ETHNIC minority-led enterprises had lower success rates than their white counterparts despite their significant economic contribution, a recent study found.
The report called for strong engagement between business leaders, the government and people from ethnic minority backgrounds to boost diversity in business.
According to the London Chamber of Commerce and Industry’s (LCCI) Ethnic diversity in business: Removing barriers impeding business success report, even by conservative estimates, the economic contribution of ethnically diverse businesses to the UK’s Gross Value Added is about £25 billion, and other data suggests this could be as high as £74 billion.
In 2020, ethnic minority-led firms, which were mostly concentrated in London, made up five per cent of small and medium sized enterprises (SME) employers and four per cent of SMEs without employees.
The research states that in order to raise persons from racial and ethnic minorities’ chances of succeeding in business, it is critical to improve their socio-economic characteristics, especially their education (and training) and employment outcomes.
“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 community.”
“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 four times more likely than white firms to be denied a loan outright,” it said.
People from ethnic minorities were more likely to be denied loans than their white peers, according to the survey.
The LCCI emphasised that firms run by persons from ethnic minorities are primarily found in low-paying industries including food, personal care, and communications.
The research also said that minority-group members have poorer outcomes in the areas of education, employment, income, and property ownership, notably for or 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 $13.2 billion (£10.85 billion) invested in start-ups, less than two per cent of that investment went to all-minority ethnic founding teams.
The study claimed that compared to white British citizens, ethnic minorities have considerably lower levels of savings or assets. Indian families possess 90–95p for each pound of wealth held by white households, Pakistani households around 50p, Black Caribbeans about 20p, and Black Africans and Bangladeshis about 10p.
According to research by the think tank Resolution Foundation, salaries for black male graduates were 17 per cent lower than those for white graduates, which translates to a wage difference of £3.90 per hour or £7,000 per year.
The majority of black households had weekly incomes of less than £400 between 2015 and 2018, compared to all other ethnic groups.
The majority of households with an income of £1000 or more per week were Indian origin.
The London Chamber urged the government to ensure that the state scholarship that has been offered is inclusive and well-known among ethnic minorities so that they can benefit from it as much as possible in the aftermath of the report.
The other recommendations include expanding employment opportunities for ethnic minorities, putting policies and initiatives in place to support small businesses in London’s predominantly ethnic minority-led industries, giving education and support to help minorities access opportunities in high-growth industries, and addressing obstacles that owners of ethnically diverse businesses face in accessing banking services by monitoring the situation and taking appropriate action.
The business organisation has also suggested the creation of a Strategic Growth Fund to address the financial challenges encountered by entrepreneurs from ethnic minorities.
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