session 8 ethnic minority finance
TRANSCRIPT
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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
-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
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.
- 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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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?
-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
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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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
Association
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,
Birmingham
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)
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Supporting Ethnic Minority Businesses
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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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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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?