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The Minority Business Challenge: Democratizing Capital for Emerging Domestic Markets
Sep 25, 2000
Glenn Yago and Aaron Pankratz

Carving channels of capital from investors to entrepreneurs - our most important source of job, income and wealth creation - has fueled the U.S. economy. Growth among minority-owned firms is surpassing the growth of all U.S. buisnesses, growing at a rate of 17 percent per year, six times the growth rate of all firms. Minority firms' sales are growing 34 percent per year, three times the rate of all firms.

Still, this high rate of growth among entrepreneurial businesses is constrained by lack of debt and equity capital. Current growth is deep, but not broad, and shared unequally. Capital gaps exist at every level for financing the capital structure of minority businesses: equity, mezzanine and senior debt. Absent institutional investor participation in minority and immigrant business communities, continued growth of the American economy is impossible, placing the nation's macroeconomy at risk.

Minority businesses are a driving force behind growth and a major segment of the U.S. economy in the 21st century as a transition to a more diverse demographic majority emerges. Asset managers need to tap these sources of higher profits and growth to sustain yields necessary to cover longer-term liabilities.

The report makes several recommendations for stimulating investment in these emerging domestic markets.