Britain’s banks may be forced to change their lending criteria for ethnic minorities as ministers step up efforts to release more bank funding to credit-starved communities.
Nick Clegg, the deputy prime minister, ordered a review into lending to black and ethnic minorities last November, citing evidence suggesting bank managers discriminate against them.
Andrew Stunell, the Liberal Democrat minister for racial equality, has been locked in talks with some of the biggest banks, and will on Monday call on them to put more effort into marketing their services to black communities and other under-served groups.
But Whitehall officials have indicated he is willing to go further, including the possibility of a controversial order to loosen their lending criteria if “softer measures” do not work.
Mr Stunell said: “Budding entrepreneurs from ethnic minority backgrounds, especially black applicants, find it particularly difficult to access bank loans and are far less likely than others to go ahead and set up a business after having the initial idea.
“More needs to be done to break down these barriers and offer real solutions.”
He will recommend a host of proposals to boost the demand from ethnic minorities for bank products, including specific “outreach events” to drum up business from those communities and making sure banks refer customers they turn down to alternative lenders such as credit unions.
He will also tell banks they need to do more to monitor how many people from those communities apply for, and are successful in receiving, loans. Figures on how many ethnic minority applications for loans are successful are scarce. Surveys have suggested 35 per cent of black people say they want to start a business, but only 6 per cent actually do. Banks have maintained, however, that this has more to do with a lack of demand than any unwillingness on their part to lend.
Mr Stunell will meet Angela Knight, the chief executive of the British Bankers’ Association, on Monday to lay out his concerns. One government aide told the Financial Times the BBA had co-operated reasonably well with the review so far, but that Mr Stunell was starting to get impatient with the banks’ lack of progress.
Ministers had not ruled out more drastic action, the official said, including changes to banks’ lending practices, while stressing that the main focus of the current round of discussions was improving monitoring.
The person said: “The key first step is getting the banks to find out who their customers are. The banks are the ones with the money and the reputation and they are the ones with the responsibility to black businesses.”
Mr Stunell’s review came after Mr Clegg launched a strong attack on banks over their low levels of lending to women and ethnic minorities. He said: “Past evidence shows that firms owned by individuals of black African origin have been four times more likely than so-called white firms to be denied loans outright.”
“Bangladeshi, Pakistani, black Caribbean and black African-owned businesses have been subject to higher interest rates than white and Indian owned enterprises,” Mr Clegg added. “If we are serious about turning the UK into an island of entrepreneurs, we need to get to the bottom of this.”
The issue remains a live public debate even 10 years after a significant report by the BBA in 2002, which said black entrepreneurs faced problems in raising bank finance because of what appeared to be racial discrimination. French and US studies have identified similar problems.
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