Financial Failure Restricting Indigenous Enterprise

Insufficient ongoing support and financial issues such as lack of access to capital and poor business planning remain the key barriers for indigenous community-based enterprises, a new report suggests.

Success factors for Indigenous entrepreneurs and community-based enterprises by The Australian Institute of Health and Welfare reviewed the literature on the key factors that have underpinned successful Indigenous businesses and community-based enterprises.

The report found that while government programs that assist Indigenous people to access finance and membership bodies (such as those that link Indigenous businesses into the supply chains of large companies and government agencies) had assisted indigenous enterprises, poor organisational governance and lack of finance was still affecting prospects of an effective operation.

A lack of capital “may be due to low inter-generational transmission of wealth (that is, passing on of assets to children; inheritance) and because commercial sources of capital could be risk  averse or less likely to lend to Indigenous people because of perceived high risk, the report said.

“Community-based enterprises experienced not only this lack of access to financial capital, but also a lack of other forms of capital (for example, social, human and organisational capital) that are required for social and economic success.”

The report highlighted research which found that, as the number of Indigenous businesses were growing and professionalising, the need for good financial advice was growing and that many businesses were not currently receiving good advice.

Necessary skills include business planning, marketing and promotion, budget and cashflow management, inventory, human resources, networks and partnerships, having been shown to shown to have a significant, positive impact in terms of community development.

Yet the report noted that defining ‘success’ for Indigenous businesses, particularly community-based enterprises, remained difficult given they often have to operate within an environment of complex social and cultural obligations.

For example, economic success alone was not always the best measure of ‘success’ in community-based enterprises, for which many of the drivers were likely to include socially-driven objectives.

The report also highlighted cultural considerations that affected business practice, referring to an Australian Tax Office paper which said that an Indigenous culture of obligatory sharing was often a ‘key “disabler” to business success.’

‘In the case of community-based enterprises, some studies argued that one of the cultural challenges that affects Indigenous people is that commercial drivers in business ‘may sit uneasily with cultural drivers, but Indigenous Australians are discovering ways to form businesses that are both commercially viable and culturally affirming,’” the report said.

According to the report, in community-based enterprises, having culture embedded within the business and its operations was key for success.

Possible measures included rigorous approval process for cultural issues; incorporation of educational elements into products, information on cultural protocols protections and designing governance structures according to traditional forms of governance.

Other key findings:

• The estimated number of self-employed Indigenous people has risen from 4,600 in 1991 to 12,500 in 2011 .
• The combined income of the top 500 Indigenous corporations registered with the Office of the Registrar of Indigenous Corporations was almost $1.61 billion in 2011–12
• Those top 500 businesses (many of which were community-based enterprises) received approximately the same amount of revenue from self-generated income as from government funding .
• Indigenous entrepreneurs were most likely to reside in the south east corner of Australia, in areas that have the best Indigenous education outcomes, higher general population densities and demand for goods and services.

Read the full report here.