Advanced Search

Journal Navigation

Journal Home

Subscriptions

Archive

Contact Us

Table of Contents

Click here for more information on Marketing Management

Sign In to gain access to subscriptions and/or personal tools.
International Small Business Journal
This Article
Right arrow Abstract Freely available
Right arrow Résumé
Right arrow Zusammenfassung
Right arrow Resumen
Right arrow Free Full Text (Free PDF) Free
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Similar articles in this journal
Right arrow Alert me to new issues of the journal
Right arrow Add to Saved Citations
Right arrow Download to citation manager
Right arrowRequest Permissions
Right arrow Request Reprints
Right arrow Add to My Marked Citations
Citing Articles
Right arrow Citing Articles via Scopus
Google Scholar
Right arrow Articles by Fraser, S.
Social Bookmarking
Add to CiteULike   Add to Complore   Add to Connotea   Add to Del.icio.us   Add to Digg   Add to Reddit   Add to Technorati   Add to Twitter  
What's this?

Is there Ethnic Discrimination in the UK Market for Small Business Credit?

Stuart Fraser

University of Warwick, UK, Stuart.Fraser{at}wbs.ac.uk

A large-scale survey of UK small business finances is analysed for evidence of ethnic discrimination in the credit market. A summary analysis of credit outcomes (loan denials , loan interest rates and discouragement) reveals large differences across ethnic groups with Black and Bangladeshi businesses, in particular, experiencing poorer outcomes than White and Indian businesses. Econometric analysis indicates that ethnic differencs in denial rates and interest rates can be explained by variations in non-ethnic risk factors such as missed loan repayments and overdraft excesses. This suggests there is no ethnic discrimination in credit markets. However, ethnicity appears to influence whether business owners felt discouraged from applying for loans even after controlling for differences in loan application costs and risk. This suggests some ethnic groups may be affected by misperceptions of ethnic discrimination. The implications of these findings for UK policy are discussed.

Key Words: debt finance • ethnic discrimination • government policy • small firms

References

  • Allen, L., DeLong, G. and Saunders, A. ( 2004) ‘Issues in the Credit Risk Modeling of Retail Markets’, Journal of Banking and Finance 28(4): 727-52.
  • Bank of England (1999) The Financing of Ethnic Minority Firms in the United Kingdom: A Special Report. London: Bank of England.
  • Bank of England (2004) Finance for Small Firms: An Eleventh Report. London: Bank of England.
  • BBA (2005) Guide to Credit Scoring, URL (consulted November 2007): http://www.bba.org.uk
  • Becker, G.S. ( 1971) The Economics of Discrimination, 2nd edition. Chicago, IL and London: University of Chicago Press.
  • Berger, A.N., Frame, W.S. and Miller, N.H. ( 2005) ‘Credit Scoring and the Availability, Price and Risk of Small Business Credit’, Journal of Money, Credit and Banking 37(2): 192-222.
  • Berger, A.N. and Udell, G.F. ( 1995) ‘Relationship Lending and Lines of Credit in Small Firm Finance’, Journal of Business 68(3): 351-81.[CrossRef][Web of Science]
  • Berger, A.N. and Udell, G.F. ( 1998) ‘The Economics of Small Business Finance: The Roles of Private Equity and Debt Markets in the Financial Growth Cycle’, Journal of Banking & Finance 22(6): 613-73.[CrossRef][Web of Science]
  • Berger, A.N. and Udell, G.F. ( 2002) ‘Small Business Credit Availability and Relationship Lending: The Importance of Bank Organizational Structure’, The Economic Journal 112(February): F32-F53.[CrossRef]
  • Bester, H. ( 1985) ‘Screening vs Rationing in Credit Markets with Imperfect Information’, American Economic Review 75: 850-5.[Web of Science]
  • Blanchflower, D., Levine, P. and Zimmerman, D. ( 2003) ‘Discrimination in the Small-Business Credit Market’, The Review of Economics and Statistics 85(4): 930-43.[CrossRef][Web of Science]
  • Bolton Committee (1971) Report of the Committee of Inquiry on Small Firms, Cmnd 4811. London: HMSO.
  • Boot, A. ( 2000) ‘Relationship Banking: What Do We Know?’, Journal of Financial Intermediation 9(1): 7-25.[CrossRef][Web of Science]
  • Cavalluzzo, K.S., Cavalluzzo, L.C. and Wolken, J.D. ( 2002) ‘Competition, Small Business Finance, and Discrimination: Evidence from a New Survey’, Journal of Business 75(4): 641-79.[CrossRef][Web of Science]
  • Competition Commission (2002) The Supply of Banking Services by Clearing Banks to Small and Medium-Sized Enterprises. London: Competition Commission.
  • Cruickshank, D. ( 2000) Competition in UK Banking. London: HM Treasury.
  • Curran, J. and Blackburn, R. ( 1993) ‘Ethnic Enterprise and the High Street Bank’, Working Paper, Kingston Business School, Kingston University.
  • De Meza, D. and Southey, C. ( 1996) ‘The Borrower’s Curse: Optimism, Finance and Entrepreneurship’, The Economic Journal 106(March): 375-86.[CrossRef]
  • Evans, D.S. and Jovanovic, B. ( 1989) ‘An Estimated Model of Entrepreneurial Choice under Liquidity Constraints’, Journal of Political Economy 97: 808-27.[CrossRef][Web of Science]
  • Fraser, S. ( 2005) Finance for Small and Medium Sized Enterprises: a Report on the 2004 UK Survey of SME Finances. Warwick: CSME, Warwick Business School, University of Warwick.
  • Fraser,S. ( 2007) Finance for Small and Medium Sized Enterprises: Comparisons of Ethnic Minority and White Owned Businesses. London: Department for Business Enterprise and Regulatory Reform.
  • Fraser, S. and Greene, F.J. ( 2006) ‘The Effects of Experience on Entrepreneurial Optimism and Uncertainty’, Economica 73: 169-92.[CrossRef][Web of Science]
  • Graham, T. ( 2004) Graham Review of the Small Firms Loan Guarantee: Recommendations. London: HM Treasury.
  • Han, L., Storey, D.J. and Fraser, S. ( 2008a) ‘The Concentration of Creditors: Evidence from Small Businesses’, Appied Financial Economics 18(20): 1647-56.[CrossRef]
  • Han, L. Fraser, S. and Storey, D.J. ( 2008b) ‘Are Good or Bad Borrowers Discouraged from Applying for Loans?: Evidence from US Small Business Credit Markets’, Journal of Banking and Finance 33(2): 415-24.[CrossRef]
  • Inss (2007) Ethnic Minorities and the Bankruptcy Process: Results of Interviews with Debt Advice Agencies, the Citizens Advice Bureau, Community and Faith Leaders and Support Providers. London: Centre for Enterprise and Economic Development, Middlesex University Business School.
  • Jones, T., McEvoy, D. and Barrett, G. ( 1994) ‘Raising Capital for the Ethnic Minority Small Firm’, in A. Hughes and D. Storey (eds) Finance and the Small Firm, 145-81. London and New York: Routledge.
  • Kon, Y. and Storey, D.J. ( 2003) ‘A Theory of Discouraged Borrowers’, Small Business Economics 21(1): 37-49.[CrossRef][Web of Science]
  • Levenson, A.R. and Willard, K.L. ( 2000) ‘Do Firms Get the Financing They Want?: Measuring Credit Rationing Experienced by Small Businesses in the U.S.’, Small Business Economics 14(2): 83-94.[CrossRef][Web of Science]
  • Maddala, G.S. ( 1983) Limited Dependent and Qualitative Variables in Econometrics. New York: Cambridge University Press.
  • Mester, L.J.( 1997) ‘What’s the Point of Credit Scoring’, Federal Reserve Bank of Philadelphia Business Review (September-October): 3-16.
  • Mole K. ( 2002) ‘Business Advisers Impact on SMEs: An Agency Theory Approach’, International Small Business Journal 20: 137-57.
  • Mole K., Hart, M., Roper, S. and Saal, D. ( 2008) ‘Differential Gains from Business Link Support and Advice: A Treatment Effects Approach’, Environment and Planning C: Government and Policy 26(2): 39-62.
  • Parker, S.C. ( 2002) ‘Do Banks Ration Credit to New Enterprises?: And Should Governments Intervene?’, Scottish Journal of Political Economy 49(2): 162-95.[CrossRef][Web of Science]
  • Petersen, M.A. and Rajan, R.G. ( 1994) ‘The Benefits of Lending Relationships: Evidence from Small Business Data’, Journal of Finance 49: 3-37.[CrossRef][Web of Science]
  • Rajan, R.G. ( 1992) ‘Insider and Outsider: the Choice between Informed and Arm’s Length Debt’, Journal of Finance 47: 1367-400.[CrossRef][Web of Science]
  • Smallbone, D., Ram, M., Deakins, D. and Baldock, R. ( 2003) ‘Access to Finance by Ethnic Minority Businesses in the UK’, International Small Business Journal 21(3): *91-314.
  • Stiglitz, J. and Weiss, A. ( 1981) ‘Credit Rationing in Markets with Imperfect Information’, American Economic Review 71: 393-410.[Web of Science]
  • Wilson Committee (1979) Interim Report on the Financing of Small Firms, Cmnd 7503. London: HMSO.

International Small Business Journal, Vol. 27, No. 5, 583-607 (2009)
DOI: 10.1177/0266242609338756
Add to CiteULike CiteULike   Add to Complore Complore   Add to Connotea Connotea   Add to Del.icio.us Del.icio.us   Add to Digg Digg   Add to Reddit Reddit   Add to Technorati Technorati   Add to Twitter Twitter    What's this?



This Article
Right arrow Abstract Freely available
Right arrow Résumé
Right arrow Zusammenfassung
Right arrow Resumen
Right arrow Free Full Text (Free PDF) Free
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Similar articles in this journal
Right arrow Alert me to new issues of the journal
Right arrow Add to Saved Citations
Right arrow Download to citation manager
Right arrowRequest Permissions
Right arrow Request Reprints
Right arrow Add to My Marked Citations
Citing Articles
Right arrow Citing Articles via Scopus
Google Scholar
Right arrow Articles by Fraser, S.
Social Bookmarking
Add to CiteULike   Add to Complore   Add to Connotea   Add to Del.icio.us   Add to Digg   Add to Reddit   Add to Technorati   Add to Twitter  
What's this?