THE success rates of ethnic minority led businesses are lower compared to those of their white counterparts despite their enormous contribution to the economy, a new report has revealed.
The report called for strong engagement between business leaders, the government and people from ethnic minority backgrounds to boost diversity in business.
The Ethnic diversity in business: Removing barriers impeding business success report by the London Chamber of Commerce and Industry (LCCI) stated that the economic contribution of ethnically diverse businesses is about £25 billion to the UK’s Gross Value Added, even by conservative estimates, and other figures suggest this could be as high as £74bn.
Concentrated mainly in London, ethnic minority-led businesses constituted 5 per cent of small and medium sized enterprises (SME) employers and 4 per cent of SMEs with no employees in 2020.
According to the report, it is important to improve the socio-economic attributes
particularly education (and training) as well employment outcomes of people from ethnic minority backgrounds in order to increase their chances at success in business.
“Minority-led businesses report difficulties with accessing funding to grow their businesses. Black people are also more likely to report negative experiences
with banks and people from Asian backgrounds are likely to report difficulties with attracting funding outside of their communities,” the report pointed out.
“Work needs to be done both in engaging with minority led business owners, in examining and addressing issues with receiving funding from banks and through venture capital as well as boosting representation within the venture capital
The report noted higher proportion of rejection for loans of people from ethnic minority backgrounds compared to white counterparts.
“Pakistani firms are 1.5 times more likely, Bangladeshi firms are 2.5 times likely, black Caribbean firms are 3.5 times likely and black African firms are 4 times more likely than white firms to be denied a loan outright,” it said.
The LCCI highlighted that businesses led by people from ethnic minority
backgrounds are concentrated in sectors which are often low paying such
as food, personal care and communications.
The report further said that education, employment, income and home ownership outcomes for people from minority background show a disadvantage for entrepreneurs, particularly for black and other Asian people, leading to worse entrepreneurial outcomes.
Although 2019 was pointed to as a ‘record year’ for UK venture capital, with over $13.2bn invested in start-ups, less than two per cent of that investment went to all-minority ethnic founding teams.
The LCCI report said, “Poor education and employment outcomes as well less success in business are features typically associated with black people. They are also less likely to receive venture capital and more likely to report problems accessing finance from banks.
“People of Indian origin on the other hand, record strong performance in education and employment and show stronger success in business. However, it appears that they struggle to access venture capital funding outside of their
community. For some other Asian ethnic sub-groups, there is even lower performance on almost all noted metrics.”
The report said that ethnic minorities have relatively lower levels of savings or assets than white British people. For every £1 of wealth held by white households, Indian households have 90–95p, Pakistani households have about 50p, Black Caribbeans around 20p, and Black African and Bangladeshi approximately 10p.
Research by the Resolution Foundation think tank found that black male graduates were being paid 17 per cent less than white male graduates – the equivalent of £3.90 an hour or £7,000 over a year.
Between 2015-2018, black households were most likely out of all ethnic groups to have a weekly income of less than £400. Indian households were however most likely to have a weekly income of £1000 or more.
A breakdown of a survey by income and ethnicity of entrepreneurs revealed that 23 per cent of black Caribbean and 22 per cent of Asian and other ethnic minority background business are from households with an annual income of below £20,000. For white and black African entrepreneurs this was 17-19 per cent.
At the high-income end of £75,000, this was 16 per cent of black Caribbean and 17 per cent of other Asian and other ethnic minority entrepreneurs. For white and black African entrepreneurs this was 18-20 per cent.
Meanwhile, Indian entrepreneurs were distinct as an ethnic minority with only 8 per cent of household incomes below £20,000 and 22 per cent above £75,000.
The LCCI report stated that financial outcomes of minority-led businesses were worse compared to white counterparts as 38 per cent of Asian and other ethnic owners and 28 per cent of black business owners reported no profit compared to 16 per cent of white entrepreneurs.
In the wake of the report, the London Chamber has urged the government to make sure that the promised state scholarship is inclusive and well-known among ethnic minorities, helping them make the most of it.
The other recommendations include increasing employment opportunities for ethnic minorities; implementing policies and initiatives to support small businesses in sectors mainly led by ethnic minorities in London; providing education and support to help ethnic minorities access opportunities in high-growth industries and addressing challenges faced by ethnically diverse business owners in accessing banking services through monitoring and appropriate actions.
The business body has also urged to establish a Strategic Growth Fund targeting funding issues faced by ethnic minority founders.
It also demanded to ensure effective career guidance and proactive measures to inform ethnic minorities about skills training programmes and to create a dedicated government taskforce to promote the inclusion of ethnic minority-led businesses.