Richard Bruton (Dublin North Central, Fine Gael) | Oireachtas source

Most committee members will be familiar with this scheme which was introduced in 2012 after lengthy consideration. It was a novel approach at that point; we had not tried a credit guarantee scheme before in Ireland. In retrospect, one could certainly say it was designed conservatively. There was a 75% guarantee on individual loans, with a portfolio cap of 10%. The loans were up to €1 million and there was a 2% premium on them. The scheme was put together under the de minimisstate aid programme and less than one year in operation when we decided to review it because it was clear that the volume of applications had been lower than expected. The volume to date is approximately €15 million, as can be seen in the brief, involving 110 companies. However, the impact on jobs has been surprisingly strong. As members will see in the document, 870 jobs were impacted on, whether through the creation of new positions or maintaining existing jobs. The scheme, therefore, has a clear impact, but its take-up is low.
We brought forward the commitment which had been given in the legislation to have an early review which many Deputies had been of the view would be needed. We have conducted that review. As can be seen in the brief, following a competitive tender, we brought in consultants to look at the scheme. That review was overseen by our steering committee and we undertook widespread consultations with all key stakeholders in the course of the review. The review found that the scheme had real merit, but its complexity, the narrow range of products covered and the apparent disproportionate skewing of risk distribution in favour of the State as guarantor made it unattractive to the banks to operate. It, therefore, proposed the following changes to procedure: the inclusion of a wider range of financial products, not just traditional credit products, including invoice discounting, factoring, leasing, overdrafts, etc.; a wider range of providers in order that it would not be confined to banks with a licence from the Central Bank; an increase in the guarantee on individual loans from 75% to 80% and an increase in the portfolio cap from 10% to 13%, as well as the removal of the restrictive annual portfolio cap.

Those changes will be in the legislation but there are other, equally important changes that we can do without putting into the primary legislation. They are extending the maximum length of guarantee from three to seven years, removing the requirement for a formal letter of guarantee and appointing a dedicated owner or manager of the scheme to drive performance. Previously we were effectively relying on the banks to be the promoters and act as the client-facing element. We had a group to manage the back office, as it were, the processing of the loans and capitalisation. We are now going to have conscious promotion of the scheme to drive it. We will also re-launch the scheme with a strong campaign behind it. Based on best practice in the banks that have operated it, the scheme will be managed within the credit function of each bank so that those who will be managing it will be client facing. This structure is based on the bank which had the best performance and was regarded as having the best approach. Although it is over a longer period, the overall cost will be no higher than what it was. We are projecting a default rate on the longer period that will be no greater than the default rate on the shorter period. While the loan is outstanding for a longer period, we are not reckoning on a higher default rate.

These are the proposals that we will be seeking to integrate into a piece of legislation. We have got approval from Government to draft heads of a Bill. We are coming to the committee to get an input at this point. It has been tabled on the A list for the autumn session. The committee will understand that it is something we would like to push through as quickly as possible because it offers a better product. In terms of our expectations, it is very difficult to predict. We have put in a figure of €75 million as what we would hope the annual turnover of the scheme will hit, but we will continue to have a higher ceiling than that, should the volume be greater. The refinancing of lending within the same bank is not permitted under the current guarantee, but difficulty in refinancing for SMEs whose banks are exiting the Irish SME market has been flagged by SMEs, the banks and the Credit Review Office as the most pressing issue for SMEs at this time. In order to deal with that issue we have prioritised the preparation of a revised interim scheme under the current Act to allow refinancing of SMEs which have loans with banks that are exiting the Irish market. A possible State aid issue has been raised by the Office of the Attorney General and we are in discussions with the Commission on how this revised scheme can be introduced.

I am happy to take queries or suggestions.