Black and Bangladeshi owned businesses are the most likely to be refused credit, facing up to four times as many refusals as white owned businesses.
Warwick Business School researcher Dr Stuart Fraser examined the small business credit market using data from the UK Survey of Small and Medium Finances (UKSMEF).
He found that in particular Bangladeshi and Black owned firms are several times more likely to be denied loans than Indian and White owned businesses. The survey found that 36% of Black African firms had been denied loans compared to 29% of Black Caribbean, 20.6% of Bangladeshi, 12.2% Pakistani, 7.3% Indian, and 8.2% white owned businesses.
At face value, these results would seem to be an indication of ethnic discrimination, however Dr Fraser found that a further analysis of the loan denials and interest rates pointed to differences in creditworthiness rather than ethnic discrimination as an explanation for poorer EMB credit outcomes. In particular, more than half of Black African firms (55.7%), and 40.6% of Black Caribbean firms, exceeded their overdraft limit or missed loan repayments versus about one in four (23.3%) of White owned firms. – and it is this factor that appears to account for their higher loan denial rates.
The research found that one clear reason for this much higher incidence of missed loan repayments and exceeding overdraft limits (financial delinquency) was the much younger age of the Pakistani, Bangladeshi and Black owned firms compared to Indian and White firms. Black African owned businesses averaged 6 years, Black Caribbean 6.9, Bangladeshi, 6.5, Pakistani 8.3, Indian 14.2, and White owned 18.7 years. Other key reasons for financial delinquency include the business owner lacking a financial qualification or suitable financial advice and the business already having too much debt. In the case of Black African firms the research also points to cultural differences as a possible explanation for higher delinquency rates.
The research also found that Black Caribbean firms in the UK are less likely to apply for loans than White owned businesses due to fears of rejection based upon discrimination.
Dr Fraser points to the increasing use of ‘arms length’ credit and behavioural scoring systems, which do not allow transactions to be tainted by dubious judgements based upon ethnic perceptions by loan officers. He notes that scoring systems may explain the absence of racial bias, but ironically, they may also be responsible for misperceptions of racial bias since the reasons for rejection are not usually made clear to the applicant in these cases.
Dr Fraser says “Improvement in information flows between finance providers and businesses about the criteria used to make credit assessments including providing the reasons for rejection would help tackle the misperceptions of discrimination. In particular, finance providers should make it more clear to EMBs that defaulting on a loan or exceeding an overdraft limit could have adverse consequences for future credit.”
This research highlights a number of factors which need to be addressed in order to reduce ethnic variations in loan denial rates: lack of financial skills and advice; poor financial performance; and ethnic and cultural differences. Targeting EMBs for assistance with skills advice may help reduce delinquency rates and improve access to finance. This, together with finance providers investing more in their relationships with Black firms could cause significant reductions in dissatisfaction.
Peter Dunn | alfa
Europe’s Demographic Future. Where the Regions Are Heading after a Decade of Crises
10.08.2017 | Berlin-Institut für Bevölkerung und Entwicklung
Scientists reveal source of human heartbeat in 3-D
07.08.2017 | University of Manchester
Whether you call it effervescent, fizzy, or sparkling, carbonated water is making a comeback as a beverage. Aside from quenching thirst, researchers at the University of Illinois at Urbana-Champaign have discovered a new use for these "bubbly" concoctions that will have major impact on the manufacturer of the world's thinnest, flattest, and one most useful materials -- graphene.
As graphene's popularity grows as an advanced "wonder" material, the speed and quality at which it can be manufactured will be paramount. With that in mind,...
Physicists at the University of Bonn have managed to create optical hollows and more complex patterns into which the light of a Bose-Einstein condensate flows. The creation of such highly low-loss structures for light is a prerequisite for complex light circuits, such as for quantum information processing for a new generation of computers. The researchers are now presenting their results in the journal Nature Photonics.
Light particles (photons) occur as tiny, indivisible portions. Many thousands of these light portions can be merged to form a single super-photon if they are...
For the first time, scientists have shown that circular RNA is linked to brain function. When a RNA molecule called Cdr1as was deleted from the genome of mice, the animals had problems filtering out unnecessary information – like patients suffering from neuropsychiatric disorders.
While hundreds of circular RNAs (circRNAs) are abundant in mammalian brains, one big question has remained unanswered: What are they actually good for? In the...
An experimental small satellite has successfully collected and delivered data on a key measurement for predicting changes in Earth's climate.
The Radiometer Assessment using Vertically Aligned Nanotubes (RAVAN) CubeSat was launched into low-Earth orbit on Nov. 11, 2016, in order to test new...
A study led by scientists of the Max Planck Institute for the Structure and Dynamics of Matter (MPSD) at the Center for Free-Electron Laser Science in Hamburg presents evidence of the coexistence of superconductivity and “charge-density-waves” in compounds of the poorly-studied family of bismuthates. This observation opens up new perspectives for a deeper understanding of the phenomenon of high-temperature superconductivity, a topic which is at the core of condensed matter research since more than 30 years. The paper by Nicoletti et al has been published in the PNAS.
Since the beginning of the 20th century, superconductivity had been observed in some metals at temperatures only a few degrees above the absolute zero (minus...
16.08.2017 | Event News
04.08.2017 | Event News
26.07.2017 | Event News
22.08.2017 | Health and Medicine
22.08.2017 | Materials Sciences
22.08.2017 | Life Sciences