A host of interconnected and systemic factors hold back minority-led exporters from trade, and the root causes – and indeed the populations affected – differ from country to country, or even city to city. A growing number of financiers are coming up with new solutions to help level the playing field. Eleanor Wragg reports.


In recent decades, open trade has been a key engine of economic growth and development around the world. According to the World Economic Forum, more than 1 billion people have been lifted out of extreme poverty since 1990, owing to growth that was underpinned by trade. Statistics abound as to the positive impact of trade – from higher wages for employees at export-oriented firms to increased innovation, productivity and opportunities. However, not everyone benefits automatically.

Numerous surveys show that businesses led by people from minority backgrounds face barriers to growth. In the UK, British Business Bank figures show that black business owners have a median turnover of £25,000, compared to £35,000 for white business owners. Meanwhile, the Federation of Small Businesses (FSB) finds that minority-led businesses are “less likely to get outside finance or support and advice”. In the US, a December study from the Federal Reserve Bank of Atlanta that looked at data from 2018 found that only 31% of black-owned firms, 35% of Hispanic-owned firms and 39% of Asian-owned firms got approval for all the financing they applied for, versus nearly half of white-owned small businesses.

These existing inequalities have only been exacerbated by Covid-19. According to Meta’s latest State of Small Business report – a survey of more than 35,000 small business leaders – 32% of operational minority-led small businesses reported they had reduced the size of their workforce as a result of the pandemic, compared to 20% of other small businesses. Minority-led firms were also seven percentage points more likely to report business closures.


Corporate action

The Black Lives Matter movement, which has gathered pace since its founding in 2013, and the global revulsion at the police killing of African-American man George Floyd in the US in 2020, have put pressure on corporates to address the role they play in systematic racism, pushing topics such as supplier diversity to the C-suite level. For many multinational companies, supplier diversity programmes, in which they commit to using their procurement process to drive responsible change, are seen as a way to make an impact. Johnson & Johnson, for example, has pledged to spend US$4.5bn on diverse suppliers by 2025, an increase of 20% from 2020. Meanwhile, Accenture, which defines diverse businesses as those owned by minorities, women, people with disabilities, the LGBT community and veterans, says that over a third of its total US procurement spend is now with underrepresented suppliers.

However, simply agreeing to do more trade with diverse suppliers is only part of the solution. In order to be able to participate in global supply chains, undercapitalised minority-led businesses need better access to trade finance – and in spite of legal protections in most jurisdictions to combat explicit discriminatory practices in lending, they aren’t getting the finance they need to trade.

As Sanjay Sadarangani, global head of sustainability for global trade and receivables finance at HSBC, puts it: “There is insufficient financing available currently to minority and diverse suppliers in the UK and the US.”


Access to finance

The 2021 Small Business Credit Survey Report on Firms Owned by People of Color, a report carried out by the Federal Reserve banks of Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, St Louis and San Francisco, found that firms owned by members of minority groups tend to have weaker banking relationships, experience worse outcomes on credit applications, and are more reliant on personal funds.

“Minority-owned businesses often have fewer channels to access bank lending, and they face underlying issues that challenge their ability to run at scale,” says Heather Crowley, global head of supply chain finance at JP Morgan.

“Now more than ever liquidity and equitable access is key,” adds Claire Thompson, executive vice-president, global trade for enterprise partnerships at Mastercard. “Ensuring that minority-owned businesses and SMEs have fair access to secure credit lines in order to secure livelihoods and grow businesses is essential if we are to advance inclusivity and resiliency across the supply chain – which we know is only as strong as its weakest link.”


A minority focus

Tackling this issue isn’t easy. Market barriers related to access to expertise, networks and services all play an important role. However, a growing number of banks are setting up trade finance programmes that explicitly target minority-led businesses, with the aim of reducing inequalities.

Last year, HSBC and US retail giant Walmart duplicated an existing supply chain finance programme that extends preferential pricing for suppliers who meet environmental criteria, creating a new initiative that offers similar discounts but to qualified diverse or minority-owned suppliers. Sadarangani tells GTR the bank is seeing interest from other clients that are seeking to incorporate the social aspect into their ESG supply chain efforts.

Meanwhile, JP Morgan, as part of a wider US$30bn commitment to advancing racial equity, has launched pre-shipment loans for selected vendors in supply chain programmes, in support of increasing diversity and inclusion efforts.

Meta’s Facebook is also joining in. In its first foray into the US supply chain finance market, it is offering to buy the invoices of small businesses owned and run by women, racial and ethnic minorities, veterans, people with disabilities and those from the LGBTQ+ community.

Not to be outdone, export credit agencies are also turning their sights to supporting minority exporters. In July last year, Export Development Canada (EDC) expanded its original Women in Trade Investments programme to cover exporting businesses owned or led by indigenous peoples, black Canadians and people of colour, committing C$200mn in equity support.

“The scope of our support has progressed from its initial focus on women, to now include indigenous-owned and led businesses, and we’re firmly committed to continually evolving our approach to reach even more diverse Canadian business owners,” says Jennifer Cooke, EDC’s director of inclusive trade. “The goal of our inclusive trade strategy – and this programme at its centre – is to work towards improved access to EDC financial and knowledge solutions, so all Canadian export businesses can realise their international growth potential.”

“We believe it’s more important than ever to increase our support for diverse-owned and led businesses to help level the playing field by improving access to capital,” adds EDC’s CEO, Mairead Lavery, in a statement. “Not only have these businesses been disproportionately affected by the Covid-19 pandemic, but they have faced – and continue to face – systemic discrimination and unjust hurdles in society and business.”


The data issue

This discrimination makes itself known in the unlikeliest of places. During the worst of the pandemic, government relief programmes were hastily put into place worldwide to help ease the strain on SME exporters. However, some evidence suggests that minority-led businesses were shut out from accessing them. For instance, a New York University study that looked at the US’ paycheck protection programme – a federally guaranteed scheme that incentivised small businesses to keep employees on their payrolls during the pandemic by providing them with forgivable loans – found that many banks were much less likely to lend to black-owned firms.

Citing “subjectivity” in lending decisions as the reason, the study’s authors called for the greater use of data to stamp out bias – unconscious or otherwise – in credit assessments. “By eliminating manual review conducted by biased humans, automation could reduce the incidence of taste-based discrimination,” they say.

However, this solution is only as good as the data that goes into it, and since algorithms are made to replicate human behaviour, there is a risk that machine learning can end up hard-wiring bias, or even out-and-out racism, into the system. This was demonstrated most egregiously when, in 2015, artificial intelligence in Google’s image recognition software categorised photographs of black people as “gorillas”. Meanwhile, when University of Virginia computer science professor Vicente Ordóñez and his colleagues looked in 2017 at large collections of photos used to “train” image-recognition software for companies like Microsoft and Facebook, they found a “highly predictable” pattern of gender bias in their depiction of activities, with images of cooking and shopping being linked to women, while shots of sports and hunting were tagged as male pursuits.

Worried by the extent of the flaws in machine learning, which is increasingly being used to make life-changing decisions for ordinary people, the American Civil Liberties Union, the Leadership Conference on Civil and Human Rights, Upturn, and two dozen other partner organisations have called upon the Biden administration to “take concrete steps to bring civil rights and equity to the forefront of its artificial intelligence and technology policies”, and to actively work to address what they call the “systemic harms” of these technologies.

In trade finance, where data is increasingly seen as the key to opening up access to a greater number of exporters, the shortcomings of AI could pose a serious problem.

“For the majority of people AI algorithms are a mystery,” says Mastercard’s Thompson. “Raw data goes in one end and the answers that come out the other can lead to suggested online purchases, or programmes you may look to stream. They become significant when such algorithms are leveraged to provide levels of lending comfort to financiers, which directly impacts people’s livelihoods and pathways to prosperity.”

“We want to use objective data,” says HSBC’s Sadarangani. “We want to make sure that anything we do does not itself add unconscious bias, and that is something we have to be very conscious about. Any financing proposition, digital or otherwise, must eliminate or mitigate any unconscious bias that may come in.”

As part of a US$500mn, five-year commitment to advance racial equity and economic opportunity for black communities, Mastercard has partnered with Howard University, committing US$5mn for the creation of a centre for applied data science and analytics in order to tackle this issue. The faculty, which will open for the spring 2022 semester, aims to train the next generation of data scientists on how to eliminate biases in AI.

“When AI fails to consider diverse backgrounds, these algorithms can disadvantage minority communities, especially when it comes to access to secure trade finance. Through choices around which data to use and which data matters most, algorithms can systemically disadvantage black and minority business owners and groups,” says Thompson. “Addressing these biases, and ensuring that data sources are diverse and inclusive, therefore advances fair access for all minority communities and ensures that those previously underserved are no longer locked out of the formal economy.”


The business case for diversity in trade

Ensuring that the benefits brought by international trade become more inclusive isn’t a philanthropic proposition. Around the world, policymakers, researchers and business organisations have uncovered evidence that, all else being equal, minority-led exporters can play a key role in driving further trade growth.

“Minority business enterprises (MBEs) are uniquely qualified and equipped to enter global markets,” says the US Department of Commerce’s Minority Business Development Agency in a statement. “They are twice as likely to export, three times as likely to already have international operations and six times as likely to transact business in a language other than English. These operational factors strategically position MBEs to be successful exporters.”

In the UK, too, a report from the FSB found that ethnic minority businesses are “more innovative and more likely to export than their white-owned counterparts”, adding that “many ethnic minority entrepreneurs have family links to Commonwealth countries, such as India and South Africa, which could become bigger trading partners now the UK has left the EU.”

But for minority-led businesses to fully take part in the global trade system and achieve their full potential, they need to command the same opportunity sets to compete – and this means getting the finance they need to grow.

By directly targeting them with new trade and supply chain finance programmes, and stamping out some of the root causes of their lack of access to finance by rethinking how credit decisioning is done, the very many benefits of global trade may one day be able to be shared by the many, rather than the privileged few.