Discrimination in the Credit Market? Access to Financial Capital among Self‐employed Immigrants

Abstract

SummaryWe present results from a unique combination of survey and register data regarding access to financial capital conducted among immigrants who are self‐employed in private firms in Sweden's retail, trade, and service sectors. This study is the first to examine discrimination against self‐employed immigrants in the credit market of a developed economy outside the US. The results demonstrate that non‐European immigrants consider access to financial capital a more serious impediment to their self‐employment activities than do native Swedes and European immigrants. Self‐employed non‐European immigrants report more discrimination by banks, suppliers, and customers than do natives and immigrants from European countries. Immigrant‐owned firms apply for bank loans to a larger extent than do firms owned by natives. Non‐European immigrants especially are more likely than natives to have a loan denied, and they are also charged higher interest rates on their bank loans than natives. The results are robust to various different robustness checks. The occurrence of ethnic discrimination in the market for bank loans is put forward as an explanation for these results. Limited or lack of access to financial capital is a major obstacle to self‐employment among certain immigrant groups. This obstacle may be one explanation for the high exit rates from self‐employment among immigrants, a finding that has been documented in several countries including Sweden.