Oireachtas Joint and Select Committees
Tuesday, 8 December 2015
Select Committee on Jobs, Enterprise and Innovation
Credit Guarantee (Amendment) Bill 2015: Committee Stage
As we have a quorum, we can proceed. Apologies have been received from Deputies Áine Collins and John Lyons. This meeting has been convened to consider the Credit Guarantee (Amendment) Bill 2015, referred to the select committee by order of the Dáil of 26 November 2015. I welcome the Minister of State with responsibility for business and employment, Deputy Nash, and his officials to the meeting. Before we begin, I ask members to switch their phones to safe or flight mode; it is not sufficient to put them in silent mode as that maintains the level of interference in the committee room and impacts negatively on the broadcast. Some 30 amendments have been tabled and it is proposed we will consider the Bill until we conclude Committee Stage. Is that agreed? Agreed.
A list of amendments grouped for the purposes of debate has been circulated. We will commence our consideration of the Bill. Amendments Nos. 1 and 2 are related and will be discussed together.
I move amendment No. 1:
In page 3, between lines 7 and 8, to insert the following:“PART 1Short title, commencement and collective citation1. (1) This Act may be cited as the Credit Guarantee (Amendment) Act 2015.
PRELIMINARY AND GENERAL(2) This Act shall come into operation on such day or days as the Minister may appoint by order or orders either generally or with reference to any particular purpose or provision and different days may be so appointed for different purposes or different provisions.
(3) This Act and the Credit Guarantee Act 2012 may be cited together as the Credit Guarantee Acts 2012 and 2015.”.
On Second Stage of the Bill in November, I indicated I would bring forward some technical amendments on Committee Stage which would improve the drafting and publication of the Bill. The Government also agreed to a proposal by the Minister for Finance that the Departments of Jobs, Enterprise and Innovation and Finance would work together on any necessary additional amendments to the Bill relating to a role for the Strategic Banking Corporation of Ireland, SBCI.
I informed the House it was intended to move Committee Stage amendments to provide for a new section setting out in law the detailed criteria under which the Minister shall calculate premiums, primarily that they should not exceed the level needed to defray or partially defray the costs of the scheme, and clarifications to ensure finance providers meet applicable law in respect of the conduct of their business under the legislation.
These technical amendments were circulated last week and cover premium setting and clarification of the need for finance providers to meet all appropriate legal requirements before being eligible to benefit from the guarantees. These changes will impact on sections 5 and 8 dealing with the power of the Minister to make schemes in consultation with colleagues in the Departments of Finance and Public Expenditure and Reform and his powers to set different premia for different schemes.
In addition I indicated there would be important changes in a new and separate part of the Bill under the following headings. One, provision for State promotion of financial institutions that will in future work with the Minister through this legislation to enhance provision of credit to SMEs and two, a role for the Minister to be able to give counter guarantees intended to enable promotion of financial institutions to unlock matching guarantee facilities from EU sources and share the risk across banks; and the promotion of finance providers, for example, the SBCI, the Minister and a number of potential EU sources. In respect of the latter, it is envisaged this counter guarantee would operate in conjunction with the leveraging of related EU financial instruments in this area, such as the European Programme for Competitiveness of SMEs, COSME, Horizon 2020 funding earmarked for SMEs and the European Fund for Strategic Investment, EFSI, administered by the European Investment Bank and the European Investment Fund - the Juncker plan. In this way Ireland will be able to optimise its return from major EU initiatives.
My Department and the Department of Finance completed work with the Office of the Attorney General on these points and the appropriate revisions were circulated to the House last week. The amendments are, by and large, contained in a new Part 3 of the Bill, sections 9 to 15, inclusive. Arising from the additional part, there are some technical amendments to the earlier parts of the Bill which I will flag as we proceed.
During the debate on Second Stage I stressed that the overarching economic need to ensure Irish firms had the full suite of financial and other supports available to enable them to compete internationally was paramount. The Bill and the additional revisions to it will ensure that in the area of credit guarantees, Ireland will have a framework that will be more than just fit for purpose, covering an extensive suite of products, it will ensure we will have the ability to make best use of the EU funding made available to member states by means of risk-sharing financial instruments. The Bill and the Committee Stage amendments I have outlined, particularly those that will facilitate the leveraging of EU funding, will significantly benefit firms, employees, SMEs and the economy at large.
I flag to the committee my intention to submit three further amendments on Report Stage which will impact on employment rights, the Workplace Relations Act and the Companies Act. They are purely technical in nature and will enable the recently enacted legislation to be fully effective.
As I said, the Bill and the Committee Stage amendments contain major changes to the 2012 Act. One of the proposals is that the original section 1, with its brief definition of the principal Act, be deleted. A Part 1 break is being inserted and the new section 1 will deal with citations and the like, mirroring section 10 of the 2012 Act. The new section 2 will contain the necessary definitions of "Minister" and "Principal Act" which currently are included with other definitions but which are being moved because they apply to all parts of the Bill, with section 1 being deleted.
I move amendment No. 2:
2. In page 3, between lines 7 and 8, to insert the following:
“Definitions2. In this Act—
“Minister” means the Minister for Jobs, Enterprise and Innovation;
“Principal Act” means the Credit Guarantee Act 2012.”.
I move amendment No. 3:
In page 6, between lines 29 and 30, to insert the following:“(c) the finance provider is a crowd funder which operates as a credit facility and its liquidity is sourced from the general public and provides loans to businesses in a peer to peer arrangement.
(d) the finance provider is a credit union which operates in Ireland under Central Bank regulations.”.
Much of the debate on the credit guarantee scheme from its inception has been about the fact that the banking system is broken. These are new products that have been designed to fill the gaps left by the banking system which is not working properly. We have, to all intents and purposes, an oligopoly in the State and need to make sure we have other elements in the credit system that can function properly and add to the choices for consumers of credit. The amendment deals with two unloved sectors of the credit ecosystem.
It is welcome that the Minister of State has broadened the credit facilities that may be used in the future under the Bill. However, on Second Stage I brought to his attention the necessity of using crowd funding as an opportunity for the State to funnel cash towards small businesses. In Britain, for example, 10% of all crowd funding loans are backed by the State. The sector is very small here and it is finding it hard to gain traction owing to the lack of backup from the State. That is why it is necessary for the Government to include crowd funding as part of the credit guarantee process.
The second area about which the amendment speaks is the credit union sector. We dealt with a Private Member's Bill recently and representatives of the credit union movement appeared before the joint committee. The credit unions stated they had €13 billion in capital for which they needed a home. They also referred to the fact that they were very well regulated and had come through the crash unscathed in comparison to the banking sector. In that context, I call on the Minister of State to make sure these two key components which will provide opportunities in the future, in terms of credit, are included.
I welcome the amendments proposed which will make this a far superior Bill to the one originally published. I hope it will have the impact we all desire. I commend the Minister of State for the work he has done on this issue since he took office.
I support Deputy Peadar Tóibín's amendment. The credit union movement is open for business and very keen to get involved in SME lending, in particular. Unfortunately, however, it is being rebuffed at every opportunity in being allowed to exploit its asset base and encourage its membership which is locally based to support locally rooted SMEs. The obstruction is in the Department of Jobs, Enterprise and Innovation but in the Department of Finance and the Office of the Financial Regulator. This is an opportunity to rebrand the scheme. The success of Microfinance Ireland since its reorganisation is a clear indication of the demand for small-scale SME lending. The credit union movement and crowd funders are ideally suited to meet that demand. Several crowd funders have made presentations to the joint committee. What could be done through this channel is phenomenal, particularly for new enterprises and start-up companies which are still finding it very difficult to obtain funding. Crowd funders are ideally situated and the inclusion of such funds would truly bring the Bill into the 21st century. We should partner with crowd funders and the credit union movement in the provision of SME funding. The credit union movement is very keen to get involved, but it is being rebuffed at every turn by the Government.
In response to Deputy Peadar Tóibín's amendment, in extending the scope of the legislation and introducing additional flexibility, there will be scope to examine how a range of finance providers can operate under the Bill. I cannot accede to the amendment which relates specifically to crowd funding and credit unions. As far as the Government is concerned, these provisions are not exhaustive and we do not believe there is a need in primary legislation to explicitly refer to finance providers or the sectors in which they operate. The scope of the scheme is broad enough to allow these two operations to be accommodated in what we are trying to achieve. Fundamentally, this is about ensuring we will have alternative sources of finance for SMEs, in particular. The Bill is sufficiently broad to accommodate what Deputies Peadar Tóibín and Dara Calleary wish to achieve.
On Second Stage the Minister of State said crowd funding could not be included because its definition was not tight enough. I now understand he is saying there is a possibility, given the breadth of the Bill, that crowd funders could be included in the future. Will he give me a commitment that they will be so included?
We are satisfied that the scope of the Bill is broad enough to provide for the alternative financing arrangements to which Deputy Peadar Tóibín refers. Section 2(1)(b) provides that the "finance provider stands approved for the time being by the Minister in accordance with this section". This is sufficiently broad to cater for what the Deputy wants to achieve. We are all trying to provide alternative financing arrangements. We all know that different arrangements are required for the SME sector, in particular. That is what the Bill and our proposed amendments are about. I am satisfied that we can achieve the Deputy's objective.
It would improve the legislation if we were to be upfront and say credit unions and crowd funders would be part of the scheme apparatus. We are not making it exclusive to them, but the fact that we would incorporate them in the legislation would show that we took them seriously as organisations with a role to play in the provision of financing for SMEs.
We are taking them seriously. As I said, there is sufficient scope and flexibility to ensure we will have as broad a range of alternative financing arrangements for SMEs as possible. We are taking this issue seriously, but we do not want to go down the road of specifically identifying in primary legislation different sectors because that could tie our hands in terms of the extent and breadth of any scheme introduced. I suggest the Bill is sufficiently broad to cater for the objectives of the amendment.
As Opposition Deputies, we have an opportunity to discuss what the Bill states and will do. If we simply agree that it should be left to the Minister to decide what should be included in the scheme at some point in the future, we abdicate our responsibility as Opposition Deputies to the different sectors that are components of a functioning and healthy economy.
If we simply decide that it should be left to a Minister to decide some day in the future on what should or should not be included, we, as Opposition Deputies, are obviously abdicating our responsibilities to the different sectors of a functioning and healthy economy. It is our job to ensure we build legislation correctly from the start, rather than leave it as a husk to be filled by a future Minister in whatever way he or she wants to fill it.
The Minister of State said on Second Stage that crowd funding would not be included in this legislation because he could not get a definition for it and the fact he would not give a commitment that it will be included in the future gives me no confidence in this legislation. One of the key points put forward by the credit unions when they made presentations to the Oireachtas was their deep frustration in regard to the limiting of their ability to function within the SME sector. It is difficult to understand that in a credit squeeze, the sector that least abused its position now feels it is being limited by the Government and Central Bank regulations with regard to trying to provide small loans to small businesses.
I would not mind so much if the Minister of State told me credit unions could be involved, but could only provide microfinance, like Microfinance Ireland for example which has a €50,000 or €75,000 ceiling on its ability to loan. I would agree that this would be a prudent first step in their foray into this space. In representing these sectors, SMEs and entrepreneurs in society, we as Opposition Deputies should at least commit to ensuring that they will be included in this scheme in the future. Otherwise, we are just involved in creating loose legislation that does not address the problem.
We in the Department and I, as a constituency Deputy, are in constant contact with the credit union sector, as is the Department of Finance, in regard to the role of credit unions and how that will evolve in the context of the SME sector. We have asked the credit unions to bring forward proposals in that regard. As far as I understand, there has been no significant detail from the credit unions regarding how they intend to operate in that sector in the future. The Government and the Oireachtas should be always mindful of the role credit unions and other alternative financiers and finance organisations can play in supporting the SME sector.
Clearly there is a difference of opinion between us and the Deputy in regard to how we accommodate the role of the credit unions, crowd funders and others, but the definition of "finance providers" in this legislation is sufficiently wide to include crowd funders and credit unions. However, what we do not want to do is to arrive at a position where we list off in an exhaustive way the type of funding arrangements and providers that would or could be considered in the context of any scheme to the point where we might end up excluding some. This is a rapidly evolving area, nationally and internationally, so the definition is left open enough to allow for the development of crowd funding and how it will be defined in the future. I am satisfied we have sufficient flexibility here to allow us to achieve that and to do the things Deputies Tóibín and Calleary want to see happen.
I move amendment No. 4:
In page 7, between lines 14 and 15, to insert the following:“(5) The Minister will commission a report within 3 months of the Act becoming operational outlining how the Credit Guarantee Scheme can help make it easier for businesses that owe money to banks exiting the Irish SME market to refinance those debts with domestic institutions.”.
Given the difficulties with this scheme in the past and how important it is to get this one right, I propose that we get a report within three months to ensure that the scheme, as redesigned, is meeting its objectives and that we do not see the kind of delays we saw on the last occasion. Concerns were highlighted early in the lifetime of the last scheme and were ignored, which resulted in many of the delays. This amendment aims to prevent any such difficulties and to ensure that all the objectives of the scheme are met.
I thank the Deputy for his words. I know he is particularly interested in the scheme and we have spoken about it. I am not accepting amendment No. 4 which deals with a specific matter which is not appropriate for legislation. The Department of Jobs, Enterprise and Innovation, the banks and other finance providers and the Strategic Banking Corporation of Ireland, SBCI, will actively promote the revised system and ensure that businesses are aware of the possibilities available under the new schemes and the Department will report on progress on a quarterly basis. It is open to the Minister under the current scheme to review it frequently, to publish reviews of the scheme and to identify if there are problems. We have had a comprehensive review and are trying to fix the problems identified. There is provision to conduct regular reviews which would be published and brought to the attention of the Oireachtas and it is appropriate that be the case but that it be done on a case by case basis. If there are problems with the operation of new schemes and the new provisions provided for here, we will certainly do that but I will not accept Deputy Calleary’s amendment.
I move amendment No. 5:
In page 7, between lines 14 and 15, to insert the following:“(5) (a) The Minister shall work with his colleague in the Department of Finance to facilitate a role for State promotional financial institutions such as the Strategic Banking Corporation of Ireland in the scheme in order to enhance the provision of credit to SMEs directly.
(b) The Minister shall be empowered to give counter-guarantees designed to enable State promotional financial institutions access to match guarantee facilities from EU funding sources such as Horizon 2020 funds earmarked for SMEs and the European Fund for Strategic Investment.”.
We feel there should be a role for SBCI in this scheme enhancement and also with regard to other State promotion of financial institutions and EU funding. It is obviously an aim shared by the Government and in that context, given that it is effectively the same amendment as amendment No. 22, I am happy to withdraw it.
Separate legislation would be necessary to change the SBCI system but it is important to say that the SBCI has to go through a pillar bank or another form of lending to have access to consumers which limits its engagement and ability to lend. Often the pillar banks have proven that they simply do not feel the need to promote SBCI funding. I have heard from firms that went to a bank for SBCI-type funds but the bank asked them to consider the bank's funds instead. In that way they were diverted from the fund and the process fell apart. In its report today, the Central Bank talks about the limited competition in the State. It is important to find a role for SBCI to lend directly to SMEs in the future.
The SBCI is a new part of the landscape and something we all welcome from the point of view of competition. The SBCI is working extremely hard to promote the opportunities available to those who cannot access particular types of finance through the pillar banks or are in a particular set of circumstances We are anxious to ensure that SBCI products are available and are front and centre in terms of the offering of the pillar banks, in their roles, essentially, of on lenders for the SBCI. It would be useful to reflect on the performance of the SBCI in its infancy. It has only been in operation for a few short months in terms of the first products it is providing. In recent weeks, agreements have been signed with two new on lenders - Finance Ireland and Merrion Fleet Management. We are hopeful that SBCI will continue to expand its operation and work with other finance providers over the next period of time. Up to 30 September 2015, €110 million in SME loans were approved and drawn down by 3,200 SMEs and more than 90% of those were for investment purposes. It would be useful for the committee to know that close to one third of the loans drawn down were in the agricultural sector and the average loan size is €35,000. There is also a strong regional focus; the bulk of the loans drawn down under the aegis of the SBCI were outside of Dublin. That is something we all welcome.
There were a few in north Dublin. I know some very productive farmers there and farming is a very important part of the economy in north Dublin. SBCI has been a very welcome addition to the landscape over the last few months and is performing very well in the short period it has been in existence.
I concur with that having attended a number of SBCI briefings through the banks. Will the Minister of State encourage SBCI to use its new partners to get out there to meet people? I welcome competition and if SBCI is to be part of that competition pillar, it is important for it to get out there through its new agencies so it is not all seen to come through the two pillar banks.
The Deputy may have been at the ploughing championships, as I and others in the House were. There was a very strong representation there from SBCI; its representatives talked to the agricultural community about the possibilities that are available through SBCI. At Taking Care of Business events, the Department includes dozens of agencies which are under its aegis and which operate in the SME space. The SBCI has been very involved in that, not only by having representation at those events but by ensuring they are front and centre at seminars so that SMEs right across the country are familiar with the products available through on lenders. The SBCI offering is being improved and enhanced all the time. It is considered to be a promotional financial institution and is the first of its kind in this country. It has received a mandate from Government to do a particular piece of work and has accessed funding from Europe and the Pension Reserve Fund to do that. At present, it is the only PFI in Ireland and it was created to increase competition where it is needed in the SME sector. It will make a big impact.
I move amendment No. 6:
In page 7, line 17, after “section” to insert “and section 11of the Credit Guarantee (Amendment) Act 2015”.
Section 4 of the principal Act, entitled "Power of Minister to give guarantees", contained a number of important elements including the spread of risk and an effective monetary cap of €11.25 million on the State's contingent liability being the product of the 75% limit on individual loans in subsection (2), the 10% portfolio cap in subsection (3) and the €150 million aggregate limit in subsection (4). One of the main findings of the review that led to this legislation and these amendments in the first place was that the risk elements were disproportionately skewed in favour of the State. The Government agreed to increase the 75% and 10% figures to 80% and 13%, respectively. The latter is in line with State aid requirements and advice we received. Another implication of this is that the State's maximum contingent liability also increases to €15.6 million and the Government decided that the combination of both credit and counter guarantees should have this combined ceiling of €15.6 million. For that reason, there are linking cross references to the new section 11 on counter guarantees. I commend these amendments to the committee.
The purpose of amendment No. 24 is to place a maximum monetary limit on the liability that the Minister for Jobs, Enterprise and Innovation can incur in any one year from entering into both the credit and counter guarantee schemes. This amendment will ensure that the Minister does not enter into any combination of credit guarantees and counter guarantees that would exceed a maximum monetary limit of €15.6 million in any one year. The Department will ensure adherence to this overall limit by stipulating in each counter guarantee scheme an agreement with promotional financial institutions, the methodology by which the limit cannot be exceeded. I commend the amendment to the committee.
It is the combined exposure from the operation of the credit guarantee scheme and the counter guarantee scheme. One of the reasons we are including the SBCI here - there is broad agreement as to why we should - is to leverage support from European institutions, such as COSME, and from the Horizon 2020 initiative. We want to ensure that we spread the risk in many ways.
There are good reasons for doing that and ensuring liabilities and exposures to the State are limited. We have the cap of €15.6 million. That is the equation that is factored into this.
The limit is €150 million. Under the counter guarantee scheme, the lending that can take place to small and medium enterprises is €200 million. The credit guarantee scheme limit and the counter guarantee scheme limit is combined. I have lost my train of thought. I reflected on this earlier but I will reiterate it. Section 4 of the principal Act, entitled power of Minister to give guarantees, contained a number of important elements, including the spread of risk and an effective monetary cap of €11.25 million. That is being increased to take into account the counter guarantee scheme as well. There is a 75% limit on individual loans in subsection (2); a 10% portfolio cap in subsection (3); and a €150 million aggregate limit in subsection (4).
We have changed the equation a little. For example, one of the main findings of the review was that risk elements were disproportionately skewed in favour of the State, so we are sharing the risk across the different institutions. With the inclusion of the Strategic Banking Corporation of Ireland, SBCI, we are allowed to leverage more resources and risk across the various European financial initiatives as well. The Government agreed to increase the 75% and 10% figures to 80% and 13%, respectively. The latter is in line with state aid requirements and as Deputies are aware, there are serious state aid issues relating to how these types of schemes are operated right across the European Union. This is fundamentally concerned with designing it to ensure there is a risk appetite from the financial providers to take on the responsibility of providing more resources to the small and medium enterprise, SME, sector.
The old limit was €11.25 million with respect to exposure of the State but that is now up to €15.6 million. That would be the absolute maximum. By sharing the risk, the bulk of the risk is not now being taken by the State. We wanted to ensure the appetite for taking on this risk was spread more evenly across different agencies and institutions. That will succeed.
There will be more institutions involved with this arrangement. The risk is spread and we are trying to bring people along with us on this. The experience of the scheme did not meet our expectations initially and we are broadening it and including the SBCI. There will be more success in doing this. In spreading the risk, more SMEs will become involved. We need to promote this, which is very important, and there will be higher coverage of individual loans. This is going to work. The 75% figure has been increased to 80%, which might be relatively marginal, but it will work, according to our calculations. We want people to use this to its fullest extent so that as many lenders can be involved as is possible. As I said earlier, we are not excluding any form of alternative financing arrangements. We went into the details of that earlier. We believe this will succeed but we want to fundamentally ensure the exposure for the State is limited. By including the SBCI and leveraging additional resources from Europe, we can spread that risk.
Given that there will be €15.6 million of risk to the State, what is the ratio between level of risk to the State and the total amount of funds expected to be delivered? There is a ratio between level of risk and the total of amount of lending expected to be delivered through the system.
The Act placed the maximum limit on the value of funds that could be lent to SMEs at €150 million per annum. If we consider that in the context of the €15.6 million, it is fairly limited. We are trying to spread the risk and increase the appetite of lenders so they can get involved in the process. This will achieve that goal. There is much potential to increase lending without a commensurate increase to the risk and exposure for the State. That is why we must get the balance right. We want to make as many resources available to the SME sector as possible but at the same time making sure that the taxpayer is not exposed.
The overall amount of additional lending that can take place will depend on a range of different factors, as well as the number and type of schemes that will be operated under this legislation, the Minister's participation and each counter guarantee scheme. There is €150 million available per annum but the exposure is capped. It is important that we send a message to the taxpayer that there is a limit and exposure would be limited.
These are very significant funds that will be made available to the SME sector and we need to promote this very strongly over the next period. The Irish Small and Medium Enterprises, ISME, association report from late last week indicated that an understanding and appreciation of the credit guarantee scheme is growing, which is useful. Similarly, with Microfinance Ireland there is an understanding of its work and what is available there, which is useful from an SME perspective. This is a demand-led scheme so we cannot at this point measure how many SMEs want to become involved. Nor can we measure precisely the type of demands on the scheme over the next period. We will be promoting this new approach, along with banks and institutions like the SBCI. Departments, Ministers and agencies will promote this because it needs to be promoted. People must have a clear understanding of what this could mean for business and the risks involved. This can work. It has been a long time in genesis but we want to reduce the risk, in so far as we can, to the State while at the same time making as many funds available to the SME sector.
I understand there is currently €20 billion of lending to SMEs and, considering the size of that figure, exposing the State to €15 million of lending, with 40% of it in default, does not seem very ambitious. To tease it further, what are the expectations? When this credit guarantee scheme was initially announced, it was indicated that X amount of firms would be affected with X number of jobs to be created, etc. What is the range of objectives for this change? How many firms will be affected?
No. I can clarify the numbers to the best of my recollection. Just under 1,000 jobs have been supported by the credit guarantee scheme and we cannot put any ceiling on our ambition with regard to the number of jobs that would be maintained and supported. During the difficult years of 2012 and 2013 - the early years of the scheme's operation - we had to value the role that the scheme played, albeit in a limited way, in maintaining jobs. This was when people were trying to keep the doors open over the past number of years.
There are major possibilities for the scheme but they will very much depend on the way in which this is promoted. Of course, the scheme will benefit SMEs by enabling them to access credit where they would not otherwise be able to obtain it. That is the point, as the purpose of developing the scheme in the first place was to ensure that we could address a market failure during a very difficult time for banks. As bank balance sheets continue to be repaired and as those institutions develop a greater appetite for providing financing in the normal way, the role of this scheme and the SBCI may evolve. New products and markets will come on stream and new possibilities will emerge.
One of the fundamental points is that the SBCI's involvement is crucial from a counter guarantee perspective.
It would facilitate the combination of the scheme with other opportunities and other sources of risk sharing capital from Europe, significantly increasing the amount of resources available for SMEs. We are not rowing back on this. We recognise that this scheme has had a limited effect and did not achieve its original ambitions and that is why we are here today, to try to fix that and to ensure we are happy to accept the changes proposed in the review. We have had that discussion on Second Stage and at other fora. We want to champion and introduce changes that will make this scheme more attractive, to lead to an improved situation for SMEs and increased use and awareness by banks of what is available through the scheme and other finance providers.
I move amendment No. 8:
In page 7, between lines 39 and 40, to insert the following:
“(5) The Minister shall, in relation to a credit guarantee scheme, after consultation with the participating finance provider concerned, and by notice in writing given to the provider, specify the maximum value of financial products that may be provided by that provider pursuant to qualifying finance agreements—(a) entered into in any year, and
(b) to which guarantees under this section apply.”.
These amendments apply to a new subsection 5 being inserted which is designed to achieve certainty on transitioning between years. This also necessitates the re-numbering of the following sections. I commend these amendments to the committee.
I move amendment No. 12:
In page 8, between lines 20 and 21, to insert the following:“(iv) by the substitution of the following paragraph for paragraph (d):“(d) without prejudice to the generality of section 8(4), the method of payment of the premium under section 8 and the time or times at which the premium shall be paid;”.”.
I will discuss amendments Nos. 12, 19, 20 and 26. Section 5 of the principal Act is primarily about the schemes made under legislation to date, namely during 2012 and 2015. The amendments to section 5 of the Bill are to ensure new schemes can adequately cover the expanded types of financial products to be covered. There are also some amendments covering matters flagged on Second Stage, particularly subsection (d) which is a necessary cross reference to the correct part of the new section 8 on policies and principles on the matter of charging a premium to cover the Minister's costs. I will return to this topic later. I commend amendment No. 12 to the committee.
Regarding amendment No. 19, section 8 of the principal Act relates to payment of premia to the Minister. The substitution is designed to take account of the types of products and the need for flexibility in the rate referred to. By this approach we have, in effect, already gone a long way towards accepting the principle of Deputy Tóibín's amendments and the revised section 8 meets his requirement which regards credit unions and crowd funding, while also ensuring appropriate scope for flexible application of the legislation. I commend the revised section 8 to the committee.
I will now turn to amendment No. 26. Under the current legislation on credit guarantees, the Minister for Jobs, Enterprise and Innovation receives a premium in respect of the guarantees issued. This amendment provides that the charging structure for the counter guarantee schemes operates within the charging structures and principles contained in the Bill. It will be designed to ensure the Minister for Jobs, Enterprise and Innovation will receive the same level of premium adjusted to reflect the level of risk to which the Minister is exposed in each counter guarantee scheme. When determining the level of premium, the Minister must have regard to a number of factors as set out in the amendment. These include the objectives of the scheme and the likely expense of running the scheme. The manner in which the premium will be calculated must be clearly set out in each counter guarantee scheme. The amendment provides that the premium for a counter guarantee can only be used towards defraying the cost of the scheme. In this way the cost of the premium will be kept as low as possible for the SMEs accessing finance under such schemes. I commend the amendment to the committee.
I tabled amendment No. 20 because credit is too expensive in this State, be it for those in mortgage distress who are paying a premium over their counterparts throughout Europe or small businesses who are paying a premium over that being charged to European banks - and this is even outside the credit guarantee scheme. Paying for credit at such an enormous rate is a competitive disadvantage for Irish SMEs. The credit rate might have been acceptable at a time when the banks were actually in a loss making situation and needed to make profits but we have seen some massive profits come from the banks in recent times. The Department of Finance has struggled to excuse the differential that currently exists in this State vis-à-visEuropean counterparts.
There seems to be some rowing back on the 2% premium within the Government's own amendments. Will the Minister for State indicate if within the Government's amendments, other than the administrative costs of the loans, there is no existing premium within the credit guarantee scheme?
We are allowing for premia of less than 2% in certain cases. The legislation provides for flexibility in the premia that can apply to schemes. Any premium can only be used towards defraying the costs of the operation of the scheme. A case could be made, when looking at future schemes, to take an approach to a particular sector and design a specific scheme - or if there is an attractive opportunity to do that - in order to address a structural problem in a targeted way for example. The premium could be reduced or amended to assist that sector. Flexibility is included to allow this to happen. The 2% premium is still there but there is flexibility. The 2% applies to the credit guarantee scheme and the counter guarantee scheme and absolutely goes towards defraying the costs of the credit guarantee scheme which applies to the enterprise. The 2% premium is understood but it can be adapted and made flexible to respond to evolving needs.
The problem is that the 2% premium is part of the reason this scheme has not been successful so far. Credit is already too expensive for small businesses out there. When one is operating on low margins and running very tight cash flow levels, 2% is a significant difference in terms of credit. In a mortgage situation for example, any family who pays 5.3% will know the difference on their monthly repayments to a family who pays 3.3%. I do not understand why the Government is taking a very minimalist approach to providing a line of credit to a small business. I want to make sure that everybody is covered with regard to costs and that nobody gets stung with the premium rate.
The 2% premium is the case for now and that is understood, but it is not expressly specified in he Bill as flexibility is required to be able to respond where needed. For example, if a particular scheme is targeted at a specific sector experiencing difficulties with structural problems, flexibility would be needed to reduce the cost of the premium, if a case could be made. Flexibility is enshrined in the Bill to allow a response to those situations. I hope colleagues can support this. The figure of 2% is the understood rate at the moment and there is a cost involved in operating a scheme like this. These are resources that would be flown to SMEs that would not otherwise find their way to SMEs, in the absence of a scheme like this. While there is a cost involved, the premium can only be used to defray the costs of the scheme's operation.
I move amendment No. 13:
In page 9, to delete lines 10 to 12 and substitute “person who has, subject to subsection (6), a controlling interest in the finance provider,”.
Section 5 of the principal Act is primarily about the schemes made under the legislation to date, in 2012 and 2015. The amendments to section 5 of the Bill are primarily about making sure that any or all new schemes can adequately cover the expanded types of financial products to be covered. There are also some amendments covering matters I flagged on Second Stage, including some clarifications on the way in which the Minister is to obtain information, records and so on relating to the diverse types of finance providers and the need to ensure that all finance providers are compliant with all appropriate regulatory requirements. I commend this group of amendments to the committee.
I move amendment No.18:
In page 10, between lines 15 and 16, to insert the following:“and(d) by the insertion of the following subsections after subsection (4):“(5) (a) The Minister may require that any information referred to in subsection (2)(a) given to him or her by a person in compliance with a scheme under this section be attested as to the truth of the information by a statutory declaration made by that person.(b) The Minister may require that any document, information or report referred to in subsection (2)(f) given to him or her by a finance provider in compliance with a scheme under this section be attested as to the truth of the contents of the document or report or, as the case may be, as to the truth of the information, by a statutory declaration made by that finance provider.(6) For the purposes of this section, controlling interest shall be construed in accordance with subsection (14) of section 494 of the Taxes Consolidation Act 1997 and, accordingly, that subsection shall apply in relation to a finance provider subject to any necessary modifications.”.”.
I move amendment No. 19:
In page 10, between lines 15 and 16, to insert the following:
“Payment of premium to Minister by participating enterprise
6. The Principal Act is amended by the substitution of the following section for section 8:“8. (1) Subject to this section, a participating enterprise shall, in accordance with a credit guarantee scheme that applies to the enterprise and a qualifying finance agreement entered into by the enterprise with a participating finance provider, pay to the Minister an amount (in this section referred to as the ‘premium’) determined by the Minister in accordance with the methodology specified in the scheme for the purposes of making that determination.
(2) The Minister shall, in specifying, in a credit guarantee scheme, the methodology referred to in subsection (1), have regard to—(a) the expenses referred to in section 11 incurred or likely to be incurred, or both, in relation to the scheme, and(3) The Minister shall, in specifying, in a credit guarantee scheme, the methodology referred to in subsection (1) in so far as the expenses referred to in section 11 are concerned, have regard to—
(b) the objectives of the scheme.(a) the size and quality of the participating enterprises to which the scheme applies,(4) The premium may be charged annually, may be paid by one payment or by instalments, and may be paid at such time or times, as may be specified in the credit guarantee scheme.
(b) the risks associated with those participating enterprises,
(c) the typical risks associated with the business sector or sectors to which those participating enterprises belong,
(d) the duration of guarantees given under the scheme,
(e) the Minister’s liability under section 4(2) in relation to a qualifying finance agreement to which the scheme applies, and
(f) the nature of qualifying finance agreements to which the scheme applies.
(5) The Minister shall apply the premium received by him or her from a participating enterprise for the purpose only of defraying the costs of the credit guarantee scheme which applies to the enterprise.”.”.
I move amendment No. 21:
In page 11, line 16, to delete “by this Act” and substitute “by this Part”.
This is a purely technical amendment with an application provision from the Principal Act being switched into the new Part 2.
I move amendment No. 22:
In page 11, between lines 20 and 21, to insert the following:“PART 3*Definitions9. In this Part—
COUNTER GUARANTEES“asset credit facility agreement” means an agreement (other than a loan agreement or a credit facility agreement) under which a finance provider agrees to provide to a qualifying enterprise credit in the form of tangible movable property upon—(a) such date or dates as may be specified in the agreement, orin consideration of that qualifying enterprise agreeing to make payments to the finance provider on such date or dates, or the happening of such event as may be so specified, and “asset credit facility” shall be construed accordingly;
(b) the happening of such event as may be so specified,
“counter guarantee agreement” has the meaning assigned to it in section 10(1);
“counter guarantee scheme” means a scheme under section 12;
“credit facility agreement” means an agreement (other than a loan agreement) under which a finance provider agrees to give or advance to a qualifying enterprise, or to a third party nominated in that behalf by a qualifying enterprise, a sum or sums of money upon—(a) such date or dates as may be specified in the agreement, orin consideration of that qualifying enterprise agreeing to repay to the finance provider the said sum or sums of money so given or advanced, and interest or charges (if any) thereon, on such date or dates as may be so specified, and “credit facility” shall be construed accordingly;
(b) the happening of such event as may be so specified,
“credit guarantee scheme” means a scheme under section 5 of the Principal Act;
“finance agreement” means—(a) a loan agreement,“finance provider” means a person who, in the ordinary course of business—
(b) a credit facility agreement,
(c) an asset credit facility agreement, or
(d) an invoice finance facility agreement;(a) provides financial products to qualifying enterprises,but does not include a person who is prohibited under the law of the State or any other state from engaging in any of the activities specified in the foregoing paragraphs, and references to the provision of a financial product shall be construed accordingly;
(b) arranges for the provision by other persons of financial products to qualifying enterprises, or
(c) provides facilities for the provision on credit of goods or services by the person to qualifying enterprises,
“financial product” means—(a) a loan,provided to a qualifying enterprise under a finance agreement;
(b) a credit facility,
(c) an asset credit facility, or
(d) an invoice finance facility,
“invoice finance facility agreement” means an agreement under which a finance provider agrees to give or advance to a qualifying enterprise a sum or sums of money in consideration of that qualifying enterprise assigning to the finance provider the right to recover debts owed to that qualifying enterprise, and “invoice finance facility” shall be construed accordingly;
“loan agreement” means an agreement under which a finance provider agrees to give or advance to a qualifying enterprise a sum or sums of money upon—(a) such date or dates as may be specified in the agreement, orin consideration of that qualifying enterprise agreeing to repay to the finance provider the principal of any sum or sums so given or advanced, and interest (if any) thereon, on such date or dates as may be so specified, but does not include an agreement to provide a facility (commonly known as an overdraft facility, credit card facility or credit line facility) to a qualifying enterprise, and “loan” shall be construed accordingly;
(b) the happening of such event as may be so specified,
“participating PFI” means a promotional financial institution that has entered into a counter guarantee agreement and—(a) in relation to a counter guarantee agreement, means the promotional financial institution that has entered into that agreement, and“PFI guarantee scheme” means a scheme—
(b) in relation to a counter guarantee scheme, means the promotional financial institution that has entered into the counter guarantee agreement to which that scheme is scheduled;(a) that is made and operated by a promotional financial institution,“promotional financial institution” means—
(b) that applies only to finance agreements entered into between finance providers and qualifying enterprises, and
(c) in accordance with which the institution referred to in paragraph (a) may give guarantees in respect of agreements referred to in paragraph (b);(a) the Strategic Banking Corporation of Ireland, or“qualifying enterprise” shall be construed in accordance with section 3 of the Principal Act (and, accordingly, the reference in that section to “Act” includes this Part);
(b) a national promotional bank or institution within the meaning of Regulation (EU) 2015/1017 of the European Parliament and of the Council of 25 June 2015 on the European Fund for Strategic Investments, the European Investment Advisory Hub and the European Investment Project Portal and amending Regulations (EU) No 1291/2013 and (EU) No 1316/2013 – the European Fund for Strategic Investments;
“qualifying finance agreement” has the meaning assigned to it by section 1 of the Principal Act;
“qualifying PFI guarantee agreement”, in relation to a qualifying PFI guarantee scheme, means a guarantee agreement entered into by a participating PFI in accordance with that scheme;
“qualifying PFI guarantee scheme” means a PFI guarantee scheme—(a) in respect of which there has been compliance with the conditions specified in a counter guarantee scheme under subsection (4)(c) of section 12,
(b) belonging to a class of PFI guarantee scheme to which a counter guarantee scheme applies,
(c) that is made for the purpose of promoting the provision of credit or additional credit to qualifying enterprises, and
(d) that does not permit the promotional financial institution operating the PFI guarantee scheme to provide guarantees as would result in the maximum value referred to in subsection (4)(d) of section 12, specified in the counter guarantee scheme referred to in paragraph (b), being exceeded.”.
I move amendment No. 23:
In page 11, between lines 20 and 21, to insert the following:“Power of Minister to give counter guarantees
10. (1) Subject to this section and section 11, the Minister may, in accordance with a counter guarantee scheme, enter into an agreement (in this Part referred to as a “counter guarantee agreement”) with a promotional financial institution guaranteeing the due repayment to that institution of such part, as is specified in the counter guarantee agreement, of moneys (excluding any interest and other charges) paid by that institution to finance providers pursuant to qualifying PFI guarantee agreements.(2) A counter guarantee agreement shall—(a) have scheduled to it the counter guarantee scheme to which it relates, and(3) The Minister shall not, pursuant to a counter guarantee agreement, be liable, in relation to any particular qualifying PFI guarantee agreement, to pay to the participating PFI an amount exceeding the Minister’s maximum liability, referred to in subsection (4)(e) of section 12and as specified in the counter guarantee scheme scheduled to that counter guarantee agreement, in respect of moneys—
(b) include a declaration, by the promotional financial institution entering into the agreement, that it agrees to be bound by the terms of the scheme referred to in paragraph (a) and the other terms (if any) of that agreement.(a) for the time being standing unpaid to the finance provider under any finance agreement, and(4) For the purposes of this Part, the Strategic Banking Corporation of Ireland, in its capacity as a promotional financial institution, has the power to give guarantees to finance providers in respect of finance agreements.
(b) that the participating PFI has paid to the finance provider, pursuant to that qualifying PFI guarantee agreement, in respect of those moneys standing so unpaid.
(5) (a) The Minister may, in respect of a counter guarantee agreement, notify the participating PFI in writing that that agreement shall not apply in relation to qualifying PFI guarantee agreements (in this section referred to as “new qualifying guarantee agreements”) entered into by the participating PFI after such date as may be specified in the notice.(b) A counter guarantee agreement the subject of a notice under paragraph (a) shall not apply to new qualifying PFI guarantee agreements.”.
I move amendment No. 24:
In page 11, between lines 20 and 21, to insert the following:“Monetary limit on Minister’s liability
11. The Minister shall not exercise the powers conferred on him or her by section 4 of the Principal Act or section 10* in such manner as would result in the aggregate of the Minister’s liability in respect of—(a) all qualifying finance agreements, to which guarantees under a credit guarantee scheme apply, entered into in any year, and
(b) all qualifying PFI guarantee agreements, to which counter guarantees under a counter guarantee scheme apply, entered into in that same year, exceeding €15.6 million.”.
I move amendment No. 25:
In page 11, between lines 20 and 21, to insert the following:“Counter guarantee schemes
12. (1) The Minister may, with the consent of the Minister for Finance and the Minister for Public Expenditure and Reform, make a scheme or schemes for the purposes of this Part.(2) Without prejudice to the generality of subsection (1), a scheme under this section may make provision in relation to all or any of the following matters:(a) the giving of information to the Minister, as he or she may reasonably require, for the purpose of the making of a counter guarantee agreement;(3) A scheme under this section shall specify conditions, with which the participating PFI shall comply, relating to—
(b) the extent of the Minister’s liability, in accordance with a counter guarantee agreement, to the participating PFI in circumstances where the participating PFI fails or refuses to comply with this Part or the scheme under this section;
(c) the variation of the terms of a counter guarantee agreement in circumstances where the participating PFI fails or refuses to comply with this Part or the scheme under this section;
(d) without prejudice to the generality of section 13(4), the method of payment of the premium under section 13and the time or times at which the premium shall be paid;
(e) the preparation and maintenance by the participating PFI of records, books of account and such other documentation as may be specified in the scheme under this section;
(f) provision with regard to the giving of documents, information and reports by the participating PFI to the Minister;
(g) such other matters as the Minister, after consultation with the Minister for Finance and the Minister for Public Expenditure and Reform, considers necessary or expedient for the purposes of this Part.(a) the policies and practices of the participating PFI as respects—(4) A scheme under this section shall specify—(i) the giving of guarantees generally,(b) the administration and management of the participating PFI in relation to the giving of guarantees, and
(ii) the giving of guarantees in respect of moneys provided to qualifying enterprises, and
(iii) the recovery of sums paid by the participating PFI under a guarantee given by the participating PFI,
(c) the procedures in relation to the supervision of guarantee agreements entered into on behalf of the participating PFI by members of staff of the participating PFI.(a) the class or classes of qualifying PFI guarantee schemes to which the scheme shall apply,(5) The conditions referred to in paragraph (c) of subsection (4) may, in relation to the qualifying PFI guarantee scheme concerned, include conditions specifying the class or classes of—
(b) the purposes for which a counter guarantee under the scheme is given,
(c) subject to subsection (5), the conditions that shall be complied with in relation to the entering into of a guarantee agreement by the participating PFI in accordance with a qualifying PFI guarantee scheme,
(d) the maximum value of financial products that may be provided pursuant to finance agreements—(i) entered into between finance providers and qualifying enterprises, and(e) the Minister’s maximum liability under the scheme to pay to the participating PFI an amount in respect of moneys—
(ii) that are subject to qualifying PFI guarantee agreements to which the counter guarantee under the scheme applies,(i) for the time being standing unpaid to the finance provider under any finance agreement, and(f) the methodology which ensures that the scheme cannot operate in such manner as may result in a contravention of section 11, and
(ii) that the participating PFI has paid to the finance provider, pursuant to the qualifying PFI guarantee agreement concerned, in respect of those moneys standing so unpaid,
(g) the methodology referred to in section 13(1).(a) finance agreements,to which that scheme shall apply.
(b) finance providers, and
(c) financial products,
(6) A scheme under this section shall specify the ground or grounds on which the Minister may terminate a counter guarantee agreement by notice in writing given to the participating PFI specifying the ground or grounds concerned and the date from which such termination shall take effect.
(7) (a) The Minister may require that any information referred to in subsection (2)(a) given to him or her by a person in compliance with a scheme under this section be attested as to the truth of the information by a statutory declaration made by that person.(b) The Minister may require that any document, information or report referred to in subsection (2)(f) given to him or her by a participating PFI in compliance with a scheme under this section be attested as to the truth of the contents of the document or report or, as the case may be, as to the truth of the information, by a statutory declaration made by that participating PFI.”.”.
I move amendment No. 26:
In page 11, between lines 20 and 21, to insert the following:“Payment of premium to Minister by participating PFI
13. (1) Subject to this section, the participating PFI shall, in accordance with the counter guarantee scheme, pay to the Minister an amount (in this section referred to as the “premium”) determined by the Minister in accordance with the methodology specified in the scheme for the purposes of making that determination.(2) The Minister shall, in specifying, in the counter guarantee scheme, the methodology referred to in subsection (1), have regard to—(a) the expenses referred to in section 15 incurred or likely to be incurred, or both, in relation to the scheme, and(3) The Minister shall, in specifying, in the counter guarantee scheme, the methodology referred to in subsection (1) in so far as the expenses referred to in section 15 are concerned, have regard to—
(b) the objectives of the scheme.(a) the size and quality of the qualifying enterprises which may enter into finance agreements with finance providers to which guarantees given by the participating PFI apply and to which counter guarantees given under the scheme may apply,(4) The scheme charge may be charged annually, may be paid by one payment or by instalments, and may be paid at such time or times, as may be specified in the counter guarantee scheme.
(b) the risks associated with those qualifying enterprises,
(c) the typical risks associated with the business sector or sectors to which those qualifying enterprises belong, and
(d) the duration of counter guarantees given under the scheme.
(5) The Minister shall apply the premium received by him or her from a participating PFI for the purpose only of defraying the costs of the counter guarantee scheme which applies to the participating PFI.”.
I move amendment No. 27:
In page 11, between lines 20 and 21, to insert the following:“Review of counter guarantee scheme
14. The Minister may, at any time, conduct a review of the operation of a counter guarantee scheme and, not later than 2 months after completing such review, make a report in writing to each House of the Oireachtas of his or her findings and conclusions resulting from that review.”.
I move amendment No. 28:
In page 11, between lines 20 and 21, to insert the following:“Expenses
15. The expenses incurred by the Minister in the administration of this Part shall, to such extent as may be sanctioned by the Minister for Finance, with the consent of the Minister for Public Expenditure and Reform, be paid out of moneys provided by the Oireachtas.”.
I move amendment No. 29:
In page 11, after line 28, to insert the following:“10. The Minister shall within 12 months and every 12 months thereafter, from the passing of this Act prepare and lay before Dáil Éireann a report detailing the impact of all measures contained in this Act on the availability of credit to SMEs, rates of bank lending to SMEs, levels of lending under the scheme and relevant default.”.
I submitted this amendment because this scheme had a rocky start. We have come through one of the deepest credit crises for enterprise and we are still not out of the woods in that regard. Figures from ISME for the last quarter show that there are still major difficulties with obtaining credit. We have dealt with a lot of the elements of this amending Bill before and many of the issues we are amending were discussed at the initial stages by members of the Opposition, myself included. We must keep an eye on the outputs of this legislation and make sure that we measure its impact on entrepreneurs and small businesses in the future. The amendment provides that if the provisions of this Bill are still limping along, we can rectify the problem at the earliest opportunity.
I would be more optimistic than Deputy Tóibín about the potential of this Bill and the credit guarantee scheme. We have accepted the vast bulk of the review. We commissioned that review and understood that changes had to be made. I accept that it has been frustrating for everybody that it has taken a long time to get to the point where we can make amendments to the legislation to allow for the scheme to operate to its fullest potential. However, I am very confident that it will do so.
It is normal procedure for the operator of the scheme, Capita Asset Services, to provide quarterly reports and they are published on the website of the Department of Jobs, Enterprise and Innovation. It is not proposed to legislate to allow that happen. Rather, it is proposed that we continue with the current arrangements under the revised legislation. Those arrangements cover the credit guarantee and the counter guarantee elements. We do this already and it is important that such information is available to be assessed by anyone who wishes to determine the success, or otherwise, of the scheme. I assure Deputies that where any scheme is not meeting its potential, we will make any changes necessary. We were very upfront about the gaps, deficits and deficiencies in this particular scheme and that is why we worked to address them as quickly as possible. We all have a responsibility to work with SMEs to provide the jobs that we all want to see and we all have a responsibility to ensure that our finance system is functioning.
More generally, material on rates of bank lending to SMEs is more broadly a matter for the Minister for Finance. In that context, it would not be appropriate to include such a provision in this legislation. The Deputy's amendment is not appropriate to this legislation on credit guarantees but we will be publishing information in the normal way. That information will be available to the public to allow them to make an assessment of the scheme. Where there are issues arising, they will be addressed. I am optimistic and confident that the amended scheme and the approach we are now taking will herald a new dawn for SMEs. We have done the same with Microfinance Ireland and the figures for that body are improving all of the time. We changed the way the Microfinance Ireland scheme operates and made it more attractive and accessible to micro-enterprises who need to use it. We are not averse to holding our hands up, admitting that something is not working, fixing it when necessary and working with our colleagues in the Oireachtas to do so.
I move amendment No. 30:
In page 3, line 5, after “2012;” to insert the following:“to enable the Minister for Jobs, Enterprise and Innovation, pursuant to a counter guarantee scheme made by that Minister of the Government, to give counter guarantees to promotional financial institutions for guarantees given by the institutions to finance providers in respect of finance agreements entered into by the finance providers with qualifying enterprises; to place a yearly monetary limit on the potential liability of that Minister of the Government in respect of all credit guarantee schemes and counter guarantee schemes taken together;”.