Why do Minority Business Development Programs Generate so Little Minority Business Development?

Abstract

Minority enterprise assistance programs are largely failures. They are flawed in intent, design, and implementation. Current minority business enterprise (MBE) loan programs share three flaws: (1) Lending is targeted to overcrowded lines of business with low profits, (2) tiny loans flow to marginally viable firms, and(3) consequent high-loan default rates erode funds available for relending. Three types of problems must be dealt with if MBE assistance is to be a useful tool for generating economic development: (1) Geographic targeting of MBE assistance to poor ghetto neighborhoods should be sharply reduced, (2) targeting aid to low-income individuals should be eliminated, and (3) poorly administered programs that destroy MBEs and encourage fraud should be reformed or eliminated.