterparts.

EMBs had lower overdraft limits than white-owned businesses.

-Fraser (2005)

Higher rates of bank rejection amongst EMBs

-Smallbone (2003)

US:

Black-owned small businesses are about twice as likely to be

denied access to credit

-Blanchflower et al. (2003)


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Access to Finance

Formal external sources: Banks

Venture capital

Alternative grants/loans

Traditionally low take-up rates of such sources, which

are perceived by EMB owners as being white-

dominated and therefore problematical.


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Access to Finance

Some banks working on the relationships with EMBs;yet practices vary between different banks andbetween different bank managers.

VC companies are dominated by men and whitemiddle class.

Asian business angels--extent is not known.

EMBs have low participation in alternative schemessuch as the Small Firms Loan Guarantee Scheme.Other sources seen as not relevant.


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Access to Finance

Under-funding remains a major problem for the ethnic

minority business - this threatens growth and survival.

Research has focused on the relationship between ethnic

small firms and banks. Herewith we need to disaggregate

non-white businesses into separate parts

For Greek and Indian businesses obtaining bank financedoes not appear to be a problem. Why?



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Access to Finance

Differences cross different EMBs:

Chinese-owned businesses show a significantly better situation in

accessing start-up finance from banks than white owned firms

African and Caribbean owned businesses are below the level of

white-owned firms in accessing bank finance.

-Ram and Smallbone (2003)

Bangladeshis have negative experiences of their attempts to getbank loans. This may be due to institutionalised racism, or theirown poor track records or poor business plans



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Ethnic minority Finance

Possible Solutions: (African/Carribeans businesses)

Has been addressed through Black-led enterprise support agencies

who have improved the business plans and offered financial

assistance.

Training of staff in financial institutions to appreciate the dynamics of

ethnic-minority firms

Employing qualified ethnic-minority staff in organisations with more

influential capacity Extensive networking with black-led support agencies


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Supporting Ethnic Minority Businesses

1. Mainstream agencies have adopted more inclusive

policies e.g., Business Links and Scottish Enterprise

network now have targets to reach and support EMBs.

2. Establishment of small specialised agencies who have

focused on the needs of EMB owners:

specialised agencies, however, have limited resources

and limited programmes---focus on moving EMBs into

the mainstream support programmes.


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The agencies at present do not reach out to ethnicbusinesses

They dont cater for the needs of ethnic businesses.

Are the needs of ethnic businesses the same as otherbusinesses

Size might also be factor. Many are extremely smalland this deprives them of finance and they may falloutside of the main catchments of the policies

Locational factors may inhibit the raising of finance

Reluctance of owners to utilise external assistance.


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Supporting InitiativesA Typology

Special ist agencies/pro grammes target ing at EMB

cl ients

Black Business in Birmingham

Bolton and Bury Enterprise Centre

Enterprise 2000 Project of CEED (Bristol)

Mainst ream prov is ion focus ing o n EMB dim ension

Business Mentoring Programme of the Portobello Business Centre(London)

'New Business' Support Programme of Business Link Manchester Women s Enterprise Network. Business Link West (Bristol)

Women into Business. Walsall Ethnic Minority Business Service



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Secto r ini t iat ives with an expl ic i t EMB element

Coventry Clothing Centre

RUSICA Programme of Coventry Asian Business

Association

Finance ini t iat ives targeted at EMBs

Muslim Loans Fund. East London Small Business

Centre Enterprise Loan Fund. Business Link West



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Muslim Loan Fund: A Special Case

Until recently, for some ethnic groups such as Muslims

found it very difficult to get external finance. Muslims are

unable to access interest bearing funds. In the UK this

has been addressed through the establishment of theMuslim Loan Fund in 2001.


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Strategic ini t iat ives

Ethnic Minority Business Database, Enterprise Link,

Birmingham

North London Cultural Diversity Forum

Synergy Project, Business Link London North

Knowledge Centre for Black and Minority Ethnic

Business (Business Link, London)



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Geographically each main location has a different

pattern of mainstream and specialised agency

support:

Examples: London

Birmingham

Leicester

Glasgow


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Local area support programmes

London:

a mixture of mainstream --Business Links and well established

specialised agencies

local development agencies focus on social and economic

development as well as business support special co-operative development agencies e.g., Greenwich CDA

active EM business associations

strong local Chambers of Commerce often with a high proportion

of members who are EMBs.

Majority of business population in some areas of London are

EMBs, i.e., they are the mainstream businesses.


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Birmingham: also a mixture of mainstream (Business Links) and well

established specialised agencies

local authority intervention, especially Birmingham City

Council. network of specialised support

supported through alternative funding e.g., Arrow Fund.

strong Asian Business Forums.

some 20% of business population are EMBs.


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Leicester: provision of support less well established

no strong specialised agencies

local authority intervention less well established

East Midlands Regional Development Agency recently established

and still developing policies.

EM business associations established; e.g., Leicester Asian

Business Association

Result: less co-ordinated support than London/Birmingham.


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Glasgow: Specialised support only recently established

Ethnic Minority Business Development programme(Glasgow City Council)

New programme introduced at end of 1999.

EMBs in Glasgow not catered for by mainstreamagencies.

Late development, however, has permitted integration

of specialised support with mainstream developmentagencies.


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Conclusions

EMBs and other minority groups are characterised bydiversity and plurality--high growth businesses acrossdifferent sectors.

Evidence of discrimination is difficult to prove but cultural

differences imply that some groups find it difficult toaccess finance; especially African-Caribbeans. SouthAsians have been more successful.

Diversification and break-out are still important issues.

Main cities: London, Birmingham, Leicester and Glasgow--pioneers of support for EMBs but can still be seen to beundeveloped.

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Homework Reading Material:

Chapter 11: Carter, S. and Jones-Evans, D. (2006) Enterprise and Small Business: Principles,

Practice and Policy. 2nd ed., Harlow: Financial Times Prentice Hall.

Jones, T. and Ram M. (2007) Re-embedding the ethnic business agenda, Work Employment andSociety, 21(3), pp.439-457.

Ram M. and Smallbone D. (2003) Policies to support ethnic minority enterprise: the English

experience, Entrepreneurship and Regional Development, vol. 15, pp.151-166.

Storey, D.J. and Greene, F.J. (2010) Small Business and Entrepreneurship, FT Prentice Hall.

Question:

Q1: What factors account for the different levels of self-employment among ethnic minorities?

Q2: Review the potential discrimination ethnic minority entrepreneurs may come across. How might

discrimination be rectified?

Session 8 Ethnic Minority Finance

Documents

Transcript of Session 8 Ethnic Minority Finance