Ms Jean Carberry:

I thank the Chair and members of the committee for the opportunity to discuss the general scheme of the microenterprise loan fund (amendment) Bill 2023. The purpose of the Bill is to provide a statutory basis for the transfer of Microfinance Ireland, MFI, into State ownership within the remit of my Department and to bring MFI fully within the State body governing structure of the Department.

Before commenting on the specifics of the proposed Bill, I will provide a general update on the work of MFI.

MFI was established in 2012 and lends to viable small businesses with fewer than ten employees and annual turnover of less than €2 million. That is the businesses' turnover, not Microfinance Ireland's. It provides vital support to start-ups and established microenterprises that do not meet the conventional risk criteria applied by commercial lenders. MFI provides loans ranging from €2,000 to €25,000 to businesses and applies interest rate charges for its lending which are far below what the market would charge for the level of credit risk involved. In addition to its lending services, MFI provides post-approval mentoring services free of charge to its borrowers. These are delivered through the local enterprise offices. There is a wide regional spread of loans across the country with 78% of loans approved for microenterprises outside Dublin. To date, MFI has approved a total of 4,922 loans to the value of €81.2 million, supporting more than 10,300 jobs.

MFI was established as part of an array of measures introduced to improve access to finance for SMEs in the wake of the global financial crisis. While there were a number of microfinance providers across Europe at the time, this was a novel concept for Ireland. MFI’s purpose was to generate and retain employment in businesses with fewer than ten employees. A sunset clause was built in by way of a limit of €25 million on the amount of funding so that, if the programme was not a success, it could be discontinued relatively easily. Although all of MFI’s operating costs, including losses on lending, are met by the Exchequer, MFI is not currently State owned but was created as a subsidiary of the Social Finance Foundation, SFF.

MFI has been an unqualified success since it was first established. An independent review of the microenterprise loan fund in December 2019 concluded that MFI fulfils a unique role for microenterprises unable to secure finance via other sources and acts as an effective countercyclical intervention in the market. The importance of MFI was particularly evident in the early days of the Covid-19 pandemic when MFI immediately pivoted to providing Covid-19 loans, which acted as a liquidity lifeline to small businesses before most of the other Government supports kicked in.

There is no doubt that MFI has proven its relevance as an essential part of the financing ecosystem for small businesses across the country. In reflection of this, the 2020 programme for Government includes a commitment to scale up MFI so that it can support greater numbers of small businesses and start-ups in accessing finance. As a first step towards this, the Department conducted a further review of MFI to assess whether its governance arrangements were consistent with Government’s ambition to scale up MFI. The review recommended the transfer of ownership of MFI from SFF to the Minister for Enterprise, Trade and Employment. This would provide better alignment between the ownership and funding arrangements for MFI. SFF participated in this review and agrees, notwithstanding the positive operational synergies between SFF and MFI, that it will relinquish its parentage to the State. The purpose of this legislation is to provide a statutory basis for that change of ownership.

Since its establishment, MFI has been funded by the Department of Enterprise, Trade and Employment by way of capital grants to the microenterprise loan fund. This has equated to an average annual cost to the Exchequer of €3.2 million per annum since MFI was established. The Strategic Banking Corporation of Ireland, SBCI, provides a significant portion of MFI financing for lending on and the European Investment Fund provides a guarantee that significantly offsets the cost of MFI loan defaults.

The existing governance structure in place for MFI already contains many of the aspects of governance applicable to State bodies. However, this legislation is required to give effect to the transfer of ownership of MFI to the Minister for Enterprise, Trade and Employment on behalf of the State and to implement a more appropriate and up-to-date governance structure. This will underpin the expanding level of MFI activity in the provision of microfinance throughout Ireland as unbankable microenterprises seek to start up, survive and flourish.

Today, the Joint Committee on Enterprise, Trade and Employment is being asked to carry out prelegislative scrutiny on the general scheme of the Microenterprise Loan Fund (Amendment) Bill 2023. This is a short Bill with a narrow scope with the intention of providing a statutory basis for the transfer of Microfinance Ireland into State ownership within the remit of the Department of Enterprise, Trade and Employment.

I thank the Chair and committee members. My colleagues and I are available to provide any additional information required, either now or at any time in the future.