Mr. Peter O'Mahony:

I thank the committee for this opportunity. I will give some background on why and how we established LinkedFinance. I originally came up with the idea when Martin McAleese ran Your Country, Your Call in 2010. I could see at the time that small businesses were struggling to access finance. I had run a printing business in the past and it is notoriously difficult to raise finance to run such businesses. When I did some research I saw that the SME loan book in Ireland was approximately €46 billion while household deposits were nearly €90 billion, even though the country was having a very hard time. Therefore household deposits were double the requirement for SME lending. I thought if one could release some of those funds or make it attractive for members of the public to lend to business it might be a good idea.

When I did some research I found that crowdfunding had been invented in Ireland in 1720 by Jonathan Swift. He had a very simple idea. He ran the Irish loan fund and put €500 of his own money in. At the time a peasant farmer could not borrow money in Ireland. The idea was that he would lend money from this fund to a peasant farmer as long as two of his neighbours were prepared to stand behind him as guarantors on the loan. The idea was that if the borrower defaulted or ran away to Australia, these two neighbours would step up and take up the loan on behalf of the borrower. We did a little research and there had been no defaults because the most shameful thing one could do back then was to disgrace oneself and bring one's neighbours in on it.

A modern-day equivalent is a company called Zopa.com. Established in 2005 it has loaned €400 million so far.

Zopa stands for "zone of possible agreement", and is the zone between the rate a saver can get for putting his money on deposit and the rate at which a business can borrow money from the bank. Somewhere in the middle is the zone or the rate at which both parties are prepared to lend and borrow. At present a saver in Ireland would get a return of 1% interest. In Ireland the rate of interest on an unsecured business loan could be up to 12%.
LinkedFinance.com started in March last and has secured a €1.8 million bid on our market, with which we have lent money to 63 different businesses. The zone of possible agreement in Ireland is between 8% and 9%. The rate of interest on our average loan is 8.9%, which is one third cheaper than the bank rate. The lender is probably receiving eight or nine times the rate of interest that he or she would have earned from holding the money in a deposit account. We are involved in peer-to-peer lending.
The company that started Zopa has lent approximately €400 million. A company called Lending Club, which is a major player in this market in America, has lent $3.3 billion since 2007 and is currently lending at a rate of $300 million a month. It is very big business in America. The equivalent of our company in the United Kingdom is Funding Circle, which has been in operation since 2010 and has lent £200 million. This time last year the British Government started lending through the Funding Circle platform because Dr. Vince Cable, Secretary of State for Business, Innovation and Skills, considered it the most efficient and effective way to lend money to small businesses quickly. The British Government has lent £20 million to date through fundingcircle.com and I understand there are plans to lend more.
There are a number of crowdfunding platforms of which people might be aware, which serve different segments of the market. Zopa and Lending Club provide consumer loans, while Funding Circle and LinkedFinance do business loans. An American company, Kiva, accepts donations and typically lends money to Third World countries. Reward crowdfunding is similar to Kickstarter.com in America, which has lent $800 million dollars to starter projects and arts projects. In Ireland the website fundit.iedoes exactly the same. Equity crowdfunding caters for companies, particularly start-up companies, which sell a small percentage of their businesses to a big group of people. The major player in the market is the UK company Crowdcube.
We at LinkedFinance lend to the butcher, the baker and the candlestick maker. The butcher and baker were very quick to come to the site, and we then looked for a candlestick maker to complete the nursery rhyme. We lend to a range of companies, including medical device companies and two electric bike companies. We have been successful in lending to businesses on the high street and to the food and agricultural sector, which is a major player in Ireland. Recent studies reckon this worldwide business will be worth about $15 billion in 2013. We believe that crowdfunding, which does not have a home, may present Ireland with a great opportunity to capture 10% to 20% of the expected 45,000 jobs in crowdfunding by 2015. We have already been approached by some people from the IFSC to see if crowdfunding would be the type of business that could move into the financial services sector.
When we surveyed the 63 companies that we have lent to, we found that the companies that received these loans have managed to create more than 180 jobs already and, equally importantly, have sustained about 1,000 jobs. We hope to grant more than 200 loans in the next 12 months and, based on the figures we have, we expect this to deliver more than 600 jobs in that time.
I would be delighted to respond to questions from members.