Why don’t more people from ethnic minority backgrounds start businesses?

Why don’t more people from ethnic minority backgrounds start businesses?

May 27, 2014 by Mark Williams

Why don’t more people from ethnic minority backgrounds start businesses?/ Young African BusinessmanThe recent publication of A Portrait of Modern Britain had some commentators questioning the motivation of its publishers – right-wing think tank Policy Exchange, which was founded by current Tory ministers Michael Gove, Nick Boles and Francis Maude.

Policy Exchange called for all political parties to better understand and recognise the “clear and striking differences” between ethnic minorities and stop “lumping them together” or risk appealing to none.

One of the study’s headline claims was that the five largest “distinct Black and Minority Ethnic (BME) communities” (ie Indians, Pakistanis, Bangladeshis, Black Africans and Black Caribbeans) will double in size from 14% of the UK population (eight million people) to 20-30% by 2050.

Low start-up rate

According to A Portrait of Modern Britain: “Ethnic minority businesses [ie where at least half the management team is from an ethnic minority group – about 7% of UK SMEs] are already highly successful and contribute £25bn to the UK economy. There are higher aspirations to start-up amongst ethnic minority groups, especially Black African (35%) and Black Caribbean (18%) groups (compared with 10% for White British), but ‘conversion’ remains very low.”

So what do we know about UK BME businesses? According to Black Women Mean Business

  • 8% of SMEs that employ staff are owned/led by people from a BME background.
  • London accounts for 46% of all BME-led small businesses.
  • Retail is the sector in which most (35%) BME-led businesses operate.
  • BME businesses tend to be younger; 3% of BME-led SMEs are less than a year old (compared to 1% of all SMEs); just 24% of BME-led SMEs are more than 20 years old (compared to 40% of all SMEs).
  • BME businesses are likely to have a lower turnover than other SMEs.
  • More than half (58%) of BME SME employers are family-led businesses (compared to 62% of all SMEs).

Access to finance

So, why is the UK BME start-up rate so low? Last year, The Ethnic Minority Businesses and Access to Finance report, which was commissioned by Deputy Prime Minister Nick Clegg, concluded that “although the banking industry was working hard to ensure ethnic minority businesses have access to finance, there is more to be done to help under-represented groups”.

Clegg said that while there was no evidence that the challenges ethnic minority businesses face are due to racial discrimination, they still encounter problems accessing loans. “We know that 35% of individuals from Black African origin say they want to start a business, but only 6% actually do. Are they having problems accessing loans?” questioned Clegg. His friend, the Prime Minister, certainly seems to think so. Or at least he did in 2010 when he said black entrepreneurs were “four-times more likely to be denied a bank loan than white entrepreneurs”.

Unfair treatment

Race equality think tank Runnymede Trust welcomed the government’s review of access to finance for BME entrepreneurs and the UK banks agreeing to fund independent research into the experiences of BME businesses when seeking finance.

Dr Omar Khan, Runnymede Trust Head of Policy Research, commented: “Black and Asian businesses have long felt that they’re not treated fairly by lenders. We hope that government also engages in further initiatives to better understand why racial inequalities persist, not only to improve the lives of ethnic minorities, but also to grow the UK economy.”

Writing for The Voice in October last year, in an article called Want To Beat Racism? Start A Business, journalist Nels Abbey pondered possible reasons why more black people in the UK aren’t starting up. “In each of the home countries that black Britain’s lineage comes from, entrepreneurship is the norm,” he observed. “[Yet] for some strange reason, when black people arrive on these shores we seem to lose that entrepreneurial zeal and ingenuity. Not all of us. Just most of us.”

Black power

He puts this down to (perhaps) “a lack of confidence in our abilities in the face of more established business people”, as well as “actual and perceived racism maybe” and the “legacy of colonial structures”. Other possible reasons were “lack of resources, red tape, comfort, laziness even. Or maybe just a desire not to challenge the social order”.

Abbey concluded: “A single successful black business is worth more than any number of anti-racism demonstrations. A successful and respected business is a symbol of power and self-determination. You have to respect it, regardless of who runs it. Everyone loves a winner, no matter their colour.”

Blog written by Mark Williams, editor of the Start Up Donut.

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