Closing the Gaps: The Banking Industry in Canada

In the United States, banks have been required, for over 40 years, under the Community Reinvestment Act, to keep track of and disclose data of applicants for business loans relating to race, gender, income, and neighborhood. The purpose of this Act is to ensure that banks “help meet the credit needs of the communities in which they operate.” The Act is designed to encourage Banks to contribute to community development and provide fair treatment to racialized communities and residents of neighborhoods from less affluent areas. The U.S. Federal Reserve and other banking regulators oversee compliance with this Act and evaluate the performance of banks through this measurement. An online database publishes this data. No such performance-tracking measurement, however, exists in Canada. 

The banking industry plays a vital role in helping individuals create generational wealth, maintain economic stability, and achieve economic mobility. Entrepreneurship is an avenue to growing wealth for which banks provide crucial assistance. However, Black Canadians, who have a long history of independent innovation, face systemic barriers in accessing the financing they need to achieve their financial goals. When Black Canadians are unable to access financial services that are crucial to the success of personal, business, and entrepreneurial endeavors, they are held back in achieving parity with other groups. 

A recent survey by Abacus Group, commissioned by the African Canadian Senate Group and Senator Colin Deacon, sought the perspectives of Black entrepreneurs to gain insight on what they have experienced. According to the survey, Black entrepreneurs cite that their biggest challenge to succeeding in business is gaining access to capital. To further underscore this point, 76 % of Black entrepreneurs feel their racial background limits their prospects for raising funding and gaining traction as an entrepreneur. Black entrepreneurs face obstacles in securing funding, financing, and capital from the bank. Due to these hurdles, Black individuals choose other ways to start and grow a business. The survey revealed that 85% of Black entrepreneurs finance their projects independently, through personal savings and credit cards and other bootstrapping methods. When race intersects with sex, as occurs in the case of female Black entrepreneurs, access to financing through the bank becomes doubly challenging. 

Poor customer service, lending decisions based on subjective criterion not related to credit worthiness, and failure to provide access to different kinds of financial products are examples of difficulties Black individuals experience at the bank. While experiencing service at the bank, Black entrepreneurs may face micro-aggressions and other forms of cultural insensitivity. When Black entrepreneurs present a business plan, lending agents may not recognize the originality and ingenuity of the idea, rejecting the applicant based on lack of understanding. Unconscious bias during the vetting process of a loan application is another barrier Black Canadians face during the funding cycle process. Consequently, nineteen percent of Black entrepreneurs said they are not able to place trust in banks to do the right thing for their community. 

Banks are also important for providing knowledge and advice that entrepreneurs can use to make beneficial investment decisions and manage funds efficiently. As an intermediary that provides connections for entrepreneurs to bring their ideas to life, banks have an important advisory role to play in providing financial counselling, mentorship, and entrance into other kinds of networks. However, Black individuals are not always given the information they need to access these supports so that they can plan how to use capital effectively.

We can discern from these collected experiences that Black entrepreneurs in Canada face different kinds of encounters and challenges within the Canadian banking system. In the United States, where the collection of data is mandatory, discrepancies in how financing is distributed are explicitly revealed. In Canada, the collection of hard data from the banks themselves is not required. But it is harder to solve recurring problems and break down barriers when data is not collected.   In the United States, the disclosure of how capital, financing, and funds are distributed among different groups provides useful insight into where incongruities exist, and how and why differences occur. This information also helps to combat bias to close gaps between groups.  Such measurements hold banks accountable and allow researchers to follow up and study how and why these gaps manifest. The sharing of data also creates the impetus to seek solutions to problems.   If the will is there, the same could be done in Canada. The collection of this data would reveal how Canadian banks are performing in serving different communities. It would also show where disparities and inequities exist and persist. Just as significant, the disclosure of this information will enable those in positions of authority to act on solutions that lead to equitable access for all groups. 

This article is part of the campaign Systemic Participation. Funded by Heritage Canada :

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EcoAmbassadeurs is a non-profit organization providing bilingual services in the fields of health, education, entreprenuership and ecology. Our goal is to support the members of our community for their social, economic and civic development.

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