The Federal Reserve's recent study of credit access in the Minneapolis-St.
Paul Hmong community yielded positive but limited findings. To learn
more about the issues that the study explored, Community Dividend
spoke with a Hmong business leader whose broad professional background
encompasses accounting, lending, community development and entrepreneurship.
Kou Vang was born in Laos and arrived in the U.S. as a small
boy, in 1976. His family first settled in the Chicago area and later
moved to Appleton, Wisconsin. Vang earned a bachelor's degree in
economics from the University of Wisconsin-Madison and worked as
a comptroller for a small manufacturing firm before moving to the
Twin Cities in 1993.
He has since worked in finance- and accounting-related positions
at a variety of St. Paul-based organizations including Hmong American
Partnership, a Hmong social service agency; and the Neighborhood
Development Center, a community development corporation serving
inner-city residents. For a time, he owned an import firm specializing
in Asian foods. More recently, Vang spent four years as a commercial
lender at Western Bank in St. Paul. He joined JB Realty as president
in November 2002.
Community Dividend: Your family arrived in the U.S. in the
mid-1970s. How much business experience did most Hmong from Laos
have at that time?
Kou Vang: We were in the early stages of learning how to
retail back then. In any economic model, people first learn how
to barter. From there they learn how to retail: to buy and sell
goods and run small retail establishments. Then they learn how to
wholesale and distribute, then how to manufacture things, and from
there they learn how to tell other people how to manufacture things.
In the early and mid-1970s, there was still a barter system in
place, but we were in the early stages of buying goods from Chinese,
Laotian and Thai merchants in the big cities and selling them in
Hmong villages. Coming to the U.S. pushed some of us to venture
out and do other things, like insurance and real estate. But in
the overall scheme of things, we're still at the retail stage.
CD: How did Hmong entrepreneurs establish themselves when
they arrived in the U.S.? Was credit available?
KV: Credit wasn't available at the time, because credit
access for the Hmong community has only really happened in the last
five or six years. I'd venture to guess that the majority of the
loans that Hmong business owners have are only in the third or fourth
year of a five- or seven-year repayment term, because the credit
openness is so recent.
So where did we get the money? Since we're clan-based, we were
able to pool resources together. We'd buy a store and the whole
clan would run it, or the whole Hmong community would run it. When
there were common issues like that, we worked together.
CD: What barriers prevent Hmong people from approaching
banks and accessing credit?
KV: It depends on which credit culture they're part of.
There's the traditional Hmong credit culture, made up of people
who came here from the old country, and then there's the new credit
culture of Hmong people who grew up in the U.S.
Members of the new credit culture are accustomed to the American
system, which is more open to filing for bankruptcy and walking
away from debt. Most of the Hmong business owners who responded
to your study are part of the new culture. They're pretty highly
educated, they understand the models used in this country, and they
know how to write a business plan.
In the old credit culture, when you borrow money, you have to pay
it back completely. Timely payment is not highly valued, but complete
payment is. Many members of the old culture have late payments on
their credit reports, but they never walk away from their debt.
The barrier for them is that they don't know how the game is played
in this country, because they have their own model to abide by.
CD: Can lenders do anything to help eliminate that barrier?
KV: It all comes down to understanding different models.
If a banker doesn't understand the entrepreneur's credit culture
and the entrepreneur doesn't understand the conventional business
model that the banker is using, then the banker won't even bring
the loan request to the credit committee. I would bet that most
of the time, we don't even get into the game, because the majority
of loan requests are denied at the lenders' level.
Which brings up an important point: your study only examined existing
businesses; it only dealt with people who have already gotten past
the gatekeepers. I think it would be interesting to take it one
step further and look at those who were stopped at the gate.
In commercial lending, we have to keep all of the files for the
loans we deny. Let's take a sample of files from the people who
got past the gatekeepers and compare it to a sample from the ones
who didn't get through. Is there a 4-to-1 ratio of Hmong businesses
to mainstream businesses among the denials? I think if we study
the specifics of the denial rate, we might find a disparity.
CD: What can Hmong entrepreneurs do to help bridge the gap
between credit cultures? Are there resources available to help them
understand the lenders' model?
KV: There is some training and assistance available. The
Neighborhood Development Center has had a Hmong class for the last
eight years, and the Vang Pao Foundation and Wells Fargo recently
put together a program with the University of St. Thomas.
The challenge in teaching these concepts in the Hmong community
or other communities of color is to take a pretty complex model
and break it down into a language that people can understand. Lenders
talk about things like amortization and rates of return, but all
the business owners know is that if they buy a cash register for
$400, the money's gone. It doesn't really matter to them if we capitalized
it or expensed it; it's gone.
CD: What factors have helped Hmong businesses in the Twin
Cities obtain bank financing?
KV: For some reason, Minnesota has a lot of community banks.
They don't have ivory-tower credit policies that everyone has to
follow, so it's easier for their lenders to be flexible. Some of
them decided to give Hmong people the benefit of the doubt, and
it worked. And since it worked, a comfort level was established
and lenders were willing to risk a little bit more. As a result,
the credit market for Hmong people is better in the Twin Cities
than it is anywhere else.
Getting credit for Hmong businesses in other parts of the country
is difficult. Why is that? I don't know. I think we can do studies
like this in other places and compare the results. What are we doing
here that's working, what are we doing there that's not working?
Those are some issues I think we have to look at.
CD: The Hmong business community in the Twin Cities has
made impressive strides in a relatively short time. What challenges
lie ahead, and how do you see Hmong businesses faring in the future?
KV: I think we'll have more and bigger types of businesses
in the future, more distribution and production. Some of the Hmong
retail businesses now, like grocery stores, rival mainstream stores
in size. Most of the growers at the farmers' markets are Hmong,
and I think they'll produce more in the future. We're at the retail
stage now, just learning how to do business, but our economic evolution