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Financing the development of urban minority communities: lessons of history

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  • Timothy Bates

Abstract

Government intervention in financial markets seeks to alter capital availability patterns that disadvantage minorities and low-income people. The desire to increase access to credit for these underserved groups motivated President Clinton to launch the Community Development Financial Institution (CDFI) program. In fact, CDFI-like institutions proliferated in the late 1960s, and many of them still exist. The Minority Enterprise Small Business Investment Company (MESBIC) program, started in 1969, created several hundred privately owned firms that finance inner city-situated and/or minority-owned small businesses. This study uses U.S. Small Business Administration records to analyze the impacts of actual MESBIC investments in small businesses. Strategies used by MESBICs that actively financed minority business enterprises are identified, and the traits of effective MESBICs are contrasted to traits of those that have shut down. Nearly 100 MESBICs remain active today, and the track record of the program over the past 30 years offers a wealth of insights to present-day proponents of CDFIs.
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Suggested Citation

  • Timothy Bates, 2001. "Financing the development of urban minority communities: lessons of history," Proceedings 791, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhpr:791
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    References listed on IDEAS

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    1. Timothy Bates, 1997. "Response: Michael Porter's Conservative Urban Agenda will not Revitalize America's Inner Cities: What will?," Economic Development Quarterly, , vol. 11(1), pages 39-44, February.
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    Cited by:

    1. Timothy Bates, 2000. "Rejoinder to Sheryll Cashin: Programs as Token Gestures," Economic Development Quarterly, , vol. 14(3), pages 250-255, August.
    2. Christian Weller, 2009. "Credit Access, the Costs of Credit and Credit Market Discrimination," The Review of Black Political Economy, Springer;National Economic Association, vol. 36(1), pages 7-28, March.
    3. Christian Weller, 2010. "Have Differences in Credit Access Diminished in an Era of Financial Market Deregulation?," Review of Social Economy, Taylor & Francis Journals, vol. 68(1), pages 1-34.
    4. Valentina Hartarska & Denis Nadolnyak, 2012. "Board size and diversity as governance mechanisms in community development loan funds in the USA," Applied Economics, Taylor & Francis Journals, vol. 44(33), pages 4313-4329, November.
    5. Sheryll D. Cashin, 2000. "Public Subsidies and the Role of Suburbanization in Urban Economic Development: A Reply to Timothy Bates," Economic Development Quarterly, , vol. 14(3), pages 243-248, August.
    6. Lois M. Shelton, 2010. "Fighting an Uphill Battle: Expansion Barriers, Intra–Industry Social Stratification, and Minority Firm Growth," Entrepreneurship Theory and Practice, , vol. 34(2), pages 379-398, March.
    7. Richard C. Hula & Marty P. Jordan, 2018. "Private Investment and Public Redevelopment: The Case of New Markets Tax Credits," Poverty & Public Policy, John Wiley & Sons, vol. 10(1), pages 11-38, March.
    8. Timothy Bates, 2002. "Rejoinder to Charles D. Tansey: Moving Toward a More Effective Small Business Administration," Economic Development Quarterly, , vol. 16(2), pages 185-190, May.
    9. Christian E. Weller & Amy Helburn, 2009. "Public Policy Options to Build Wealth for America’s Middle Class," Working Papers wp210, Political Economy Research Institute, University of Massachusetts at Amherst.
    10. Timothy Bates & Alicia Robb, 2013. "Greater Access to Capital Is Needed to Unleash the Local Economic Development Potential of Minority-Owned Businesses," Economic Development Quarterly, , vol. 27(3), pages 250-259, August.
    11. P. Köllinger & M. Minniti, 2006. "Not for Lack of Trying: American Entrepreneurship in Black and White," Small Business Economics, Springer, vol. 27(1), pages 59-79, August.
    12. Peake, Whitney O. & Marshall, Maria I., 2009. "Has the "Farm Problem" Disappeared? A Comparison of Household and Self-Employment Income Levels of the Farm and Nonfarm Self-Employed," 2009 Annual Meeting, January 31-February 3, 2009, Atlanta, Georgia 46304, Southern Agricultural Economics Association.

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