Is there racial profiling in the financial sector? Mr.Vincent Oni asks. Mr. Oni, your article touches on a variety of interesting issues – issues that are close to my heart. While it is true that the African Canadian is less likely to access financial support through Canada’s financial institutions, the reasons why this is the case may not be what you think it is. In fact, if your finding is correct – that is, 31% of African Canadian businesses got start-up capital from banks – then, I am greatly encouraged and I think every one else should be as well. Getting a Loan is both a science Maybe it is cultural, but many of us from Africa believe that we can bamboozle our way into getting a loan. Or, maybe, we still believe that we should be able to call an uncle who knows a politician who knows a bank manager and bang, we have a loan. Whether we are able to pay back the loan or not should be immaterial. Recently, a lady who owns a house mortgaged by Bank A came to see me with a complaint. “Ken, I have had my mortgage with Bank A for the last five years. I’ve never missed a payment. I applied for a $40,000 loan to start an African grocery shop and I was turned down flat. I think it is because I’m black and a woman. I’m pulling my mortgage and my bank account from that bank. ”After succeeding in calming her down, I asked her about her credit rating, the value of her house and her liabilities. It turned out that while she had excellent credit rating and a $100,000 equity in her home, she had a high mortgage and some $70,000 in credit cards and car loans. She was about lo lose her job and that was the motivating factor in making her decide to go into business for herself. I calmly explained to her why she was turned away by her bank, and it wasn’t because she was black and a woman. I also told her that, under her circumstances, not only would the bank turn her away but also even her boyfriend would do the same if he were the bank manager. She fumed, “ I need the help, Ken, and I thought it is the bank you turn to when you need help.” Not, so, mum. The banks shy away from you when you need them the most. The irony is that, banks want you only when you don’t really need them. I advised her, free of charge, that if she was really serious about getting her business started, she should sell the house, move into an apartment and use the equity to start her grocery business. As things were, if she doesn’t sell the house soon enough, she would lose the house and the $100,000 equity. My advice was hard to take, but, I hope she listened to me. How banks lend money Banks hate to lose money. Remember that banks are custodians of the funds left on deposit by you and I. If one day you went into your bank to withdraw the $10,000 you left on deposit a year ago and you found out that your money was gone because the bank manager lent it to someone who couldn’t pay, you would be mad like hell, would you not? You would probably threaten a lawsuit, would you not? The banks are very much aware of their responsibility to their depositors and owners whose money they manage. This is one of the many reasons why they are so careful when it comes to lending money, even though that’s their business. The banks look at four key things when they lend: Credit rating The security The business idea itself The person behind the business I am not able to rank the above as to which is more important. But, I believe that if you fall short on any one of the above, you drastically reduce your chances of getting a loan on reasonable terms. If you fail in two, you are probably out the door faster than you walked in. Credit Rating Before you decide to approach a bank manger for a loan, you ought to find out how you stand in terms of your credit rating. There are two major Credit Bureaus in Ontario – Equifax in Toronto and Trans Union in Hamilton. You may write or visit them. They’ll make a copy of your credit report available to you. Review the report to find out if all the information on the report are correct; and also, if you have a good credit rating. If you find anything that is unusual or incorrect you can have it corrected. Your beacon score should be above 600 if you plan to access a loan. Security African Canadians, generally, fall short in this area, and I won’t blame us too much for this. The general rule is that, for every $100,000 needed to put a business together, you the owner must have, at least $50,000. This money should come from your own savings and must not be borrowed. 50% equity in a business venture ensures the survival of the business even if you run into trouble at the initial stages or at any other stage for that matter. The problem with African Canadians is that we want to start a business on a shoe-string. We would rather borrow 100% of the start-up capital. A bank will likely not look at you if you don’t have 50% of the funds you need. Some of us try to short-circuit this requirement by borrowing from friends and relatives to show the bank manger as if the funds are our own. If you succeed in obtaining a bank loan under such false pretences, your business will likely fail at the least hitch. Why African Canadians can’t save money i). Instant Gratification In a money management class, a group of students were asked to make a choice based on the following scenario. A very rich man decided that he was going to give money away. He offered to give $100,000 right away. Alternatively, he would give $1 the first day, and every day that you could wait, he would double whatever he gave the previous day. For example, on day 1, he would give a $1; day 2, $2; day 3, $4; day 4, $8 and so on. Not surprisingly, most of the students opted for the $100,000 today. But, the man went on to show that by the 20th day, those who waited would have received over $1million cumulatively. In fact, on the 21st day alone, they would receive $1million – as much as they had received the entire 20 days prior We are impatient. We want instant gratification. It takes many years of painstaking effort to save money to build a capital base. Waiting is something that many new African immigrants find hard to do. We seem to be in a rush to do what those who have long and deep roots in this country can do. We want expensive cars, big homes and nice clothes. We hop in a plane back to the motherland at the least chance. All of these pleasures are devastating leaks in our finances. They do not help us to stabilize our stay in our adopted country. ii) We are undecided about where we want to live. .A New Immigrant Syndrome (ANIS) is a disease afflicting many first generation immigrants. The disease is a psychological one with the following symptoms. You are highly elated the last few days preceding your departure to your new home. In fact, you can’t wait to get here. The days seem long. On the plane you conjure all kinds of pictures as to how your new country actually looks like. Upon arrival, you immediately face a severe let down, the kind you’ve never experienced before. Canada is not what it’s cracked up to be. In fact, you would take the next plane back, but unfortunately you bought a one-way ticket. From here on, you try as much as possible to never really feel happy in your new country. It is almost deliberate. You decide you are going to work for five years, save some money, buy a car and go back home. In fact the first few years, you are able to save a lot of money because you live cheap. Then, about six years later, you find out that you are still here and that you are not going anywhere anytime soon. And yet, you cannot actually ever give up the idea of going back. I’ll go next year; the year after. It never ends. You go home often. You start building a house back home. To you, home is the old country. You’ll go back no matter what; even if it means you arrive in a six-foot box we call casket. Your body is here. Your soul is still back in the old country. For any human being, for as long as your body, spirit and soul are not all at the same place at the same time, you’ll never find happiness. Ironically, a man who is not happy cannot make money, let alone save money. Before you realize, you have spent 15 years of your life here and yet you are still drifting. You literally live on two continents. It takes a very rich man to live on two continents at the same time? The African migrant is certainly not that rich; so, why do we want to live in North America and Africa at the same time. In the end, you don’t have capital here. Even if you have capital in the old country, you cannot readily move it back here. So, when you have this brilliant business idea and you approach a Bank Manager and he asks for 50% equity contribution from you and you don’t have it, you conclude that there is racial profiling in the financial sector. The Business Idea Itself One of the key things a financier looks at is the idea itself. After all it is what you are going to do with the funds that will determine whether or not you will make enough money to pay back the loan. Traditional lending institutions such as banks hardly look at this, though. Banks are very conservative lenders. They go more for security than ideas. However, there are other kinds of financiers - Venture Capitalists - who will look at the idea itself and may fund if the idea is revolutionary or life changing. Some banks have Venture Capital Divisions that would look at ideas of this nature. Unfortunately, African Canadians are not known to come up with life changing ideas. In fact, we lack business ideas so much so that if one of us comes up with a business idea and he appears to be prospering at it, we all jump unto the bandwagon and do the same thing. Some examples are Money Transfer Businesses, Grocery Shops, Newspapers and last but not least, Churches springing up all over the place. African Churches, in particular, are springing up like mushrooms all over North America. There are over forty-two African Churches in Toronto alone with more in the pipeline. The Person Behind the Business When I talk about the person behind the business, I would wish I could refer only to his level of education, his knowledge and experience in the business area of interest. Unfortunately, many lenders look beyond these qualities at times. In as much as your race can influence a lender’s perception of the probability of failure or success, you can bet he will consciously or unconsciously weigh that consideration before he advances a loan. Recently, I attended a seminar in which the CEO of a Venture Capital Company was speaking. In an answer to the question, “Would you fund if the owner can only contribute 10% of the capital required to start the business?” The CEO answered, “Without intending to offend any of the cultures assembled here today, my experience has been that oriental people almost never ever default on loan payments. Hence, I will lend 90% of the capital required only if the borrower is from Korea, China or Japan.” That was obviously hard to take, but its his money and he can decide to lend or not to lend and there’s no much you can do. Yes, to some extent there is racial profiling in the financial sector. But, I think, sometimes we are our own worst enemies. Lenders, like any good businessmen, compile a lot of statistics on its clientele. In so far as a disproportionate percentage of the borrowers who default on loans are blacks, it would be prudent to put a black applicant under more stringent scrutiny. Recently, some one issued a cheque to my business for a service I provided. It was for only $1,500. I went his bank to certify the cheque. I was dressed immaculately in suit. The teller looked at me and told me point blank that, she could not certify the cheque for me. “The bank had changed its policy on cheque certification. The new rule is that, the issuer of the cheque was the only one who can certify it,” she said. Not surprisingly, I knew what she meant. I am certain that the new rule is a silent one to be exercised at the discretion of the teller. I fit the profile and that was why I was refused. It is in the news quite often, in recent times, that many people are duplicating company cheques and having them certified at the company’s bank, and in the process duping the banks millions. Many people are in prison for this fraud and the unfortunate part is that most of these fraudsters are African Canadians. And you know what? They walk into the banks dressed immaculately in suits like I was. So, this teller thought, for sure, that I was one of them. CNN constantly showcases 419 scams. All the perpetrators are blacks. This situation, unfortunately, reinforces the bank manager’s perception that we are deceptive, corrupt and fraudulent. A bank manager who so thinks of blacks will certainly exercise his discretionary powers not to lend if he suspects the borrower will likely not pay back. Honestly, would you lend money to some one you suspect would steal from you? Putting It All Together A problem is half solved if you can identify and define it. So, I would like to summarize my findings and offer suggestions on what we could possibly do so we can arrest the problem of under funding in our community. First, we should realize that if we don’t help ourselves, no one will help us. The Government of Canada cannot force the banks to give loans to black businesses for the simple reason that we are the most under funded. Secondly, we must admit that most of us are here to stay. We have nowhere else to go, no matter how much we want to go. We must behave as such. This will set our minds at ease. Hey, maybe, we’ll get lucky and go after all; especially, if we are able to make it big. But, for the time being, we are here for the long haul. We should make long-term savings a part of our daily routine – almost like brushing our teeth in the morning. We should sift out what is important and what’s not. We must stop the 419 scams that are giving all of us a bad image. We will pay heavily for it in the long haul.. Such deeds will continue to diminish our ability to access loans. We should not allow a few bad apples to spoil the whole bunch of us. We must look into forming business relationships and alliances across racial lines. Many a time, the kinds of businesses we get into can only serve members of our community alone. In so far as the members of our community are financially challenged, such businesses cannot grow and flourish, as we would want them to. It is undeniably difficult to market your services to others of a different culture. Even if your products or services are needed by any race, you may not have access to people of the other races. One way to get people of other races to buy your products or services is to employ people from that race. Another way is to form partnerships with like-minded people you may know from other cultures or races. In fact, we should make it a point to not only meet, but also get to know, one person from another culture every month. People from the other races are dying to meet you too. They just are not sure if you want to meet them. If you make yourself available you can make many friends across the cultures. It is on this note that I am so concerned about the many Ghana only churches springing up in Toronto. If you have only Ghanaian friends and you go to only Ghanaian parties and only Ghanaian churches, then I am afraid that you must as well live in Ghana. Probably, the most significant thing that ought to come out of this exercise is the realization that individually, we cannot make that much progress, collectively though, we can. Black businesses should learn from black churches. It is not too difficult for African Canadian churches to raise funds to build churches running into millions of dollars. If we apply some of their techniques, the African Canadian Business Community can build enterprises worth millions of dollars as well. We need to build an African Canadian Capital Corporation. All African Canadians should form a Corporation that includes all or most of us. Each person can make regular monthly contribution of $50, $100 or so. 100,000 people at $100 per month equals $10 Million a month or $120 Million a year and does not even include interest income. With this money as a base, we can approach the Canadian Government for additional help to expand our capital base. You’ll be surprised how easily you can get help if they know you can help yourself. These funds will then be used as equity investment in serious black businesses. With increased equity these businesses will have easier access to bank loans. Even though there are laws in Canada that make it difficult for more than 50 people to form a private corporation, there are ways to legally circumvent those laws and I will be more than happy to share those techniques with the community, if needed. Guys, if we implement my suggestion, it won’t be long before our businesses will blossom to the point that we may be able to finance development projects on the African continent, instead of chasing after IMF loans. We may even be lending money to Canadians of Japanese, Chinese and Korean origin – the very people that the CEO of the Venture Capital Company says never miss a payment. This article was written in response to an article entitled: GIVE ME THE MONEY, YOU BANKER by Mr. Vincent Oni of AfriCanadian Journal, Toronto, Canada.
Ken T. Ntiamoa is a financial consultant in Toronto, Canada.