Mr. John Moran:

During my presentation last week on future banking, I tried to explain our thought process around funding enterprise. It is not of any comfort to us but worth noting that this is not only an Irish problem. The point being made over and again by us in respect of the process is that Ireland's economic difficulties and the creation of jobs will only be solved through a vibrant SME sector. This will not happen without funding being available to companies. The slide which Deputies can now see is taken from the presentation I gave in Europe. It shows the significant differences in funding rates available in Germany and France versus Italy and Spain. Europe is struggling with the same issues across the whole system.

The way in which we have been trying to handle this is well set out in broader terms in the medium-term strategy and in a more specific way in the Action Plan for Jobs in the context of the sector on funding for growth. One of the particular difficulties being experienced in Ireland, which may explain some of the issues raised by Deputy Collins, is that in the past in Ireland when a person was setting up a business it was often capitalised by positive equity from the business owner's home. This served as a personal guarantee in respect of the business. In other words, the positive equity from the business owner's house, or, perhaps, that of his or her parents, served as a security for the banks in lending money to the start-up business. We believe this led to the belief at that time that the banks were funding businesses when in fact they were funding the credit side of the balance sheet and the equity and mezzanine risk of the balance sheet.

As a result of the crisis, a huge amount of available capital in Ireland that might be used, in particular in the smaller business sector and also the larger business sector in terms of growth, no longer exists because many of the houses that might be used for this capital are in negative equity. This is the reason for the market failure of start-ups. It is also the reason getting the microfinance and credit guarantee funds, and angel investors and others, to work more effectively in Ireland is a key part of the solution. This is a more critical issue than it would have been in a different environment where there was a lot of positive equity in the system because positive equity would allow the banks to extend loans which are in many ways from a risk perspective at the enterprise level equivalent to an equity risk. As a result of this, we will have to move to an enterprise environment that is more open to sharing ownership of companies, perhaps at an earlier phase than has been historically the case.

In Germany, one sees the opposite to this. For example, many of these businesses there are family business because an equity pool has been built up that allows families to create a balance sheet that can take credit from the banks. We do not have the capacity to do that. We are also in a much more dynamic situation in terms of start-ups and, therefore, the model will probably be somewhat similar to the model seen in more dynamic start-up environments such as the United States. As such there will be a greater requirement for angel capital and growth. The part of the trough in which perhaps there is a shortage in this regard is the growth capital area.

Colleagues on the group chaired by Mr. Hogan are reviewing the efficiency or otherwise of the microfinance and credit guarantee funds. These are important parts of the system. As stated, small SMEs essentially need to be backed by way of resolution of the negative equity problem and the putting in place of alternative mechanisms through which start-up capital can be provided to companies, with the banks playing a particular role after that. When business grows through the system the banks can then have a role to play. However, venture capital is needed first. There are other charts I could show to the committee which show that there are considerable differences between the amount of venture capital available in Europe as compared with the amount of venture capital available in the United States. If we want to move towards an environment of entrepreneurship and start-up, particularly in the technology space, it being a key part of our economy, these are the issues we need to resolve. It is at the equity start-up phase that Enterprise Ireland will have to be key and have a broader range.

Deputy Collins referred earlier to the LEOs. The LEOs on the ground will need to play a key role in joining the dots for enterprise in terms of working out where they are going. We have discovered along the way that many companies did not have all the right training. The issue of finding more mentoring for companies and better education has been mentioned before. The Department of Education and Skills is now participating in the SME credit committee in the context of the provision of education. Another key part of technology currently in development and close to launch, which we have put together with other colleagues across the system, is a website which allows a small business trying to find a solution to a particular problem, be it in regard to funding and so on, to log on, indicate its location, size and problem and be directed to the various supports that are available. We have learned through the process that there are many supports available but is hard to know which ones work or are relevant. By way of testing, the new website has been trialed with approximately 700 SMEs with a view to seeing if it can be improved in terms of the solutions loaded onto it. I will now ask Mr. Hogan to respond to the issues on the equity side.