session 8 ethnic minority finance

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  • 7/28/2019 Session 8 Ethnic Minority Finance



    FINANCEEthnic Minority Entrepreneurship andFinancing Ethnic Minority Businesses

    Dr. Yong Wang

  • 7/28/2019 Session 8 Ethnic Minority Finance



    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


  • 7/28/2019 Session 8 Ethnic Minority Finance


    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



    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








    White Black Indian P/Bs Chinese





  • 7/28/2019 Session 8 Ethnic Minority Finance



    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

    -Ram and Barrett (2006)

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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.

    -Ram and Barrett (2006)

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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


    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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    Interesting question: Is the discrimination faced by ethnic

    minority the predominant motivating factor in business


    Ethnic minoritiesmotivations change across different


    1st generation--negative motives

    2nd generation-positive motives

    3rd generation-do not see themselves as ethnic minorities

  • 7/28/2019 Session 8 Ethnic Minority Finance



    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.

    - Deakins and Freel (2006)

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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

    - Deakins and Freel (2006)

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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

    - Deakins and Freel (2006)

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    EMBs tend to concentrate on particular locations: Inner city

    areas in the UK


    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:


    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


    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)


    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?

    -Ram and Barrett (2006)

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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

    -Ram and Barrett (2006)

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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


    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

  • 7/28/2019 Session 8 Ethnic Minority Finance


    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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    Supporting Ethnic Minority Businesses

    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

    -Ram and Smallbone (2003)

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    Supporting InitiativesA Typology

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

    Coventry Clothing Centre

    RUSICA Programme of Coventry Asian Business


    Finance ini t iat ives targeted at EMBs

    Muslim Loans Fund. East London Small Business

    Centre Enterprise Loan Fund. Business Link West

    -Ram and Smallbone (2003)

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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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    Supporting InitiativesA Typology

    Strategic ini t iat ives

    Ethnic Minority Business Database, Enterprise Link,


    North London Cultural Diversity Forum

    Synergy Project, Business Link London North

    Knowledge Centre for Black and Minority Ethnic

    Business (Business Link, London)

    -Ram and Smallbone (2003)

  • 7/28/2019 Session 8 Ethnic Minority Finance


    Supporting Ethnic Minority Businesses

    Geographically each main location has a different

    pattern of mainstream and specialised agency


    Examples: London




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    Local area support programmes


    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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    Local area support programmes

    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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    Local area support programmes

    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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    Local area support programmes

    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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    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.


  • 7/28/2019 Session 8 Ethnic Minority Finance


    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.


    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?