Mr. Nick Ashmore:

There is a trade-off and it is something we had to deal with when the SBCI was first set up. With schemes like this, there is real impetus to get it to market as quickly as possible. They have this unique asset, which is massive distribution channels. When we started the SBCI with our low-cost liquidity loans, we started with the banks and then started to add competitors after that.

We now have five non-bank competitors to the banks providing SBCI funding into the market and active competition. As a result we have seen a much more active leasing and HP finance market for small businesses. This is the first instance of this one. We would have dearly loved having a non-bank competitor for the banks in this space but these are term loans. In fact, almost all the non-bank competitors in the market that would compete with the banks are focused on asset-based financing, leasing and invoice discounting. It is a real challenge and is one of our core long-term objectives. We would love to get a competing term lender into the market but it is challenging because there are a number of very significant barriers to entry. First, a lender would need a distribution network. Second, it would need the right expertise. Third, it is a small market so a high quality team might seek to set up in the UK or somewhere else.

There were a couple other applicants for this scheme. Unfortunately, they did not meet the qualifying criteria. We very much hope to incorporate a non-bank competitor in a subsequent scheme. It is a question of developing the market over time. Unfortunately, we cannot fix that aspect straight away. We have seen much greater competition where we have brought non-bank lenders into the SME space on the other side. We hope for risk sharing the next time out and then, maybe in time with the credit guarantee scheme, we will be able to work with groups that are not banks to provide real competition. That is the most significant and effective way to address the interest rate premium that Irish SMEs and farmers must pay versus other countries. The Central Bank has carried out very good research on why the premium exists. It concluded that the reason is mainly down to an historic loss rate and profile within the Irish market, which is brutal, to be frank. It also identified another element as being a lack of competition. There are indications, if we can get more competitors into the market in this area, that we should be able to bring down interest rates, but it is not something that we can do very quickly.

We collect certain data from the banks to meet the requirements of the European Commission for the deployment of its funding. We have to collect certain data for the European Investment Fund and the Department of Agriculture, Food and the Marine. We must also collect data for our own purposes so that we can track the loan portfolio and the risk we are taking. We get high level data about the loans and their duration, term, interest rate, credit rating, region, sector and size. All that is standard information. Then we get an update on the status of the loan every quarter. It shows the new balance and whether there has been a change in the loan and that kind of thing. We also have to collect verification that the farmers have made the right declaration that confirms they qualify for the loan and comply with the qualifying criteria provided by the Department of Agriculture, Food and the Marine, for which members may have seen the package provided. The declaration pertains to things like the membership of environmental schemes and other qualifying options which were part of the qualifying conditions for funding by the European Commission. We collect a good data set. We are quite careful that we cannot use the individualisation of that data under data protection rules. Therefore, we cannot survey participants on how they like the loan. We are limited in that context. We can survey, on a random basis, to track that information.

In terms of the normal lending criteria, we focused in this instance on making the loans easier to obtain by reducing the security requirement. It is another thing and much more challenging to change the credit criteria as a result of a guarantee. These guarantees are capped portfolio guarantees. There are two types of guarantees on the market. There is one uncapped. A capped portfolio guarantee says that we will take or guarantee 80% of the losses up to the first 15% of the loans to fail. We set that roughly where we think the loss rate may reach. We have designed this item to use the cash both for the subsidy but also to reserve it for the loss reserve and the COSME guarantee. We do not put them in place because they are nice to have. We put them in place because we think these losses will occur. If loan losses go beyond 15% of the portfolio, the bank is 100% at risk at that point. We are not taking away all the risk, up to 80%. We are only taking it on the first expected loss rate within the portfolio. There are other alternative European measures that provide uncapped counter-guarantees but they are more focused on innovative companies rather than smaller businesses like farms.

I will respond to the questions on the sector in general, the small food producers and food companies. The SBCI broader lending portfolio covers term lending, leasing, vehicle finance, fleet finance and invoice discounting. At the moment the portfolio shows an average loan size of around €40,000. We have a high proportion of micro businesses that actively borrow using that lower cost funding. Within that there is exposure to the food and food production sector. We are also very conscious of the impending impact of Brexit. We are not a policy setting body but a policy delivering body. It is important we understand what is going on in the market. Recently the SBCI actively formed its own research to collate and gather as much research and information on the SME and farming sectors as we could so that we could feed into the policy-making process and understand the issues. We hope that all this will help us design policy measures that are targeted, effective and work in the Irish market.

One of the big challenges is that while there are many supports available at a European level, without adapting them to work in Ireland, it is very difficult to get them to work here. The Irish market differs from the markets across Europe. It is different in the nature of the banking system, the attitude of borrowers to lending and borrowing, their approach to investment and the historical impact of the recession on attitudes and people's relationships with the banks, which Senator Mulherin alluded to. Repairing relationships is a work in progress. It will be some time further before SMEs are really comfortable, stop paying down debt quickly and start to borrow to invest again. At the moment far more of them use their own resources to make investments rather than borrow.