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

The SBCI needs to be able to lend to sectors of the economy as and when those sectors need support. Certain sectors may suffer credit droughts when all other sectors are experiencing healthy supplies of credit.
I fear that introducing Senator Barrett’s amendment would hamper the flexibility of the SBCI to act in specific areas when needed. There is a clear intention for the SBCI to act in a counter cyclical manner and I am informed by the Spanish model for their development institute, ICO, which acts in an accordion-like fashion, expanding and contracting their operations as need be. It is important to reiterate that the purpose of this Bill, when enacted, is to encourage the giving of credit in a prudent manner as set out in section 2(a) and to facilitate the availability of credit in the State to benefit the economy and economic well-being of the State.
As Senator Barrett highlighted himself during the Second Stage debate the pre-crisis credit boom was fuelled primarily by property speculation and asset-based lending with limited investment in the real economy.
In marked contrast the SBCI has been designed to increase the availability of longer-term flexible debt finance, which is appropriately priced, thereby providing SMEs with access to the type of patient intelligent capital that will increase productive investment, encourage growth and thereby generate additional employment opportunities.
The SBCI will at one level operate in a counter-cyclical manner in seeking to compensate for any constraints in the provision of financing to enterprises and in particular SMEs. In the years since the international financial crisis a number of Governments have utilised similar state-sponsored financial institutions to address cyclical financing constraints by increasing the scale and scope of their lending activity.
It is accepted, however, that regardless of the economic and financial cycle, there will always be structural problems in the market that constrain SMEs in accessing credit. This is a feature of SME funding across the OECD. In particular innovative firms, small firms and firms early in their life-cycle would appear to be more affected by such market imperfections.
These structural imperfections or constraints will also tend to be exacerbated by financial crisis as was the case with the impact of the international financial crisis since 2008. Crisis enhanced constraints may also persist beyond the return of broader financial stability.
Furthermore the SBCI will also operate with a broader developmental mandate that will enable it to channel investment towards key strategic sectors of the economy. Although the initial operations of the SBCI will focus on supporting SMEs other strategic sectors could also be supported in the future.
Arguably the financial crisis has also served to crystallise a longer-term developmental problem for Europe in terms of its capacity to finance productive investment, particularly in the SME sector.
By seeking to address cyclical and structural constraints in the credit market in a manner that provides benefits to the SMEs, the economy and indeed the State, the SBCI will avoid the speculative short-term approach to lending that characterised the period leading up to 2008.
While I endorse the sentiment behind Senator Barrett’s amendment we consider that the functions of the SBCI as outlined in this section of the Bill are sufficient to not only address his concerns but, more important, will ensure that the SBCI provides improved credit that is tailored to the needs of SMEs and in so doing contribute to the achievement of more sustainable and long-term economic and employment growth.
I will undertake to have my officials reconnect with ICO and investigate the inclusion of appropriate language covering counter-cyclical operations in the memorandum and articles of association of the company.
Rather than accepting the amendment, I am making a commitment that after consultation with ICO, we will include provisions to achieve what he proposed in the memorandum and articles of association of the company.