Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Black entrepreneurs 4 times more likely to be refused credit than white businesses

17.11.2008
A research paper, by Dr Stuart Fraser of Warwick Business School at the University of Warwick, has found that many Ethnic Minority owned Businesses (EMBs) struggle to obtain credit in comparison to White owned businesses.

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
Further information:
http://www.warwick.ac.uk

More articles from Studies and Analyses:

nachricht Study relating to materials testing Detecting damages in non-magnetic steel through magnetism
23.07.2018 | Technische Universität Kaiserslautern

nachricht Innovative genetic tests for children with developmental disorders and epilepsy
11.07.2018 | Christian-Albrechts-Universität zu Kiel

All articles from Studies and Analyses >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Unraveling the nature of 'whistlers' from space in the lab

A new study sheds light on how ultralow frequency radio waves and plasmas interact

Scientists at the University of California, Los Angeles present new research on a curious cosmic phenomenon known as "whistlers" -- very low frequency packets...

Im Focus: New interactive machine learning tool makes car designs more aerodynamic

Scientists develop first tool to use machine learning methods to compute flow around interactively designable 3D objects. Tool will be presented at this year’s prestigious SIGGRAPH conference.

When engineers or designers want to test the aerodynamic properties of the newly designed shape of a car, airplane, or other object, they would normally model...

Im Focus: Robots as 'pump attendants': TU Graz develops robot-controlled rapid charging system for e-vehicles

Researchers from TU Graz and their industry partners have unveiled a world first: the prototype of a robot-controlled, high-speed combined charging system (CCS) for electric vehicles that enables series charging of cars in various parking positions.

Global demand for electric vehicles is forecast to rise sharply: by 2025, the number of new vehicle registrations is expected to reach 25 million per year....

Im Focus: The “TRiC” to folding actin

Proteins must be folded correctly to fulfill their molecular functions in cells. Molecular assistants called chaperones help proteins exploit their inbuilt folding potential and reach the correct three-dimensional structure. Researchers at the Max Planck Institute of Biochemistry (MPIB) have demonstrated that actin, the most abundant protein in higher developed cells, does not have the inbuilt potential to fold and instead requires special assistance to fold into its active state. The chaperone TRiC uses a previously undescribed mechanism to perform actin folding. The study was recently published in the journal Cell.

Actin is the most abundant protein in highly developed cells and has diverse functions in processes like cell stabilization, cell division and muscle...

Im Focus: Lining up surprising behaviors of superconductor with one of the world's strongest magnets

Scientists have discovered that the electrical resistance of a copper-oxide compound depends on the magnetic field in a very unusual way -- a finding that could help direct the search for materials that can perfectly conduct electricity at room temperatur

What happens when really powerful magnets--capable of producing magnetic fields nearly two million times stronger than Earth's--are applied to materials that...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

VideoLinks
Industry & Economy
Event News

Within reach of the Universe

08.08.2018 | Event News

A journey through the history of microscopy – new exhibition opens at the MDC

27.07.2018 | Event News

2018 Work Research Conference

25.07.2018 | Event News

 
Latest News

Unraveling the nature of 'whistlers' from space in the lab

15.08.2018 | Physics and Astronomy

Diving robots find Antarctic winter seas exhale surprising amounts of carbon dioxide

15.08.2018 | Earth Sciences

Early opaque universe linked to galaxy scarcity

15.08.2018 | Physics and Astronomy

VideoLinks
Science & Research
Overview of more VideoLinks >>>