Ms Adrienne Murray:

Thank you Chairman. We welcome the opportunity to give the committee an overview summary of Microfinance Ireland and our first year in business. We look forward to members questions, suggestions and inputs on how we can build on our progress into the future.

Microfinance Ireland, MFI, is a not-for-profit organisation established to provide loans of between €2,000 and less than €25,000 to microenterprises. Microenterprises are defined as businesses that employ fewer than ten people and which have an annual turnover of less than €2 million. We were set up to manage the microenterprise loan fund scheme, a Government initiative that forms part of the action plan for jobs. We do this on behalf of the Minister for Jobs, Enterprise and Innovation.

This scheme aims to address some of the difficulties being faced by microenterprises in accessing credit. Our role is to provide loans to these businesses if they can show they are commercially viable but they cannot meet standard bank lending criteria. MFI was set up to provide an alternative to, but not a substitute for, bank lending for these businesses. We can only lend to a borrower if he or she has had difficulty in getting credit from a bank. I would stress that MFI, like its peer organisations in other countries, is not a panacea for the problems being faced by microenterprises. It can only be a small part of a wider solution to assist small businesses with the maintenance and creation of jobs at local community level.

We are a small and lean organisation. We had six staff in April of this year and we now have eight full-time staff. We are a subsidiary of the Social Finance Foundation, which was set up in 2007 by the then Minister for Finance to act as a wholesale supplier of finance for social purposes. We have a voluntary board with broad business experience. Our board members are highly committed to developing an overall strategy for the business that is adequate and fit for purpose for a company of its size while maintaining the flexibility to adapt to market changes and forces in a commercially viable manner. In addition, the board is fully committed to ensuring appropriate governance and regulatory compliance. Board members also engage and are generous with their time in helping to promote the scheme at appropriate events throughout the country.

When MFI was set up, the prevailing level of loan applications being declined by banks, coupled with a perception that banks were reluctant to lend, resulted in a preliminary assessment that MFI could lend up to €40 million over a five year period, supporting up to 2,700 microenterprises and up to 3,800 jobs. It was envisaged the county and city enterprise boards, CEBs, would be the main channel partner for pipeline applications to MFI. It was also envisaged the CEBs would provide essential enterprise training and pre and post mentoring support and assistance with loan application preparation across all sector activities. Immediately pre and post launch of MFI, there was intensive engagement and information sharing of the MFI-CEB partnership objectives with the CEB network. That engagement and relationship building with the CEBs is ongoing.

With regard to our experience since inception, we opened for business on 1 October 2012, with a lead-in time of just six weeks from the time of the company being incorporated to set up and open for business. We received our first loan application in mid-October 2012, approved the first loan in mid-November and the first loan drawdown took place in December 2012. Demand has been significantly lower than originally anticipated.

In regard to progress in our first year, we opened for business on 1 October 2012. I will summarise the progress we have made in our first year. I am pleased to say that, in the year to 30 September 2013: we approved €1.62 million in lending; we supported over 100 microenterprises; we supported 237 jobs, of which 118 are new jobs; we approved 45% of applications, broadly in line with the approval range we anticipated and consistent with the experience of peer organisations in other countries; and we have processed 239 loan applications, with an average turnaround time of ten days.

I will give members some idea of the nature of our work. Our average loan size in our first year was €15,000, in line with what we anticipated. Some 81% of our approvals were to businesses employing three people or fewer and over 60% of our approvals were to start-ups, companies or businesses that were in business for less than 18 months before we lent to them. Over 60% of our loan applications were received via county or city enterprise boards and 38% of applications applied directly to MFI. We have achieved wide geographic coverage, with 22% of our applicants being from Dublin and 78% from the rest of Ireland.

With regard to the profile of MFI borrowers, some 33% of our loan approvals have been to retail or wholesale traders. Manufacturing businesses account for 11% of approvals. Financial services or insurance related businesses account for another 11% and construction businesses also account for 11%. Some 8% of approvals have involved arts, entertainment or recreational businesses. Some 7% have been to businesses involved in providing accommodation or food and we classify the remaining 19% as being granted to a range of other services. As is to be expected in this higher risk lending area, we must work with customers in difficulty. Therefore, our loan portfolio already includes a small number of businesses which have experienced early set back and challenges with their ventures. We are committed to working with them as they endeavour to get their businesses back on track.

On the question of the demand for MFI loans, I hope the numbers I have provided give members some idea of the work we have been doing, although they are not the full story. It is important to highlight that our lending activity is demand driven. No matter how much we might wish to lend, we can only lend if we get applications. We make no secret of our view that we would like to see more applications. In our first year in business, we did not receive as many as we thought we would, and certainly not as many as we would like. We need to generate more applications. We encourage microentrepreneurs to get in touch with us and we encourage anyone who can direct microentrepreneurs towards us to do so. This includes public representatives. I would urge any or all members who have constituents, for example, or contacts who have had difficulty accessing credit to contact us directly or via a county or city enterprise Board. Including details of MFI on members' websites and newsletters or linking in with us to highlight MFI customer success stories in members' relevant constituency events would be extremely helpful to us in promoting the loan fund. We will give everyone a fair hearing.

It is not realistic to suggest we can approve 100% of the applications we receive. After all, 100% of our applicants have already been unsuccessful in getting bank finance and, as we have been entrusted with taxpayers’ money, we can only lend to commercially viable borrowers who we feel will be able to repay the loan. However, we have been and will be a vital source of finance for those businesses we can help.

There are currently around 250 people who are employed in microenterprises that we have supported; if we had not lent to these businesses, it is difficult to see where they would have been able to borrow the money they needed. We are proud of our success stories, but we would like to hear more of them.
A key focus for me and my team has been to build awareness among potential borrowers. We have taken a number of actions on this front. We target events tailored for the microenterprise community, using the expertise of our staff and board members to speak at these events and encourage borrowers to apply. We engage closely with key SME banks so that they will refer unsuccessful loan applicants to us. We also link in with these banks to co-fund propositions that they have partially approved. We have built strong relationships with business representative bodies to heighten awareness of MFI and put their members in contact with us if they need credit and can satisfy our criteria. We engage in targeted, highly selective marketing and promotional activity, taking account of our limited budget, the relatively small size of our organisation and our obligation to invest taxpayer’s money as efficiently and effectively as possible.

An example of our marketing activity is a recent successful national radio advertising campaign. This ran over a three-week period last month and resulted in notable increases in the volume of weekly applications. It was a substantial investment but it delivers results. We recently re-launched the MFI website and have received very positive feedback about the application process now being clearly outlined; a step-by-step guide with helpful templates to assist applicants, frequently asked questions and samples of customers and their businesses that have benefitted from microfinance loans.

Another key focus is to make it as easy as possible for microenterprises to apply for loans, and if successful, to draw down the money. We deal with applications thoroughly but efficiently. We aim for an average ten-day turnaround time and we have achieved this. We respond to borrower feedback. We reduced the interest rate we charge on loans - our current interest rate is 8.8% APR fixed - to stimulate more demand. This rate represents fair value in light of our cost of funds, the higher-risk nature of our lending and the rates charged for similar facilities by banks. It also provides certainty to the borrower that both the rate and their loan repayments are fixed throughout the term of the loan. We introduced a direct application channel. When we opened for business, we originally only accepted loan applications through county and city enterprise boards. This requirement was seen as too restrictive by borrowers and we removed it to good effect. This has had a significant effect on application volumes, with direct applications now accounting for 38% of all applications.

We also simplified procedures and introduced borrower-friendly measures such as more straightforward requirements for supporting documentation - applications are accepted on a self-certification basis following informal or verbal declines from banks – making it faster and easier for micro-enterprises to apply to MFI for loans. Borrowers have responded positively to these measures.

As previously stated, ultimately the scheme will be demand led. Economic factors including changes in market dynamics and conditions will continue to be monitored and assessed in relation to the overall appetite and appropriateness for lending from Microfinance Ireland. These include consumer demand for credit, particularly at local level, for goods and services that form the backbone of micro-enterprise activity and growth; improving employment conditions, which would present greater stability for people compared to the risk of business failure and further debt issues; the current legacy of both personal and business over-indebtedness, which can discourage people from taking on more debt to fund businesses and can lead to a focus on paying down debt and stabilising existing businesses instead of expanding.

I would like to turn to the subject of costs. In pricing our loans, we have to balance offering a competitive rate to borrowers with getting an appropriate contribution to running the scheme. We cannot charge too much, which would unduly burden our borrowers, and we cannot charge too little, which would ultimately cost the taxpayers whose money we put at risk every time we back a business. It is a difficult balance and a challenge which begins with keeping our costs as low as possible. We are acutely conscious that any costs we incur will ultimately be borne by the taxpayer. There are certain costs that we cannot avoid; we need the right skills to run the organisation competently. Our annual salary costs were capped by the Government at €500,000 and we adhere rigorously to this.

We need to spend money on marketing – just like the businesses we support – to generate awareness and fulfil our mandate to lend to quality businesses who cannot borrow elsewhere. We spent €120,000 on marketing in our first year and we do all we can to make sure every cent counts. We also incurred once-off start-up costs of €278,000 when the organisation was set up. While substantial in the context of the amount we lent in our first year, these costs will not be repeated and they were only sanctioned because they were necessary to set up the business.
Looking to our future strategy, MFI is conscious that its progress will be subject to a formal review by the Minister for Jobs, Enterprise and Innovation in late 2014, after two years in business. In advance of this review, MFI plans to undertake the following initiatives with a view to ensuring the microenterprise loan fund scheme continues to serve viable microenterprises and support both existing and new jobs in the economy. MFI will continue to build awareness of the scheme and continue to monitor customer feedback to make it easier for prospective borrowers to apply. We will seek to add other suitable partners to refer potential applicants. We will continue to engage with CEBs, banks and the Credit Review Office. We will extend our referral partners to include local enterprise offices in each local authority area; these provide the essential business soft supports including training, "pre" and "post" mentoring to our target audience, which is essential to the robustness of the microenterprise loan fund scheme business model.

We are currently undertaking a pilot scheme for loans up to €5, 000 that offers borrowers the benefit of a simplified application process. This pilot is being undertaken in conjunction with two local development companies and is targeted at people on back to work schemes. This pilot will be evaluated over the coming months with a view to rolling out nationwide in 2014, if it is successful. We will focus on success stories of existing customers on our website, at relevant events and suitable media opportunities to demonstrate how the scheme has helped various businesses; from the self-employed local mechanic, to the food producer who has secured a supermarket chain contract, to the business that involves both young and not so young family members, harnessing both experience and new skills to rejuvenate a family hotel, to farm diversification enterprises, to lending to both on-line and specialist and niche retailer businesses, to launching a community-based sports business activity and helping more innovative young companies that are involved in new technologies and new areas of manufacturing. These are also being grant aided by CEBs and Enterprise Ireland. After 12 months in business, we now have a portfolio of great success stories and a mix of customers who will assist us in championing how a loan from Microfinance Ireland may be able to assist further businesses.

In conclusion, we are fully committed to achieving the original business objectives around the potential number of jobs being supported through the provision of microfinance loans. Like any new business, it takes time to launch, establish the model that is the right market fit and over time embed the model by adapting to ongoing market changes and customer feedback. We firmly believe that we are on the right track and confident of building on the success to date and ultimately delivering on the critical objectives of job creation in local communities.

I hope that this summary I have provided gives you a better understanding of MFI, the work we do, the borrowers we help and the way we seek to fulfil the role the Oireachtas has entrusted to us. Chairman and committee members, please allow me once again to thank you for your invitation to appear before the committee. We will do our best to answer any questions you may have.