Ethnic minority businesses were badly hit during the Covid-19 pandemic, with many operating in sectors severely hampered by lockdown. As we navigate a cost-of-living crisis, it is more important than ever to think about creating a fairer and more equal business environment that enables such firms to thrive. At NatWest’s recent national SME Taskforce meeting, we gathered industry experts to hear about how the banking and business sector can do that most effectively.
The two most urgent changes to be made are on access to finance and ensuring a coordinated response to tackling unfavourable treatment of ethnic minority businesses, said Monder Ram, author of the report Time to Change: A Blueprint for Advancing the UK’s Ethnic Minority Businesses, by Aston University’s Centre for Research in Ethnic Minority Entrepreneurship (Creme), in partnership with NatWest. Ram, an academic at the university, explained that previous studies have shown ethnic minority businesses contribute an estimated £25bn to the UK economy. According to his report, that figure could be four times higher with the right policy adjustments.
“The real challenge is growth,” said Ram. People from ethnic minority backgrounds are more likely to want to start their own business and to actually go through with setting that up. Beyond the start-up phase, however, they are less likely to be running established firms than their white counterparts. This means that on average, ethnic minority firms do not grow and become established in the numbers that they should.
“The ethnic minority firms that do survive three years, they’re more likely to be growth oriented, innovative and trade overseas than their white counterparts,” Ram said. Finance is key to this, with evidence showing ethnic minority businesses are twice as likely to be discouraged from accessing the investment, finance and support they need to grow. This is a problem that has persisted for decades. “There’s a real challenge for the banking sector to respond. The evidence is there – the interventions need to catch up,” he added.
To move forward, there needs to be leadership on this issue at the national, regional and local level. While the picture from government is less clear than it once was, corporates and business membership organisations have been more assertive in this space, Ram added.
Collaboration is vital, too, and there are plenty of examples of good practice on issues such as infrastructure, local and national arrangements, and partnerships from other countries, including the US, Canada and across Europe. One potential solution, Ram said, is in developing community finance hubs. “There’s a real opportunity for partners to take a step back, have a look at how it all fits together, pool resources, look at the kinds of firms you want to support, and have a much more integrated offer,” he said.
“Currently, we’re looking at a generational wealth gap,” said Dirk Bischof, founder of the Hatch Enterprise network, which supports underrepresented entrepreneurs. This means that one in three black households own assets or property versus two-thirds of white households. For every £1 of British wealth, Indian households have around 90-95p, black Caribbeans around 20p, and black African and Bangladeshi households around 10p.
“We’re battling decades and centuries of inequalities,” said Bischof. He added that access to “business to business” (B2B) customers and specific types of finance, such as grants and zero-interest loans, is critical to levelling the playing field because entrepreneurs from more privileged backgrounds do have that access.
Given the challenges they face, however, ethnic minority firms are “very resilient – they’re able to make more happen with less. They have great access to new markets, they’re very innovative,” said Bischof. They also often employ people that are more impacted by unemployment. So, investing in them is not only critical to strengthening the economy and bringing on new products and services, but also to achieving equality.
Demi Ariyo, founder at Lendoe, a finance company dedicated to black, ethnic minority, early-stage and women-led businesses, agreed. He questioned how NatWest can work with other large banks and smaller players. Community development financial institutions (CDFIs), for example, offer affordable lending to financially disadvantaged communities and exist to support businesses, but there could be more collaboration between them and banks, he said. Banker referral schemes – where businesses can find finance from other mechanisms when they have been unsuccessful with major banks – could also be better utilised.
However, the long-term solutions mean looking at best practices from overseas, perhaps even encouraging business founders to come to the UK and advise the sector here. “This cannot just be about the high-street banks and banks,” said Irene Graham, CEO of the ScaleUp Institute, a not-for-profit company focused on helping UK businesses to grow.
There is now a multiplicity of funders in this country, including a great burgeoning fintech finance community. But while Graham felt that many organisations are carrying out some good initiatives, these really need to be much more coordinated, in collaboration with champions and role models.
Access to digital tools is also key. Chris Lamorte, senior director, account management at Mastercard, explained how the Mastercard Strive initiative does just that, while also providing access to information to help with finance and promoting mentoring. He believes that this is a really good way to support growth.
Developing those opportunities is crucial, but, Ram noted: “It needs to be done in a structured way.” A long-term perspective is a must in order to achieve the type of impact that will see that £25bn become £100bn for the economy. “This can’t be something that we get all enthused about for a couple of years and then let go,” he said. Beyond the timescale of his report, government needs to step up and make real progress on gathering and making data available.
The role banks currently play – and can play in the future – is crucial, at NatWest and across the banking sector as a whole.
“We have the templates of best practice that have been shown to make a difference. And I really believe there’s goodwill,” said Ram, adding, in reference to his report: “It is the time to change.”
Andrew Harrison is head of business banking at NatWest Group