The role of entrepreneurship in fighting social exclusion

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By Amira Almakzomy

What role does entrepreneurship play in fighting social exclusion, and what are the barriers faced by immigrant entrepreneurs?

Entrepreneurship has the potential to be a solution for social exclusions in the EU and around the world. Inclusive entrepreneurship policies ensure that all members of society have an equal opportunity to start a business. The article will portray some barriers faced by ethnic minority entrepreneurs, as well as policies that aim to support those who face challenges in setting up sustainable businesses, particularly focusing on immigrants and women.

A research suggests that there were only 9 million self-employed women compared with 21 million self-employed men in 2012 in the EU. Moreover, research says that the majority of entrepreneurs in the EU are wealthy, well-educated, native-born, males, which does not support inclusiveness.

According to the European Commission there is an entrepreneurship quality gap between disadvantaged social groups and the rest of the population. The business turnover, income from self-employment and business survival rates are all lower for immigrants and women.

Immigrant entrepreneurs are a very diverse group, some come from entrepreneurial cultures while others do not. Entrepreneurs usually face many barriers, however ethnic minorities and migrants face more challenges than mainstream entrepreneurs. According to European Commission research shows that immigrants tend to experience more barriers to creating businesses than native entrepreneurs. For new immigrant’s regulatory requirements can be difficult to understand, they are also more likely to be forced to rely on informal finance.

Some of the barriers faced are:

Finance

Access to finance can be a barrier for business start-ups, particularly for recent immigrants who cannot demonstrate a credit history or have never participated in the formal banking system.

Lack of entrepreneurial skills

A lack of entrepreneurship skills can hinder business creation. Particular challenges for ethnic minority and immigrant entrepreneurs are often related to business management skills, and ability to speak the language used in the business environment.

Institutional Barriers

Entrepreneurs are unfamiliar with business and regulatory environment, such as regulations for market entry and exit, laws governing commercial transactions, and laws that affect the cost of setting up businesses and conducting business activities. For ethnic minorities this is even more the case than mainstream entrepreneurs. Ethnic minority entrepreneurs tend to perceive government regulation as a major negative influence. This is because entrepreneurs from ethnic minority groups can have difficulties understanding the laws, administrative requirements and regulations. Immigrants lack the knowledge and skills to cope with unfamiliar institutions or environment. Thus, sometimes they have difficulties in setting up businesses especially in highly regulated industries.

Although research suggests that government regulation is often a barrier to entrepreneurship, however laws and regulations can also be made to open up opportunities for entrepreneurship by creating a favorable environment for entrepreneurship.

When it comes to institutional barriers we also have to acknowledge the challenge of the normative institutions. This are the values that influence preferences in a society or the social standards of what is considered preferable and desirable. Normative institutions also include entrepreneurship culture. For instance, research shows that African and Pakistani entrepreneurs in the United Kingdom are affected by lower level of acceptance of entrepreneurship than mainstream entrepreneurs and other ethnic minorities such as Chinese or Indians.

Policy makers on local, national and regional levels have the ability to support the objective of inclusive entrepreneurship with programmes that increase people’s awareness of and motivation for entrepreneurship.

Policy recommendations

A policy response to overcome the above-mentioned barriers could be offering specialized training schemes, microfinance, institutional support and follow-up support.

Specialized training schemes would help immigrants develop solid business projects and become more aware of the financing opportunities available to them. This could consist of short few days courses in entrepreneurship for immigrants to hone their skills. For example, in Denmark they had ‘Getting Started Camps’ which provided a two-day course for refugee and immigrant women. After 3 years, 16 percent of participants were self-employed comparing to 3 percent at the beginning of the camps. Such workshops can give the entrepreneurs skills needed to start their businesses. Thus, motivated and capable people should be supported by entrepreneurship skills development trainings, as well as building connections between them and networking.

Another policy proposal is targeted microfinance; this could be based on competition. Governments or NGO’s can create Entrepreneurial programmes where they give grants to the best ideas, as well as networking events and additional needed services for starting up. There could also be specific microfinance programmes targeting women only, as they are often under-represented in some societies. Important stakeholders and mainstream support providers, such as chambers of commerce and microfinance institutions should give much more support to immigrant entrepreneurs and women.

Policy makers should take actions to reduce the institutional barriers and help entrepreneurs better operate in the business environment. The institutions should support the immigrant entrepreneurs to understand local laws concerning opening up businesses better. As well as teach them what is considered preferable, and acceptable culturally in that country.

It is also crucial to offer follow-up support and not only focus on the start-up phase. Often times potential entrepreneurs may have great ideas and motivations, and although they may get initial financial support they may still fail. This is due to lack of business development experience. To avoid this, integrated packages of business development services that combine counselling, coaching, and mentoring should be offered including supervision of the post start-up phase.

Finally, an important policy recommendation is to increase monitoring and evaluation in order to see the impact of the support schemes on start-up enterprises and social inclusion.

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Welcome to The New European, the online magazine of UNITEE, the New European Business Confederation, dedicated to highlighting the great contributions New Europeans bring to our societies.

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