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UK Politics

Banks face probe into 'racist' lending practices

Black entrepreneurs denied equal access to loans, says Lib Dem leader

Nick Clegg will today order an investigation into claims that aspiring black and ethnic-minority business people find it harder than white entrepreneurs to obtain bank loans and are then charged higher rates if they succeed.

The Deputy Prime Minister will raise fears that minority groups are not viewed evenly by lenders and argue that there is a moral and economic case to stamp out any prejudice they could encounter.

He will stop short of accusing the high street banks of institutional racism, but say there are sufficient concerns over lending policy for an urgent inquiry into the issue by the Government.

Mr Clegg will point to research showing that 35 per cent of people of black-African origin want to start a business, but only 6 per cent actually succeed in their ambition.

He will say there is evidence that companies run by people from black-African backgrounds are four times more likely than so-called "white firms" to be denied loans – and Bangladeshi, Pakistani, black Caribbean and black African-owned businesses have been subject to higher interest rates than white and Indian companies. He will say: "Anecdotally we hear this is a problem time and time again."

Mr Clegg will say there could be complex reasons for any lack of access to finance, but will add: "If we are serious about turning the UK into an island of entrepreneurs, we need to get to the bottom of this. What are the barriers to finance? Are our banks doing enough?"

Delivering the Scarman lecture in Brixton, south London, Mr Clegg will say: "Britain's banks, bailed out by the British people, have just as much responsibility as everyone else, arguably more responsibility, to help Britain build a strong and dynamic economy. Unleashing black and ethnic-minority talent is their duty, too."

He will announce the appointment of Andrew Stunell, the Communities minister, to "look at the barriers preventing black and ethnic-minority groups from accessing loans". He will say: "We have to work out what is going wrong and then we have to fix it."

Mr Clegg's speech comes a day after the chief executive of the taxpayer-backed Royal Bank of Scotland defended big bonuses for investment bankers against charges that the payouts divert money from lending to credit-starved small businesses.

Giving evidence to the Treasury Select Committee yesterday, Stephen Hester said there was no point in cutting payouts because they were mostly in shares rather than cash. He said that cutting bonuses would not free capital to boost lending to small and medium enterprises (SMEs). He said: "If there are large bonuses in banking, which of course is a shrinking thing anyway, it is not from that part of the business [SME lending]. The investment banking bonus pool... is mostly paid in equity so it doesn't affect capital."

Mr Hester said the bank was struggling to find good businesses to lend to rather than turning them away. He also claimed that the Independent Commission on Banking, which has suggested a raft of reforms to the industry, including a ring-fence between retail and investment arms, had under-estimated the cost of implementing its recommendations.

He said the plans would push up borrowing costs and potentially drive away customers, while being forced to hold more capital would impact on bank profits.

Lending in numbers

35 per cent More than a third of Black Africans say they want to start a business. 6 per cent actually do. (Black Training and Enterprise Group).

4 People of Black African origin are four times more likely than so-called "white firms" to be denied loans outright. (Minority Ethnic Enterprise Centre of Expertise).