Banks have a major role to play in supporting minority-owned businesses
BankThink. American Bankers Newspaper. By William Michael Cunningham June 25, 2024, 10:00 a.m. EDT
The United States' economy is distinctly divided into two economies: the minority economy and the majority economy. This division is supported by empirical evidence highlighting significant economic disparities between minority groups and their white counterparts, particularly during economic downturns.
Minority populations, including Black, Hispanic and Native American communities, consistently face higher unemployment rates, lower income levels, and reduced access to capital. These disparities are further exacerbated during economic recessions. The Federal Reserve indicates that Hispanics, Blacks, Native Americans and other disadvantaged groups experience greater-than average unemployment rates over the economic cycle. For instance, during recessions, the unemployment rate for Black and Hispanic individuals often significantly exceeds that of white individuals.
The Fed also highlights that the share of "hand-to-mouth" consumers — those who spend all their income and have minimal savings — increases substantially during downturns, with these consumers being disproportionately represented among minority populations. This makes minority groups more vulnerable to economic shocks and downturns.
A wide array of minority business programs, including the Minority Business Development Agency, or MBDA; the Small Business Administration's 8(a) Business Development Program; state and local minority business initiatives; diversity, equity and inclusion programs; the Hispanic Chamber of Commerce; the U.S. Black Chambers of Commerce; and the National Minority Supplier Development Council, or NMSDC, play a crucial role in addressing these economic disparities and fostering economic parity between the minority and majority economies.
Minority-owned businesses often struggle to secure financing from traditional banking institutions. Programs like the MBDA, SBA 8(a) and various state and local initiatives provide essential support by facilitating access to financial resources and business development services. This support is crucial for the growth of minority businesses, which in turn generates jobs and stimulates economic activity within minority communities.
By promoting minority entrepreneurship and business growth, these programs contribute to a more resilient economy. Diverse business ownership introduces varied perspectives and innovative solutions to market needs, enhancing overall economic robustness.
Minority-owned businesses are more likely to employ individuals from their communities, thereby directly impacting minority employment rates. This is particularly important during economic recoveries, where minority businesses play a vital role in reducing unemployment disparities and fostering community development.
Banks also have a critical role to play in remediating inequality. By adopting more inclusive lending practices and actively seeking to support minority-owned businesses, banks can help bridge the financing gap that often stifles the growth of these businesses. Additionally, banks can invest in community development projects and provide financial education programs aimed at minority communities. Such initiatives can help build financial literacy and stability, empowering minority populations to better weather economic cycles and participate more fully in economic growth.
The presumption of disadvantage for minority groups in economic policies and programs is not merely a compassionate stance but is rooted in statistical and historical realities. Economic challenges faced by minority populations are deeply entrenched in historical and structural inequalities. Discriminatory lending practices, educational disparities and unequal economic opportunities have systematically disadvantaged certain groups. Acknowledging this disadvantage is essential for developing effective policies that can level the playing field.
Programs that incorporate the presumption of disadvantage help stabilize the economy by ensuring that the most vulnerable populations receive the support they need to succeed. This approach not only mitigates inequality but also enhances overall economic stability and growth.
A Federal Reserve paper underscores that reducing the frequency and severity of economic downturns can have disproportionately positive effects on historically disadvantaged households, leading to long-term improvements in economic well-being.
There are two distinct economies in the United States, characterized by significant disparities between minority and majority populations. A broad spectrum of minority business programs, including MBDA, SBA 8(a), state and local initiatives, DEI programs and minority Chambers of Commerce are essential for bridging these economic divides. By providing targeted support to minority-owned businesses and acknowledging the systemic disadvantages these groups face, such initiatives help foster a more inclusive and resilient economy. The presumption of disadvantage is a justified and necessary stance to ensure equitable economic opportunities for all.
William Michael Cunningham - Founder, Creative Investment Research
American Banker Newspaper BankThink