Practice Test: Reading Comprehension - 72 | 100 RCs for GMAT PDF Download

Directions: Read the given passage carefully and answer the questions as follows:

In contrast to traditional analyses of minority business, the sociological analysis contends that minority business ownership is a group-level phenomenon, in that it is largely dependent upon social-group resources for its development. Specifically, this analysis indicates that support networks play a critical role in starting and maintaining minority business enterprises by providing owners with a range of assistance, from the informal encouragement of family members and friends to dependable sources of labor and clientele from the owner’s ethnic group. Such self-help networks, which encourage and support ethnic minority entrepreneurs, consist of “primary” institutions, those closest to the individual in shaping his or her behavior and beliefs. They are characterized by the face-to-face association and cooperation of persons united by ties of mutual concern. They form an intermediate social level between the individual and larger “secondary” institutions based on impersonal relationships. Primary institutions comprising the support network include kinship, peer, and neighborhood or community subgroups.

A major function of self-help networks is financial support. Most scholars agree that minority business owners have depended primarily on family funds and ethnic community resources for investment capital. Personal savings have been accumulated, often through frugal living habits that require sacrifices by the entire family and are thus a product of long-term family financial behavior. Additional loans and gifts from relatives, forthcoming because of group obligation rather than narrow investment calculation, have supplemented personal savings. Individual entrepreneurs do not necessarily rely on their kin because they cannot obtain financial backing from commercial resources. They may actually avoid banks because they assume that commercial institutions either cannot comprehend the special needs of minority enterprise or charge unreasonably high interest rates.

Within the larger ethnic community, rotating credit associations have been used to raise capital. These associations are informal clubs of friends and other trusted members of the ethnic group who make regular contributions to a fund that is given to each contributor in rotation. One author estimates that 40 percent of New York Chinatown firms established during 1900-1950 utilized such associations as their initial source of capital. However, recent immigrants and third or fourth generations of older groups now employ rotating credit associations only occasionally to raise investment funds. Some groups, like Black Americans, found other means of financial support for their entrepreneurial efforts. The first Black-operated banks were created in the late nineteenth century as depositories for dues collected from fraternal or lodge groups, which themselves had sprung from Black churches. Black banks made limited investments in other Black enterprises. Irish immigrants in American cities organized many building and loan associations to provide capital for home construction and purchase. They, in turn, provided work for many Irish home-building contractor firms. Other ethnic and minority groups followed similar practices in founding ethnic-directed financial institutions.