Directorate General for Enterprise and Industry 1 Opportunities for ethnic minority Entrepreneurs European week of Regions and Cities, Brussels 11 October

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Directorate General for

Enterprise and Industry

Opportunities for ethnic minority Entrepreneurs

• European week of Regions and Cities, Brussels 11 October 2005

• Mr.Albrecht Mulfinger, • Head of Unit „Crafts, Small Enterprises, Cooperatives and Mutuals,

European Commission, DG Enterprise and Industry

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Introduction

• in 15-20 years ethnic minorities will have a dominant place in the population of large European cities

• more entrepreneurship for ethnic minorities will facilitate their integration in the society

• also a considerable number of ethnic minority entrepreneurs need bank finance,

• But all need a bank account

• finance opportunities of ethnic minority entrepreneurs depend to a large extend from the person, his education, business plan, track record

• banks are not allowed by law to lend to a person that is unable to reimburse

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Definition of ethnic minority entrepreneurs

• an individual which is citizen of an EU 25 member state/ EEA country but has an immigrant background ( up to the 3rd generation)

• an individual that recently came to an EU 25 member State/ EEA Country from a 3rd non EU country and holds a valid residency permit or had the necessary authorisation to become self-employed or start-up business

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Statistics for ethnic minorities

• definition used for migrants and minorities varies considerably in the EU-member states

• in DE, AT after naturalisation immigrant are removed from statistics.• in UK, FR, NL, DK ethnicity appears in statistics; in other member

states not recorded or forbidden• different statistical concepts,• statistics on ethnic minorities very different, incoherent and quite

weak• statistics on ethnic minority entrepreneurs and self-employed in

formal or informal sector could be misleading• citizens with Chinese, Pakistani or Turkish origin are more

entrepreneurial than those from black Africa or former Sovjet block

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Education of ethnical minority entrepreneurs

• majority of first generation migrants has low level of education or qualification

• exception: migrants selected for their skills ( nurses, doctors computer specialists)

• educational level improves for 2nd and 3rd generation including university

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Reasons for self- employment

• entrepreneur by necessity versus entrepreneur by vocation• escape unemployment or risk of unemployment (simple jobs suffer

under delocalisation to low cost countries)• escape 3d jobs- dirty, dangerous and demanding occupation, often

badly paid and almost no hope for promotion• become self-employed : facilitate integration into the society• reduces the risk of young people to become criminal• entrepreneurs by necessity mostly start a small business with low

entry barriers such as• restaurant, food shop, house cleaning and repair, health care,

nurses, gardening, textiles and clothing etc.• main target group of clients: same ethnic community or residents

from the same urban area

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Entrepreneurship of Ethnic minorities

• depending on countries and the mix of ethnic minorities the entrepreneurial dynamism vary considerably.

• entrepreneurial activities of ethnic minorities have increased • • in SE immigrants are more likely to be self- employed than native

Swedes

• DE number of self employ persons among foreigners was 8.6% against 10% of the total employed population

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Access to Finance

• Warwick Business School– no significant differences in likelihood of using external finance between

white and ethnic minority owned business- some 80% of SME have used external sources of finance in last 3 years

– 25% of ethnic minority entrepreneur report lack of self –confidence with finance (Average 16%)

– ethnic minority owned businesses have significantly lower overdraft limits than white owned business (L 18 .000 versus L 35.000 )

– no significant differences in the size of term loans by gender or ethnicity

– no significant differences in rejections or discouragement rates by gender, ethnicity or growth rate

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Access to Finance

• ethnic minorities entrepreneurs raise funds from family, then from the same ethnic minority community, and then from banks

• all banks say to treat finance requests from ethnic minorities in the same way than from white citizens

• often banks are reluctant to finance start-up businesses irrespective of gender, ethnicity or growth prospects

• bank clerks have to reach given profit targets, failure to meet them will reduce their promotion prospects

• Basel II will increase the transparency requests by banks, • high risk will lead to higher interest rates, lower risk to lower interest

rates

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Access to finance

• a large number of ethnic minority entrepreneurs request micro- loans with less than € 25 000

• they are often unable to offer sufficient guarantees

• poorly presented business plans and moderate business situations have an impact on the size and the cost of loans, even if they can assure credit institutions of good market opportunities

• do ethnic minority entrepreneurs communicate efficiently with banks clerks (language, behaviour, clothing)?.

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Best practices for finance of ethnic minority entrepreneurs

• all public promotional banks ( KfW, BDPME, ICO) offer their loans to all SME irrespective of gender and ethnicity

• also Commission financial instruments managed by EIF are offered to all SMEs

• some banks are promoting finance of ethnic minority entrepreneurs such as

• Cooperative Banks in Italy for reason of corporate social responsibility (in form of reduced guarantee requirements)

• Dutch cooperative banks with specific loans for ethnic minorities • Specific measures issued by Member States in disadvantaged

urban areas

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Business opportunities for ethnic minorities

• by filling market gaps – taking over small shops from native traders (retirement, decline of

turnover in depressed urban areas with high immigrant density

– creation of new shops in urban areas for citizens without car

• by creation of new markets for specific products or services– ethnic fast food franchising with high quality service (food is safe, fresh

and low fat)

– tour operator for holidays in the country of origin (e.g. Turkish tour operator in Germany)

– personal and health services for the ageing society in particular for women

– arrival of highly skilled academics (financial analysts, software experts) as employee could lead in several years to new start ups, as Asian immigrants in California have successfully shown

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Specific actions of the DG ENTR

• Ethnic minority entrepreneurs are a specific target group in the entrepreneurship action plan ( 2004)

• Launch of a study on best practices for ethnic minority entrepreneurs

• Network of member states experts on ethnic minority entrepreneurs

• Final report and conference in 2007

• THANK YOU FOR YOUR ATTENTION

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Thank you for your attention

Documents

Directorate General for Enterprise and Industry 1 Opportunities for ethnic minority Entrepreneurs European week of Regions and Cities, Brussels 11 October