Untapped potential: why we need to better support ethnic minority businesses

Is enough being done to tackle the systemic barriers facing ethnic minority businesses? The panellists at our recent event on entrepreneurship and diversity in the UK certainly don’t think so.

In 2018, according to a study conducted by the Federation of Small Businesses (FSB), there were over 250,000 ethnic minority-led businesses (EMBs) in the UK contributing a total of £25 billion to the British economy. However, despite the importance of ethnic minority businesses to the UK, there are still significant barriers to entrepreneurship facing some ethnic minority groups – which have only been exacerbated by the COVID-19 pandemic.

At a recent SMF panel event Richard Hyde, Social Market Foundation (SMF) senior researcher and author of the new SMF report ‘Unlocking the potential of ethnic minority businesses: Tackling the barriers to success’, told the audience that these barriers often prevent many ethnic minority-led businesses from reaching their full commercial potential and contributing even more (than they do currently) to the UK’s economic future. Only 49% of Black entrepreneurs and 53% of Asian and Other Ethnic Minority entrepreneurs meet their non-financial aims in comparison to the nearly 70% of White entrepreneurs that do. Access to finance, deprivation, and education are just a few of the reasons cited for these disparities.

Hyde went on to suggest that despite the supposed broad recognition of said barriers, creating effective policy to address them is arguably hindered by the lack of comprehensive data surrounding EMBs. He stated that “for a long time there has been a lack of systemic data collection that’s granular enough to properly understand all the nuances going on throughout this issue”.

At the same event the Shadow Minister for Business and Consumers, Seem Malhotra MP, agreed with Hyde emphasising the importance of collecting better data on small and ethnic minority businesses. She argued that because the data on EMBs is neither “complete” nor “robust” that any policy developed to support them will be biased towards the areas in where data can be collected. The MP stated that “better” data is fundamental to good policy and that good policy is itself fundamental to a UK growth agenda that will deliver in terms of changing structural inequalities for those from minority backgrounds.

However, despite this apparent data gap, some financial institutions, such as the British Business Bank, have already begun to take practical steps towards supporting ethnic minority entrepreneurs. For example, as part of its new ESG (environmental, social, governance) mission, which includes a focus on diversity inclusion, the Bank recently released a report titled  ‘Alone together: Entrepreneurship and diversity in the UK’ which explored the effects of ethnicity, gender, and place on entrepreneurial opportunities and outcomes.

Furthermore, at the SMF panel event Victoria Jonson, the British Business Bank’s Director of Public Affairs described the Bank’s start-up loans programme which has given out over 75,000 loans (ranging from £500-25,000) to small businesses since its inception in 2012. Jonson highlighted how the Bank intentionally over-indexes in terms of loans. Over 20% of the loans that they award go to EMBs despite the fact that only 5% of businesses started in the UK are done so by entrepreneurs from ethnic minority backgrounds.

Although better recognition of the current and potential economic contributions of EMBs is undoubtedly vital to better support them in the future, during the panel event Professor Monder Ram of Aston University’s Centre for Research in Ethnic Minority Entrepreneurship (CREME), emphasised the need to also acknowledge the social contribution that they make to local communities. The professor argued that we as a society frequently fail to recognise the social contributions that EMBs offer due to both “discrimination and local inequality in white labour markets”.

Ram contended that minority communities “often gravitate towards self-employment because they are shut out of the mainstream labour markets and therefore EMBs will act as social helps because their communities have been excluded from other places of support.” For example, EMBs frequently provide employment to those who are unable to find it elsewhere as well as spaces for other members of ethnic minority communities to learn a trade and/or become an entrepreneur themselves.

Furthermore, Ram challenged assumptions that ethnic minority entrepreneurs lack confidence or ambition, stating that “if you look at the Global Entrepreneur Monitor data black and ethnic minority communities are consistently reported for the last 20 years as having ongoing aspirations that are two or three times greater than white populations. But it breaks down when it comes to actually running a business, that’s the problem.” Therefore, according to the professor, for EMBs it is often “not a starter problem but a growing and survival problem.”

So why is it that so many ethnic minority entrepreneurs are so eager to start their own businesses? And why is it that it is often so much harder for them to succeed? Tevin Tobun, Founder of the GV Group (Gate Ventures), at the event suggested that the reasoning for the high number of ethnic minority entrepreneurs starting businesses is because they’ve been forced to operate outside of the traditional workforce.

EMBs tend to be proportionally overrepresented in certain sectors including catering and retail. Tobun argued that this is partially because many ethnic minority entrepreneurs have been forced to set up businesses to provide goods and services that aren’t commonly available in UK markets suggesting “they are creating these opportunities from actually not having these opportunities themselves”.

Tobun also highlighted some of the issues that he had experienced himself when starting a business as a “22-year-old black man from South London”. He noted, in particular, the problems surrounding retail bank managers and their frequent failure to support the ideas of those that do not fit their ideas of what a ‘successful’ entrepreneur should look like. He argued that bank managers need to know that when someone comes in front of them with an idea, no matter how much they don’t understand it “their job is not to knock it or turn it down, [their] job is to see how do you support it and make it a good idea.”

So where do we go from here? At the panel event, Seema Malhotra MP argued that the “question” of EMBs needs to be “integral for how we rebuild after the pandemic, how we rebuild more equally, and how we rebuild with a strategy for growth.”  She went on to argue that “in the end, growth isn’t going to come from trains, it’s not going to come from buildings, it’s going to come from the people who are doing things that use those things… we need to have people led thought process on how we think about infrastructure and economic policy and what we want our country to be in the future”

The Shadow Minister was adamant that the current Government needs to take into account the diversity of the British nation and the opportunities that this diversity offers. She argued that the Government, businesses, and workers need to work together to decide on how we as a nation rebuild in the national interest as well as tackle the challenges that have been brought to light by the pandemic including those surrounding EMBs.

The issue of EMBs is evidently a complex one, however, what is clear is the need to ameliorate the longstanding barriers preventing ethnic minority entrepreneurs from reaching their full economic and social potential. In a post-pandemic and post-Brexit Britain, now is seemingly the time to reassess why EMBs should be front and centre of the political and policymaking agenda.

This blog is based on a recent SMF panel event, held in partnership with the British Business Bank, discussing ethnic minority entrepreneurship in the UK, featuring Shadow Minister for Business and Consumers, Seema Malhotra MP, Director of the Centre for Research in Ethnic Minority Entrepreneurship, Professor Monder Ram OBE, the Founder of the GV Group (Gate Ventures), Tevin Tobun, The British Business Bank’s Director of Public Affairs, Victoria Jonson, and the Social Market Foundation’s Senior Researcher, Richard Hyde. You can watch the event in full here.


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