Ethnic entrepreneurship in reverse in the UK: Is there gender bias in access to finance for South Asian women entrepreneurs?

Professor Javed Hussain, Birmingham City University Perry Barr, Birmingham B42 2SU, tel: 0121 3315690, e: [email protected], w: http://www.bcu.ac.uk

Professor Harry Matlay, Birmingham City University

Dr Jonathan M. Scott, Teesside University

Dr Geoff Whittam, University of the West of Scotland

Key words: Finance; women; South Asian; ethnicity; gender equality; entrepreneurship.

This paper investigates whether there is a gender bias in access to external finance for South Asian women; specifically, do they experience greater credit constraints than their male counterparts? We also highlight implications for policy and future research. Much of the previous empirical literature focused on „success‟ (Clark and Drinkwater, 2006), i.e. factors contributing towards the success of ethnic entrepreneurs (Song, 1997; Werbner, 1990), or inducing them to consider self-employment to overcome disadvantage as a consequence of an economic „dead-end thesis‟ (Aldrich et al, 1981; Metcalf et al., 1996). Ethnic entrepreneurship is often viewed from the lens of „disadvantage‟ (Jones et al., 1992; Phizacklea, 1990; Ram and Smallbone, 2001). In the context of ethnic entrepreneurship, a plateau in the rate of increase is acknowledged but the analysis of the factors contributing towards a decline in the rate remains unexplored, and increased Asian female enterprise and access to finance is underexplored, an aspect towards which this paper aims to make a contribution. 1

The authors administered a semi-structured questionnaire with South Asian women and men and white male and female entrepreneurs, who recently started or have established enterprises. To test for the gender bias and the rank order of financing preferences, the survey requested quantitative and qualitative information about the different sources of finance. Our analysis examines the differences in the experience of South Asian women in accessing finance, in comparison with South Asian entrepreneurs and white male and female entrepreneurs.

Statistical evidence and general observations suggest that there are relatively few South Asian women-led enterprises in their own right. However, there is an emerging trend amongst second- and third-generation South Asian women to consider starting a business by choice (as opportunity entrepreneurs) and for whom access to finance may be a problematic issue. The analysis suggests that there are considerable differences amongst Asian women in terms of the importance of different sources of finance, experiences and their perceptions of banks. The findings suggest that banks, policy makers and support agencies should recognize the important role of Asian female entrepreneurs and develop bespoke financing policies to alleviate finance barriers for this important emerging niche.

This study offers an insight into financing issues for South Asian women entrepreneurs. It is acknowledged that Asian businesses are an important part of the UK government‟s strategy to promote enterprise and employment creation – especially in the most deprived cities of the UK – and that South Asian women are critical to successful local and national economic development. However, the findings of this study suggest that South Asian women have a „double hurdle‟ to overcome in access to external finance (whether informal or formal). This study is novel in that it draws upon the theory of finance and earlier empirical research and explores their experiences when accessing external finance for start-ups and growth.

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1. Introduction On first inspection it would appear that the literature on the participation rates of ethnic minorities in entrepreneurship is well developed. However, this development has tended to focus on ethnic male enterprises, (Borooah and Hart (1999)).Levent et al (2003) reported that all the key indicators (e.g. Organisation for Economic Cooperation and Development (OECD)) suggest that female enterprise is on an upward trend and the same can be inferred about ethnic female entrepreneurs. With better access and opportunities for ethnic women within the UK, changing cultural barriers and practices and flexible working hours, there is a strong potential for an increase in ethnic women‟s participation in enterprise. To facilitate and encourage ethnic women to fully participate in the UK‟s „enterprise culture‟, access to finance is a pre-requisite for viable propositions. This paper investigates whether there is a gender bias in access to external finance for South Asian women,specifically, do they experience greater credit constraints than their male counterparts? The paper addresses the research question by building theory which is then empirically tested. Despite stellar increases in ethnic minority self-employment rates vis a vis the indigenous white population (Daly, 1995) and their sustenance of employment and income levels in many large cities in the UK, the phenomena of integration in the labour market and indigenization of minorities has not been explored adequately. In this paper we conducted a semi-structured questionnaire to capture quantitative and qualitative factors, in order to investigate the propensity of South Asian women to engage in entrepreneurial activities. Additionally we identify access to finance as a barrier to entry to enterprise for ethnic minority women. Much of the previous empirical literature focused on „success‟ (Clark and Drinkwater, (2006), i.e. factors contributing towards the success of ethnic entrepreneurs (Song, 1997; Werbner, 1990), or inducing them to consider self-employment to overcome disadvantage as a consequence of an economic „dead-end thesis‟ (Aldrich et al, 1981; Metcalf et al., 1996). Ethnic entrepreneurship is often viewed from the lens of „disadvantage‟ rather than solely as a means for social and economic aspirations to be achieved (Jones et al., 1992; Phizacklea, 1990; Ram and Smallbone, 2001; Ram and Jones, 2006). 3

The structure of this paper is as follows. In Section 2 we review the pertinent literature and develop a conceptual model and hypotheses. Section 3 outlines the methodological approach adopted in this study, and in Section 4 we test the results using the conceptual model as our analytical framework, and provide a detailed discussion of our findings. Finally, in Section 5, we conclude the paper and provide some implications for ethnic minority firms, financial institutions, business support professionals, policy-makers, and for future avenues of research.

2. Literature Review, Conceptual model and hypotheses It has long been established that it is not sufficient to categorise all ethnic minority groups as one homogeneous group, for example, Mascarenhas-Keyes (2007b: 10) found that Black Africans and Caribbeanshad the greatest aspirations to become self-employed, with Pakistanis and Bangladeshis having the lowest – in other words, whilst Asian entrepreneurs have already started businesses, it is those who are not traditionally entrepreneurial, African Caribbeans, who are most aspirant towards entering entrepreneurship (although their aspiration and actual engagement with enterprise remains low). Harding et al (2005: 42), based on analysis of the Global Entrepreneurship Monitor (GEM), supported the findings of Mascarenhas-Keyes and found that levels of entrepreneurship (Total Early Stage Entrepreneurial Activity – TEA)1 amongst Indians (11.9%) and Pakistanis (12%) towered above those of whites (5.6%). Most notably, 17.3% of Black Africans – 18.7% women (compared to 3.6% of white women) and 15.6% men – were „entrepreneurially active‟, according to Harding et al (2005: 42)‟s analysis, and with a particular expectation that they will actually initiate an enterprise in the following three years. Harding et al (2005) reported highly „positive attitudes towards entrepreneurship‟ in comparison to the white population within the GEM study. It could be suggested this may be because of a variety of reasons including the likelihood that many recent immigrants or UK-born ethnic minorities may be in lower wage employment, and so entrepreneurial activity

1

This includes those who have started a business within the previous 42 months or are expecting to start a business within the following three years (Harding et al, 2005).

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(whether initial self-employment or ultimately employing others) may be a perfectly rational career choice that enables higher levels of remuneration or self-actualisation. Commenting on these data, Love et al (2006: 104) observed that, “This may also help to explain the relatively large discrepancy between male and female TEA rates in the West Midlands as female TEA rates among the ethnic minority populations tend to be lower relative to male rates than among the white population.”

Seminal research has shown that having money and inheritances is a predictor of entrepreneurial start up and business growth and, indeed, liquidity constraints are a major barrier to start up or growth (Blanchflower and Oswald, 1998) and this clearly varies by gender (Sena et al, 2008). Elsewhere, liquidity constraints have been found to hamper business start up and development (e.g. Holtz-Eakin et al, 1994; Burke et al, 2000), but other authors suggest that it may not be a barrier to start up (Cressy, 1996). There is, therefore, a clear rationale for studying finance constraints as a factor in explaining entrepreneurial start-up and subsequent firm growth. We outlined in the introduction the context to the burgeoning self-employment rates of ethnic minorities (cf Daly, 1995) and critiqued the focus and scope of previous literature, justifying our research question: and the need to excavate how gender and ethnic [i.e. not either/or] differentials in self-employment, by their nature inextricably correlated, are profoundly influenced by access to finance. In this section, however, we turn our attention more specifically to constructing a conceptual model – and a set of related hypotheses for testing later in the paper – in order to answer the Research Question: “Is a gender bias in access to external finance for South Asian women; specifically, do they experience greater credit constraint than their male counterparts?”

2.1 Ethnicity, gender, and finance Compared to white-owned firms, ethnic minority businesses experience finance constraints, particularly when trying to start their business (Ram and Deakins, 1996; Bank of England, 1999; Ram and Smallbone, 2001: 15-17; Irwin and Scott, 2006; Scott and Hussain, 2007), which are 5

especially problematic for African Caribbeans and Bangladeshis, although there is a strong influence of the business sector in which particular ethnic groups are concentrated (Curran and Blackburn, 1993; Smallbone et al, 2003). As a result of these constraints, and financing preferences (i.e. avoiding expensive sources, such as bank loans), such entrepreneurs tend to rely upon informal sources (Basu, 1998; Hussain and Matlay, 2007). However, given labour market discrimination and high levels of unemployment, levels of self-employment within ethnic minority remain high so there is little evidence that self-employment is prevented by financial constraints – rather, other financing sources are sought and obtained. Indeed, Ram et al (2003b) found that EMBs trying to „break out‟ of traditional co-ethnic sectors faced: “discrimination even in the case of entrepreneurs with seemingly impressive track records and personal resource endowments.” The Bank of England (1999), however, played down discrimination as an issue, citing reasons, such as, “risk aversion behaviour by lenders, sectoral concentration of ethnic businesses, failure rates and lack of business planning.”

Kon and Storey‟s (2003) research refers to the theory of „discouraged borrowers‟, that is, there are cases of potential borrowers from banks who may offer perfectly reasonable business proposals but who fail to seek finance because of a belief that their application will be rejected. In short, with women and ethnic minorities this could be considered to be perceived, as opposed to actual, discrimination. Kon and Storey (2003)‟s definition of a discouraged borrower is “a good firm, requiring finance, that chooses not to apply to the bank because it feels its application will be rejected.” While Roper and Scott (2009) found evidence that women were discouraged borrowers, and indeed Scott and Irwin (2009) identified the existence of „discouraged advisees‟ (i.e. those who do not approach potential sources of business advice because of discouragement effects), we would argue that many potential South Asian women entrepreneurs may be „discouraged entrepreneurs‟ because of the impact of financial constraints. Although there have been several studies of South Asian women owner-managers (Dhaliwal, 1998, 2000; Dhaliwal and Kangis, 2006) and other studies of ethnic minority women start ups (Dawe and Fielden, 2005; Inman and Grant, 2005; Pio, 2007), 6

little gender differential analysis of ethnic minority enterprise has been conducted. Smith-Hunter (2006) found that there is a „double disadvantage‟ for ethnic minority women (in her case, AfricanAmericans) trying to obtain finance, i.e. due to discrimination or disadvantage because of both their ethnicity and their gender. Furthermore, although there is a large body of literatures on both women and black and minority ethnic (BME) self-employment, business ownership and finance,2 this literatures remain stubbornly segregated. The lack of research into BME women entrepreneurs is summarised by Carter and Shaw (2006: 50) as follows:

“there has been surprisingly little analysis of ethnic minority women‟s enterprise in the UK … [E]thnicity and gender interact to ensure that many ethnic minority women entrepreneurs have a distinctive experience of selfemployment and business ownership. There is evidence that the economic, structural and cultural barriers faced by women may be exacerbating the difficulty of entry for women from minority groups. In addition to genderrelated barriers BME women face the additional hurdles posed by the potentially racialised structures of work and society” (Carter and Shaw 2006: 50). Some exceptions in the UK include research by (Dhaliwal (1998, 2000, 2007), Dhaliwal and Kangis (2006) and Dawe and Fielden (2005). Few authors examine finance constraints for BME women and the impact on subsequent start-up, an issue which we are addressing in this paper. Inman and Grant (2005), who investigated African-American entrepreneurs, Smith-Hunter (2006) found that minority women entrepreneurs (here primarily defined as African-American or Hispanic) were also likely to be „pushed‟ (due to limited career progression, lower wages, and a „lack of autonomy‟) and „pulled‟ (seeking independence and higher levels of remuneration) into entrepreneurship or self-employment. Indeed, there was evidence in this research that minority women entrepreneurs were more likely to

2

We do not intend to review the gender and finance literature here in detail, although please see Roper and Scott (2009).

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report difficulties obtaining bank loans, as well as a much higher usage of personal loans and credit cards, than white women (ibid: 123) – evidence of “bootstrapping” amongst minority women (cf Brush et al, 2006). More generally, Freel et al (2007) found that discouraged borrowers‟ characteristics were similar to those who were rejected by finance providers. They found gender not to be an influential factor; but it is clear, for example, from Fraser (2007) that ethnicity plays a major role in influencing discouragement. This literature suggests our first two hypotheses, therefore, that:

H1: South Asian women are likely to face more significant finance constraints (whether from discrimination – gender and/or racial bias – or due to other factors) than would be experienced by white men, ethnic minority men, or white women.

H2: As a consequence of these financial constraints, many South Asian women are discouraged from establishing an entrepreneurial firm.

However, just as it would be unrealistic to treat all women or all South Asians as homogenous groups, we need to be aware that not all South Asian women are the same: for example, there are inter-ethnic differences even amongst geo-cultural and religious groups, such as Indians (Hindu/Sikh/Muslim), and Pakistanis/Bangladeshis (Muslim), which often relate to the social class of the individual. Hence we deepen our analysis by considering education.

2.2 The role of education Mason et al (2006) found that graduate owned businesses were increasingly more likely to be women owned than non-graduate businesses. Ethnic minorities have a greater propensity to participate in higher education than the white population, but conversely experience higher levels of initial unemployment, and are conspicuous by their absence from large firm recruitment intakes (Smetherham, 2005) and report poor levels of pay and job satisfaction (Connor et al., 2004). They 8

are also more likely to be over-educated or under-employed than whites (Alpin et al., 1998; Nabi, 2003), although business start up can be used for “graduate career-making” (Nabi et al., 2006). These factors may “push” BME graduates into starting a small business, or may actually encourage them to join the family firm (Scott and Hussain, 2008). In contrast, the alternative view expressed in some studies is that the younger generations of ethnic minorities have become better educated and have, therefore, in many cases either avoided starting a business or have moved into higher value, high technology sectors (Jones and Ram, 2003; McEvoy and Hafeez, 2006). This finding is also supported by Hussain and Martin (2005), who found that “New Asian Entrepreneurs” seek to engage in high value businesses in sectors distinct from the businesses of their parents. Earlier studies explored entrepreneurial motivations and access to finance for BME graduate entrepreneurs (Hussain et al., 2007; Hussain et al., 2006; Scott et al., 2008). Heinonen and Hytti (2007) highlighted differences between graduates and non-graduates while analysing native Finnish and ethnic minority entrepreneurs. A more in-depth qualitative study has also examined internationalisation, the role of networks and higher education institution (HEI) entrepreneurship support for BME graduate entrepreneurs in the UK (Mascarenhas-Keyes, 2007a). In our earlier report on ethnic minority graduate entrepreneurs, we observed (tentatively) that, “being a graduate partially mitigates against the commonly found disadvantages in sourcing finance typically faced by EMBs [ethnic minority businesses]. However, it is not clear whether education or social class cancels out the ethnicity effect” (Hussain and Scott, 2006: 42). This suggests our third hypothesis:

H3: South Asian women who are graduates and are, therefore, more highly educated are less likely to experience finance constraints which thus does not discourage them from establishing a business.

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3. Methodology This study utilises the data obtained from a questionnaire which was developed after we had reviewed the literature and piloted the questionnaire in an earlier study, and, subsequently amended the questionnaire to capture the specific data relating to South Asian and white men and women in the West Midlands region of the UK. Data captured by the pilot and earlier research showed that respondents‟ experiences and perceptions differed and the text was, therefore, amended to assure confidentiality and yet to enable the researchers to obtain specific business related information and to capture relevant data that would enable us to gain a greater understanding of the issues. The semistructured questionnaire was in three parts:

The first part sought background information and it asked a number of questions on characteristics, gender, family status, business sector and preferences for finance. In the second part of the questionnaire, the respondents were asked to rank the importance of various sources of finance on a scale from 1 = „least important‟ to 5 = „most important‟. In the third part, the respondents were asked about finance usage and their experiences of bank finance. The focus of this study was South Asian entrepreneurs (with a white control group) and the survey was carried out from February to June of 2009.

Data collection The sample for South Asian male and female entrepreneurs was selected to represent three main groups - Indians, Pakistani and Bangladeshis respectively.

The sample for white and South Asian entrepreneurs were originally drawn from our existing database. This yielded a total of 83 responses from white entrepreneurs and 23 from Asian entrepreneurs. To increase the sample size for Asians, the authors accessed the Asian businesses participated in an earlier study on the impact of the Red Route traffic measure in Birmingham 10

(Hussain and Scott, 2007), these were introduced by a local business association in Birmingham. Furthermore, using a snowball strategy, additional respondents were recruited to participate in the survey. To improve the response rate and the sample size, the assistance of the local business organization, community networks and former students was used to access the target SMEs owners. In some cases the questionnaires were sent via the local business organization and a former student who now works for a number of accountancy firms. IThe questionnaire was anonymised and the sort of information requested did not require any individual to be recognised by address or name. Some 23 questionnaires were incomplete and rendered not usable for our purposes; the remainder were analysed using the Microsoft Excel spreadsheet software.

The method of sample recruitment and data collection was deemed appropriate for this research as it was necessary to recruit SMEs of a particular ethnic mix and gender. Although the selection of the sample is not random, nor it is large enough to be representative of the UK, it is however representative of the Asian population within the UK and in particular in the West Midlands. Having recognised the limitations of this research, however, this study provides some insights into an aspect of the Asian female entrepreneurship literature (and broader gender in entrepreneurship literature) that has not been explored and provides some interesting results and insight which warrant future research.

4. Results and Discussion Statistical evidence and general observations suggest that there are relatively few South Asian women-led enterprises in their own right but it is acknowledged that females play an active role in ethnic enterprise within a family context (Dhaliwal et al, 2009). However, there is an emerging trend amongst second- and third-generation South Asian women to consider starting a business by choice (as opportunity entrepreneurs) who strive to engage in wealth creation by using their entrepreneurial flare, creativity, cultural diversity, network and knowledge base. It is recognized (Levant, 2003) that 11

South Asian females are likely to encounter higher hurdles than small businesses in general because of their minority status within the modern economic environment. However, South Asian females in the UK have gained access to education, employment, resources and a variety of networks which have the potential to empower them to engage fully with enterprise but for whom the finance gap and gender bias remains an issue, something this analysis aims to address.

Characteristics of ethnic female entrepreneurs This sample contains self-employed males and females of South Asian origin, mainly Indian, Pakistanis and Bangladeshis. To examine the gender and ethnic finance bias, white males and female entrepreneurs are also included in the sample. The sample description in table 1 is representative of the UK South Asian population at large. Educational achievements from secondary to A‟ levels are higher amongst white females; but there are more graduates, 10 per cent more than the white group, from the South Asian population entering self employment.

This may reflect higher unemployment rates amongst ethnic minority graduates who may enter self employment to escape unemployment (Alpin et al., 1998; Nabi, 2003), but also provides some support for our third hypothesis, that being a graduate may enable South Asian women to overcome finance constraints that are caused by ethnic and gender bias.3 This explanation may also be supported by the higher participation rates amongst younger South Asian females (age 26 -35), 55 percent enter self employment in comparison with 32 per cent for the white females) than the whites. However, fewer South Asian females over the age of 36 enter self-employment and the proportion is higher amongst white females. The data suggest that having children appears not to be a barrier for South Asian women entrepreneurs as more South Asian females with children are engaged in self employment than the white group.

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One further aspect of bias or discrimination that is missing from our analysis (and, indeed, most analyses) is discrimination on the basis of social class. To some extent, in prior research, education has acted as a proxy for social class; but this use of education as a proxy for class is more or less irrelevant to the South Asian population since a large proportion of South Asian students are from workingclass, second-generation immigrant backgrounds, whereas white university students are much more likely to be middle-class. The issue of social class needs to be explored more comprehensively in future research as it continues to be missing from the debate.

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The sample for South Asian males is not fully representative of the population but it is reflective of the prevalence of enterprise amongst ethnic minorities. Twenty six per cent of ethnic entrepreneurs had a degree or equivalent in comparison to 7 per cent of white entrepreneurs. The general trend for GCSEs and A levels is similar. In terms of age profile, most ethnic entrepreneurs in our sample are between 25-36 years old, 55 per cent, whereas white entrepreneurs exhibit a similar age profile for the age range 35 plus. This data suggests that South Asian males and females choose enter self employment due to unemployment. Ethnic entrepreneurs‟ entry to self employment at this stage may expose them to a higher finance gap than their white counterparts as they may not have accumulated wealth and built up startup capital. In terms of family status, the profile of South Asians men and women entrepreneurs is consistent with white females; and a higher number of ethnic entrepreneurs have children than white entrepreneurs.

When we examine the table 2 sector activities, over 80 per cent of South Asian female entrepreneurs are engaged in the service sector, education, fashion, beauty parlour, legal and retail sector. Most of the South Asian female businesses‟ legal form falls under sole proprietorship; this is a much lower figure than for white females, 47 per cent. Most of the South Asian female enterprises fall under the category of micro or small (74 per cent), whilst white female owned enterprises fall under the category of medium (83 per cent) and they too mostly tend to be associated with the service sector but at the higher end: legal, accountancy, and financial services account for 34 per cent. The observed presence and nature of the business is consistent with Levent, et al‟s (2003) suggestion, (backed by Brush, 1992; Fisher et al, 1993; OECD, 2001a) that women, whether ethnic or not, have lower business experience, or human capital, at the start-up stage. Equally, it is noted that in the sample, 83 per cent of South Asian and 63 per cent of white female entrepreneurs tend to have a role model from within the family or within the extended network. These findings are consistent with Brush (1992) and Letowski (2001). Using the same logic, it may be argued that access to finance and the financing patterns of females, South Asians and white, should mirror the experiences and 13

networks of their family; finance constraints should not be any higher than that experienced by the respective general SME population, an aspect that will be tested below. In general, ethnic male entrepreneurs in our sample are mostly in the category of medium-sized enterprises, (74 per cent) and a similar trend is observed for white enterprises but they are more involved in the manufacturing sector than the ethnic enterprises. The characteristics of the sample for the four groups are generally similar to those of SMEs in the UK and in particular, South Asian female entrepreneurs‟ features are similar to those Levent et al (2003) described as existing worldwide.

Table 1 Sample Description Ethnic Females n = 72 Indian Pakistani Bangladeshi Education Primary Secondary GCSE or equivalent A’ levels or equivalent Degree or equivalent Age 21 - 25 26 - 30 31 - 35 36 - 40 41 - 45 Over 45

White Females Frequency 34 32 6

Percent 47 44 8

3 8 36 12 13

n = 48

Frequency

Percent

4 11 50 17 18

2 14 17 11 4

4 29 35 23 8

2 24 16 3 1 2

3 33 22 4 1 3

4 6 9 17 8 4

8 13 19 35 17 8

Indian 73 27

Pakistani 78 22

Family status With children % Without children % Ethnic Males Frequency

Percent

42 30 10

51 37 12

Primary Secondary GCSE or equivalent A’ levels or equivalent Degree or equivalent

5 13 32 13 19

Age 21 - 25 26 - 30 31 - 35 36 - 40 41 - 45 Over 45 Family status With children % Without children %

White 65 35

White Males

Indian Pakistani Bangladeshi Education

n = 82

Bangladeshis 89 11

Frequency

Percent

7 18 44 18 26

4 22 20 8 4

7 38 35 14 7

8 28 19 12 8 7

10 34 23 15 10 9

5 8 14 18 9 4

9 14 24 31 16 7

82 Indian 73 27

Pakistani 78 22

n = 58

Bangladeshis 89 11

58 White 65 35

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Table 2. Sector activities of entrepreneurs Ethnic Females 5 5 3 4 5 3 4 4 3 3 6 0 6 5 11 1 4 72

Fashion Beauty parlour Driving school Food - retail Legal Accountancy Financial services Transport Restaurants Confectionary Retail - clothes Buildings Travel agency Manufacturing Education Flower shop Import & Export n=

% 7 7 4 6 7 4 6 6 4 4 8 0 8 7 15 1 6

Ethnic Males 5 2 4 9 3 3 3 9 9 2 5 5 3 11 3 0 6 82

White Females 3 4 0 2 6 4 6 1 0 2 6 0 4 2 4 3 1 48

% 6 2 5 11 4 4 4 11 11 2 6 6 4 13 4 0 7

% 6 8 0 4 13 8 13 2 0 4 13 0 8 4 8 6 2

White Males 2 2 0 5 3 2 4 3 3 1 5 7 2 13 1 0 5 58

% 3 3 0 9 5 3 7 5 5 2 9 12 3 22 2 0 9

Financing of ethnic female entrepreneurs and white females Figure 1 12 10

Micro (1-10) Small (11-49)

8

Medium (50-250) 6 4 2 0 Personal Savings

Family

Friends

Banks

Business Angels /Factoring

Financing patterns of Asian females Businesses owners

12 10 8

Micro (1-10)

6

Small (11-49)

4

Medium (50-250)

2 0 Persoanl Savings

Fmily

Friends

Banks

Business Angels /Factoring

Financing patterns of White Females Businessess owners

The financing pattern of South Asian and white females in figure 1 shows that both groups (South Asian, 31 per cent and white females, 58 per cent) are heavily reliant upon bank finance. Smaller enterprises are higher user of bank finance than medium-sized enterprises, in both groups. When we compare the use of personal savings, South Asian females are considerably more reliant on this source (48 per cent) at the start-up and growth stages than white females. Consistent with earlier studies on ethnic businesses (e.g. Basu, 1998), personal, family and friends (61 per cent), i.e. „informal‟ sources, are the most important sources of finance. It is, therefore, not surprising that 15

white females are less reliant on personal, family and friends (35 per cent). Use of Business Angels and Venture Capital for both groups is limited and respondents generally showed very limited understanding of this source of finance for their businesses, which reflects that their firms‟ sizes and sectors are less attractive for such investors. The difference in the use of bank finance confirms our Hypothesis 1 that there is a gender bias against South Asian female entrepreneurs. Table 3 Ethnic and white females’ experiences of Banks

Ethnic

White

Yes %

No %

Yes %

No %

Did you approach bank for finance at the start-up?

58

42

94

8

Bank response was favourable

31

69

77

23

Bank sought collateral

88

13

67

33

Bank required additional information

43

57

67

33

Did you have bank account

94

6

100

0

Did you find the bank receptive to your business

67

33

81

19

Ethnic and white males’ experiences of Banks

Ethnic

White

Yes %

No %

Yes %

No %

Did you approach bank for finance at the start-up?

84

16

91

9

Bank response was favourable

68

32

74

26

Bank sought collateral

70

30

47

53

Bank required additional information

68

32

55

45

Did you have bank account

99

1

100

0

Did you find the bank receptive to your business

62

38

67

33

To explore, compare and contrast the experiences of South Asian females to those of white females, we see that there is a major difference. To test the hypothesis, table 3 shows comparative responses of two groups; we see that a lower number of South Asian female entrepreneurs approached banks for finance (58 per cent) than white females (94 per cent). Such a low figure may suggest that South Asian females‟ experiences are informed by their families and networks, who may have experienced problems in accessing finance. Or this may support the theory that they may be discouraged borrowers. Those who approached banks reported significantly lower favorable responses (31 per cent) than their white counterparts (77 per cent). In total, 67 per cent of South Asian female entrepreneurs reported that banks were receptive to their businesses whereas the figure for white entrepreneurs was 81 per cent. Both groups of entrepreneurs had bank accounts with the banks they 16

approached for a loan. Banks sought collateral from both groups (South Asian, 88 per cent and whites, 67 per cent), but the figure for South Asian was 21 percentage points higher than that for white females. So there is support for H1 that ethnic females are disadvantaged in accessing bank finance, contributing towards the discouraged effect.

When we compare South Asian males and white male entrepreneurs, there is no significant difference in the experiences of the two groups in accessing bank finance at large, except for the collateral required by the banks, a difference of 23 per cent between South Asian and white entrepreneurs. Lower percentages of white males were asked for collateral than white females, 47 and 67 per cent respectively. However, the experiences of South Asian male entrepreneurs differ, since a higher proportion of them were asked for collateral than white males. This is consistent with the experiences of South Asian females. However, in all other areas, ethnic females‟ experiences differ from those of ethnic males. The hypothesis is supported that ethnic female entrepreneurs face bias when accessing banks‟ finance. This may be adversely impacting on aspiring South Asian female entrepreneurs in the UK, leading to economic competitiveness and welfare loss.

In summary, this is one of the most important results of this study. It may be concluded that female entrepreneurs at large face finance constraint and ethnic females in particular encounter bias when accessing bank finance; they are required to provide higher collateral.

Table 4 Importance of sources of finance Asian Females

Banks Personal Family Informal finance Trade credit Partners/Shareholders Friends Venture Capital HP/Leasing Business Angels Factoring

Asian Males Mean Score 3.9 3.78 2.88 2.94 2.81 1.72 1.49 1.18 1.1 0.89 0.44

Standard Deviation 1.06 1.21 1.28 1.64 1.67 1.44 1.33 1.5 1.15 1.4 0.63

Rank Order 1 2 3 4 5 6 7 8 9 10 11

Family Banks Trade credit Personal Informal finance Partners/Shareholders Factoring Friends HP/Leasing Venture Capital Business Angels

Mean Score 3.60 3.57 3.39 2.90 2.76 2.43 1.52 1.41 1.24 0.56 0.35

Standard Deviation 1.26 1.27 1.67 1.93 1.69 1.59 1.32 1.14 1.10 0.85 0.81

Rank Order 1 2 3 4 5 6 7 8 9 10 11 17

White Females

Banks Personal HP/Leasing Partners/Shareholders Trade credit Family Friends Factoring Informal finance Venture Capital Business Angels

White Males Mean Score 4.23 3.10 2.81 2.79 2.65 1.90 1.56 1.46 1.27 1.25 0.81

Standard Deviation 4.71 1.29 1.25 1.46 1.31 1.77 1.44 1.68 1.22 1.26 1.23

Rank Order 1 2 3 4 5 6 7 8 9 10 11

Banks Trade credit Partners/Shareholders HP/Leasing Personal Family Factoring Friends Informal finance Venture Capital Business Angels

Mean Score 3.89 3.32 3.07 2.84 2.63 2.37 1.86 1.56 1.46 0.96 0.75

Standard Deviation 3.89 1.21 1.26 1.60 1.34 2.37 1.65 1.49 1.27 1.25 1.11

Rank Order 1 2 3 4 5 6 7 8 9 10 11

Most studies on South Asian entrepreneurs indicate that personal, family and friends are important sources of finance (Hussain and Matlay, 2007) as ethnic SMEs encounter higher barriers to access to finance from external sources, especially at the start-up stage. However, the literature does not distinguish between South Asian female and male experiences. To address this deficit, we examine whether there is a difference in the importance of finance in rank order between female and male and between South Asian and white entrepreneurs. Table 4 shows there is a difference between South Asian females and white females in the ranking of their importance based on mean and standard deviation basis. Interestingly, the sample suggests females consider bank finance more important than South Asian males when in fact they reported (in table 3) a lower favorable response from banks. Trade credit is ranked 5th by the South Asian females whereas South Asian males rated this as 3rd most important. White female and male entrepreneurs rank bank finance as 1st, whereas females rank personal finance 2nd and males 5th; equally, there is a big difference in terms of trade credit, HP/leasing and friends. A comparison between South Asian and white female entrepreneurs is fairly consistent in terms of banks and personal finance but for Asians, family (ranked 3rd) is far more important than for white entrepreneurs (ranked 6th). South Asian females make a greater use of shortterm finance than their white counterparts, suggesting they encounter higher cost and may not be able to access and plan business over the long-term. Similarly HP/leasing is ranked 3rd by white female entrepreneurs but ethnic female ranked it 9th. It can, therefore, be said that ethnic female entrepreneurs continue to rely more on personal, family, informal sources and trade credit. In 18

summary, it can be said that when we evaluate South Asian and white entrepreneurs, gender differences are observed in terms of how different sources of finance are ranked and the differences are to a lesser degree observable amongst the same gender. The evidence is contrary to the literature on South Asian female entrepreneurs. South Asian female entrepreneurs show a more distinct preference for bank finance than white females and those of male entrepreneurs. South Asian females‟ enterprises financial structure, preferences, business activities and characteristics differ from those of South Asian male entrepreneurs. The results of this study shows, ethnic females draw upon their networks, experiences and use the most appropriate and accessible finance to optimize their businesses success. While the analysis provides support for H1, that South Asian women are more likely to experience finance constraints, and for H3, that the level of education improves their prospects in obtaining finance, it does not support H2. The second hypothesis suggested that not being able to access finance would actually stop women from deciding to become an entrepreneur (as in Sena et al, 2008). However, it would appear that, as we suggest above, despite experiencing the „double‟ gender (and ethnic) bias in obtaining bank finance, women nonetheless are determined to start a business drawing upon whatever resources they can obtain, often due to „necessity‟, unemployment and economic marginalisation. A limitation of our research from this perspective is that we have interviewed existing entrepreneurs. However, further in-depth research with „potential‟ South Asian women entrepreneurs, who have not yet started a business but are considering doing so, to determine the extent to which finance would influence their decision, would be essential to address this issue and research question.

5. Conclusions and Implications A number of important conclusions have emerged from this empirical study, about the experiences of South Asian females in comparison with South Asian men, white males and females, in terms of use and importance attached to different sources of finance; and offers insight into their financing preferences. From the survey it was found that South Asian female entrepreneurs are endowed with 19

education, knowledge of enterprise and have experienced directly or indirectly enterprise culture through their families, networks or employment. South Asian women participation rate in Higher Education is higher than those of South Asian men. This may be due to a higher unemployment rate amongst ethnic minority graduates or it may be attributable to the confidence of the emergent New British Asian who aspires to better themselves through enterprise. South Asian females‟ financing preferences are not necessarily consistent with South Asian males or white females but they too rely more heavily upon short-term finance, a finding consistent with Asian male enterprises. The sector analysis suggests that (consistent with prior research) South Asian females are concentrated more heavily in the service sector where entry barriers are low and competition intense, but this findings is consistent with all new entrepreneur but may also indicate that there is an endemic finance gap that is preventing the growth of South Asian female entrepreneurs.

South Asian females rank bank finance first but only 58 per cent approached a bank (white females, 94 per cent) at the start-up stage and reported only 33 per cent favorable bank response ( white females, 77 per cent). The banks sought higher level of collateral than white for females or the two male groups. This suggested that South Asian females are disadvantaged in comparison with white females. This may be attributable to banks experiences‟ of dealing with entrepreneurs, who traditionally are male and white females. South Asian male entrepreneurs‟ experiences contrast with South Asian females, in that Asian males‟ experiences and expectations are at par with their white counterpart and the same cannot be inferred for females. South Asian men too are required to provide higher collateral than the white entrepreneurs, but South Asian females appear to suffer the most. This variation in demand for collateral has been attributed to an information deficit that gives rise to information asymmetry and banks use collateral to overcome such issues. However, this is contrary to experiences of South Asian females, only 43 per cent (white females, 67 per cent) reported that banks requested additional information when approached for finance. This suggests that South Asian females may have acquired business knowledge and have gained experiences to be able to provide 20

effectively information for the bank‟s purposes, but there are other adverse factors for their lower success rates, possibly gender bias. This may suggest that banks, support agencies and policy makers may not yet have recognized the growing aspiration of South Asian females to engage in economic activity and gain independence that is made possible where equal opportunities and education has opened the potential for them to use their talent and knowledge to gain economic freedom and independence.

The finding that South Asian family finance is the dominant source of finance does hold for males in this study and the same findings are not applicable to Asian females in this sample, who rank bank finance and personal before family. This either suggest that South Asian females, 80 per cent of the sample who were born and educated in the UK, have gained confidence in using financial institutions and their expectations are at par with their white female counterparts; they prefer using external finance sources to enter self employment. Or it may be the case that South Asian families hold to cultural norms and are more willing to support their male family member, an aspect that this study has not explored. Nor has the study been able to provide definitive answers to two important corollary issues: (i) the role of social class when decoupled from ethnicity and gender (rather than being bundled together) in bank lending decisions; and (ii) to what extent potential South Asian women entrepreneurs are discouraged, if at all, from starting a business by finance constraints, which leads to the question that some may inevitably start undercapitalised enterprises that may, ultimately, fail. These are both important avenues for future research.

Finally, it is acknowledged that Asian businesses are an important part of the UK government‟s strategy to promote enterprise and employment creation - especially in the most deprived cities of the UK – and South Asian women are critical to successful local and national economic development. However, the findings of this study suggest that South Asian women have a „double hurdle‟ to overcome in access to external finance (whether informal or formal) but they are heavily reliant upon 21

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