Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I welcome the constructive intention of the Senator's proposal to amend the section dealing with the purposes of this legislation, but I am not in a position to accept it. The business model of the strategic banking corporation of Ireland is based primarily on the on-lending model which is operated successfully by KfW in Germany, ICO in Spain and others. The SBCI is being set up initially as a wholesale funder that will work with various on-lenders. The objective is to minimise the overhead expense of the operation and leverage the existing networks and capabilities of on-lenders for the benefit of SMEs.

In building any organisation from start up, it is practical to phase in its development. Where we are seeking to deliver funding to SMEs in the quickest and most cost-effective way, it is appropriate initially to have on-lending arrangements with institutions that have existing networks throughout the country. In a situation where commercial banks work with the SBCI and new competitors are facilitated and welcomed, an additional branch network on its own would add no value. Given that the vast majority of loans issued to the SME sector in this country are for amounts of less than €100,000, a cost-effective on-lending model works best. Direct lending is more likely to address larger borrowing requirements and can, therefore, be facilitated from the SBCI's own infrastructure.

In this way, the SBCI will ensure SMEs receive the best value possible. Critically, however, the provision of credit directly from the corporation is not precluded under the legislation. Although the intention is to facilitate indirect lending in the first instance, a combination of the provisions in subsections 2(b)(ii) and 8(1)(a) will ensure both direct and indirect lending are possible. Indeed, these sections legally empower the corporation to become involved in direct lending. This is likely to happen in the medium term once the organisation is up and running. Consequently, the amendment is not necessary.