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

I thank both Senators for their contributions. The best thing to do is to describe briefly how I envisage the new credit institution, SBCI, will operate. First, it will be a wholesale bank. That means we will receive funds from KfW bank in Germany, from the European Investment Bank and also from our own strategic investment fund in Ireland. It will do that each year and on-lend, but it will not set up a network of high street bank branches. Its model will be to provide wholesale funding in tranches to banks such as AIB and Bank of Ireland, and also to other lending institutions, which will on-lend. We will see it developing and increasing its functions over time.

Let us suppose one has an SME, in whatever activity one likes to select, and one wants to expand it. Traditionally, one could not get ten-year money from AIB, Bank of Ireland or any of the other banks and one could not get an interest holiday. If the person knows the business will not be profitable until year three or four, he or she can get an interest holiday up front and a new type of lending. Then AIB, Bank of Ireland or any other agent bank will be bound by the contract it has for the provision of funding from SBCI and it will on-lend. It is envisaged that at a later stage the SBCI will get involved in a wider range of activity. It is mandated in the legislation that it will be involved in projects which have an economic or environmental dimension and return to the country. That means they are not excluded but enabled to do so. We see it as a further development, as the model works in practice.

The next phase will be like the amendment that Senator Reilly tabled to allow the bank to be involved as a retail lender. They are empowered under legislation to be a direct lender to businesses rather than going through the on-lender process. Again, we see that as a development down the line and not in the first year or two of operation. It meets the various suggestions that various Senators have made, but later in the timeline. It does not exclude, anywhere in the legislation, lending for social entrepreneurship. That is a possibility as well, but it is not specifically mandated.