Female founders and entrepreneurs, particularly those from ethnic minority backgrounds, face multiple challenges in accessing follow-on finance which is essential for scaling their businesses.
Akmal Hanuk, CEO of Assadaqaat Community Finance (ACF), has seen these issues first-hand through the organisation’s work, particularly in its Women Entrepreneurship Programme.
According to Akmal, women from underrepresented communities face a “huge number of barriers” when it comes to accessing growth finance, which is vital for expanding their enterprises.
At ACF, Akmal and his team have seen the real impact of these barriers. While ACF offers interest-free finance to help these founders start their businesses, the struggle intensifies when the founders seek follow-on finance to grow. Without adequate access to capital, many of these businesses face stagnation.
The difficulties begin with accessing finance from traditional finance organisations. Akmal points out that women from ethnic minority backgrounds often struggle with eligibility criteria, experiencing additional scrutiny stemming from a lack of cultural understanding and unconscious bias.
“There’s a market misalignment,” Akmal says, explaining that many financial institutions fail to understand the unique social, cultural, or religious perspectives that ethnic minority women bring to their businesses. This lack of understanding contributes to the disproportionate allocation of capital.
Cultural biases play a significant role, he believes. Akmal says that differing communication styles, influenced by cultural backgrounds, can be misunderstood during funding pitches. This, combined with other structural barriers, can lead to the undervaluation of businesses led by ethnic minority women, limiting their growth potential.
“The capital therefore generally does not reach women, especially from ethnic minority communities,” he adds.
Another key issue is the limited access to networks that can help entrepreneurs and founders connect with investors. Many women from ethnic minority backgrounds may not have the personal networks that can provide them with vital introductions to finance opportunities.
“There’s a lack of mentorship and role models at the growth stage,” Akmal says, adding that post-startup support is crucial for these businesses to thrive.
Akmal also highlights the issue of perceived risk, saying that businesses led by women in general, and ethnic minorities in particular, are often seen as riskier by funding organisations.
“This is often due to unconscious bias,” he explains, noting that this can lead to rejections or less favourable financing terms.
So, what can be done to address these challenges? According to Akmal, collaboration is key to addressing these challenges. He advocates for targeted funds and programmes for a more diverse representation within financial institutions, particularly in those targeting underrepresented communities.
“Government agencies, the private sector, local authorities and financial institutions need to come together,” he says, suggesting that public-private partnerships could help create funding opportunities for these businesses.
Akmal believes ACF could play a pivotal role in addressing this gap in the market by working with mainstream organisations to help them better engage with ethnic minority communities.
However, to do this, ACF would need greater support and resources. “We need to set up networks and offer mentorship, accelerator programmes, and incubators,” Akmal says, emphasising the need for long-term solutions that go beyond initial startup support.
The impact of solving this issue would be transformative, both for the individuals involved and the economy at large. With focused support, and ease of access to finance, Akmal knows that women from ethnic minority backgrounds could not only grow their businesses but also contribute positively to employment, innovation, and the broader economy.
“Initiatives like ACF Women Entrepreneurship Programme would empower these women entrepreneurs, bring financial stability, and boost GDP,” Akmal says. He also highlights the potential for inward investment, as these entrepreneurs from diverse ethnic backgrounds often have ties to international markets, which could lead to new opportunities for the UK economy.
