Companies that use minority suppliers are learning that doing so benefits the bottom line. At the same time, community groups are seeing just how much the success of local businesses can help neighborhoods.Minority business enterprises

Fred McKinney

English

Research Papers in Economics

Winter  2007 20
by Fred McKinney, Ph.D.
Connecticut Minority 
Supplier Development Council
The supplier-diversity movement is
gathering steam, and for good reason.
Companies that use minority suppliers
are learning that there are benefits to the
bottom line, while community groups
are seeing just how much the success of
local businesses can help neighborhoods. 
The Changing Landscape
The effort to get businesses to source
supplies from minorities and minority
business entrepreneurs (MBEs) grew out
of the 1960s civil rights struggle. Once
basic rights were secured through the
passage of the 1964 Civil Rights Act and
the 1965 Voting Rights Act, attention
turned to economic development. The
initial focus was on education, training,
and jobs—factors that remain critical.
But today there is increased emphasis on
business development.
Minority business development, at
first essentially a social program, has
morphed into an economic imperative
thanks to a growing awareness of the
economic clout of ethnic and racial
minorities. Whereas corporations once
promoted supplier diversity mainly as
part of their corporate citizenship goals,
today they talk about the business case.
Minorities represent a consumer
segment that is hard for businesses to
ignore. Consider that Latinos and 
African Americans make up more than
25 percent of the U.S. population. The
Department of Commerce projects that
by 2025, California, New Mexico, and
Texas will actually have “minority
majority” populations—that is, popula-
tions in which traditional minorities 
are the majority. In New England, the
Connecticut and Massachusetts popula-
tions are expected to be more than 
one-third minority in a few years. (See
“The Growth of Minorities in America.”)
Where Differing Needs Meet
The numbers of minorities are growing,
and so are their economic resources. In
2007 total Latino income, for example, is
expected to top $1 trillion, with African
Americans and Asians close behind. In
relative terms, the combined incomes of
U.S. Latinos, blacks, and Asians will
exceed the gross domestic product
(GDP) of all but the largest eight
economies in the world. Minorities will
increasingly matter to businesses.
Minorities Need Assets
But economic resources do not necessari-
ly translate to assets, and minorities’ low
level of savings has been causing concern.
A Federal Reserve study on minority
wealth reports that the wealth gap
between minorities and whites is signifi-
cant and growing. It notes the following
disparities in the period 1998 to 2001:
• The gain in financial assets was $100
for families of color and $5,800 for
white families.
• The net worth of typical families of
color fell 4.5 percent to $17,100,
while white families’ net worth rose 17
percent to $120,900.
• Overall the gap between the net worth
of typical white families and families
of color grew by 21 percent.
• Families of color added $3,000 of
installment debt, while white families
added only $1,000.1
The conundrum of increased
minority income combined with a
growing wealth gap highlights the need
for minority business development.
There are many reason: having equity in
a healthy business helps individual fam-
ilies retain wealth; certified minority
businesses hire and promote more
minorities and thus boost the communi-
ty; supporting diversity among small
businesses may give corporations a bet-
ter pool of innovators to work with;
increasing minorities’ wealth may enable
corporations to sell more to them; and a
corporation’s corporate customers may
prefer working with companies that use
minority suppliers.2
& &
S Su up pp pl li ie er r
D Di iv ve er rs si it ty y
E Ec co on no om mi ic c   
D De ev ve el lo op pm me en nt t& Banking Communities 21
Businesses Need Minorities
Meanwhile, from the corporate point of
view, why not source from minority
businesses if it will help garner minority
buyers’ loyalty? They do have money to
spend. According to the Target Market
News, a black consumer market
newsletter, black households had $656
billion in earned income in 2003, an
increase of 3.9 percent over the income
earned in 2002.3 
Blacks increased their purchase of
big-ticket items in the same year, spend-
ing more than $32 billion on cars and
trucks, for example, $23 billion on food,
and $18 billion on health-care products
and services.
The size of the minority consumer
market is one factor underlying the busi-
ness case for companies. For example, at
a Johnson Controls presentation in
2004, Ford’s head of supplier diversity
told listeners that after a national maga-
zine ran an ad on Ford’s use of certified
MBEs, a minister held the ad up before
his large African American congregation
and asked, “Why would you buy any-
thing else?”
Similarly, in August 2006 at
JPMorgan Chase & Company in New
York, as senior executives gave their
Fortune 1000 suppliers advice on sub-
mitting business proposals, they pointed
out that supplier diversity contributed as
much as 7 percent to JPMorgan’s evalu-
ation. The vice president for supplier
diversity stated that 7 percent often
made the difference between winning or
losing a contract.
So companies are realizing that not
only do consumers care about the role
that corporations play in local commu-
nities but increasing numbers of large
business customers consider minority
suppliers strategically important. That 
is one reason the National Minority
Supplier Development Council (NMSDC)
was established in 1972 with the stated
goal “to provide a direct link between
Corporate America and the certified
minority business community.”
Today, the NMSDC and its 39
regional affiliates have 3,500 corporate
members and 15,000 certified minority
business entrepreneurs conducting more
than $80 billion in business with one
another. The Connecticut Minority
Supplier Development Council often
gets inquiries from companies whose
major customers have requested infor-
mation about their purchasing with 
certified minority suppliers (MBEs) and
who want to identify MBEs. 
Nevertheless, according to the most
recent national Minority Business
Development Agency study, “The State
of Minority Business Enterprises,” the
4.1 million minority businesses’ com-
bined annual receipts amounted to only
8 percent of all business receipts in
2002.4 There is still a long way to go. 
One Minority Business
The realities of today’s marketplace 
(corporations’ outsourcing, lean process
management, strategic sourcing, and the
like) are forcing minority business entre-
preneurs to take on new roles and
increase efficiency. Their success will be
The Growth of Minorities 
in America
Source: U.S. Department of Commerce
1995 Percent Minority Population by States
Percent Minority
Percent Minority
2025 Percent Minority Population by States
Less than 15.0
15.0 to 24.99
25.0 to 49.99
50.0+
Less than 15.0
15.0 to 24.99
25.0 to 49.99
50.0+instrumental in closing the wealth gap
and improving minority communities.
The Community’s Bank of
Bridgeport is an example of a minority
business that is improving neighbor-
hoods both on its own and by being a
supplier of services to other banks that
help communities. When Fleet Bank
(now Bank of America) merged with
Bank of Boston in October 1999, 
several branches were divested, creating
an opportunity for Peter Hurst, a for-
mer Federal Reserve attorney, to create
a community bank. The Community’s
Bank, which has been certified with 
the Connecticut Minority Supplier
Development Council, is the only
minority-owned bank in Connecticut.5
The bank’s mission is to provide
consumers, nonprofits, and small busi-
nesses in Connecticut’s urban markets
with financial and intellectual capital. It
offers both brick-and-mortar banking
and online banking. It also offers com-
mercial loans to promote entrepreneur-
ship, residential real estate loans to 
promote home ownership, and a variety
of deposit products to promote savings. It
provides intellectual capital by sponsor-
ing and leading seminars on financial
leadership, first-time home-buying, and
wealth creation.
The bank is certified by the U.S.
Treasury Department as a community
development financial institution (CDFI),
signifying that its primary mission is
community and economic develop-
ment.6 As a CDFI and a member of a
nationwide network of community
banks called Certificate of Deposit
Account Registry Service (www.
CDARS.com), it can supply many
depository institutions with services.
The Community’s Bank helps
Bridgewater Savings in Massachusetts,
for example, to make a $2 million
deposit, receive a risk-free return on its
investment, become eligible to apply for
a Bank Enterprise Award equal to 
6 percent of the deposit—and qualify
for credit under the Community
Reinvestment Act.
The Community’s Bank itself
received a Bank Enterprise Award in
2004 of more than $300,000 for its
lending activities in distressed neighbor-
hoods of Bridgeport, Hartford, and
New Haven. 
Fred McKinney, Ph.D., is the president
of the Connecticut Minority Supplier
Development Council, based in Hamden,
Connecticut (www.cmsdc.org). He serves
on the Federal Reserve Bank of Boston’s
Community Development Advisory Council.
Endnotes
1 See http://www.federalreserve.gov/pubs/oss/
oss2/about.html for 2001 to 2004 data analysis.
2 Steven D. Jones, “Benefits of Supplier
Diversity May Go Beyond ‘Social Good,’ ” The
Wall Street Journal, August 21, 2006, C3.
3 See http://www.targetmarketnews.com/Buy
ingPower04.htm.
4 U.S. Department of Commerce, Minority
Business Development Agency, The State of
Minority Business Enterprises: An Overview of the
2002 Survey of Business Owners, August 2006.  
5 Minority businesses can become certified by
completing an application with a regional
NMSDC affiliate office, submitting the necessary
supporting documents and agreeing to have a site
visit done by NMSDC staff. The CMSDC has
more than 250 certified MBEs in its council.  
6 For more on CDFIs, see Brandy Curtis, “An
Overview of the CDFI Industry,” New England
Community Developments, issue 2 (2006):
http://www.bos.frb.org/commdev/necd/2006/q2/
overview.pdf.
Winter  2007 22
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uThis Communities & Banking article is copyrighted by the Federal Reserve Bank of Boston. The views expressed are 
not necessarily those of  the Bank or the Federal Reserve System. Copies of articles may be downloaded without cost at
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Supplier diversity and economic development

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Supplier diversity and economic development

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