Willie O'Dea (Limerick City, Fianna Fail)

I am sharing time with Deputy John McGuinness.

I listened to the Minister with great interest because I have an interest in this scheme. It is over a century and a half since the potato famine devastated the economy. The effects of the credit famine we are experiencing are somewhat less pernicious but no less devastating in their consequences for the economy. It is ironic that the same institutions, the financial promiscuity of which did so much to bring about the problem, are practising a new form of financial parsimony which is preventing the crisis from being solved. The banks are engaged in an Orwellian exercise. I use the word "Orwellian" deliberately because they are behaving like the employees of the famous Ministry of Truth in Orwell's 1984 who are trying to convince us to disbelieve the evidence of our own senses. They have issued a plethora of reports, studies, interviews and analyses which ask us to believe there is no credit problem in the country. The banks and financial institutions were, according to the Minister for Finance, Deputy Michael Noonan, "stuffed" with capital which did not come out of thin air, rather it was borrowed on behalf of taxpayers and must be repaid with interest. It was not borrowed because we had a residual affection for the banks or because we regarded them as venerable institutions or national monuments that had to be preserved, rather it was borrowed because we wanted them to lend to the economy because credit was the oxygen of business.

The economy cannot grow without a proper supply of credit. The banks, however, have failed to adhere to their side of the bargain. It is a contemptible insult to the intelligence of the electorate for the banks to produce reports, as they continue to do, purporting to show a certain amount of people applied for credit, that 90% were successful and that, therefore, everything is normal. There is not one word about the majority of people who are told not to bother wasting their time or money because they will simply not qualify. Neither is there any mention of those who, in theory, satisfy the criteria but who will not be able to obtain loans because the bar has been raised yet again.

The attitude of the banks to Irish business reminds me of the famous scene from "The Simpsons", where Moe, the tavern owner, was seeks a loan and is advised by the bank that he cannot have one because it does not like either his collateral or his cash-flow projections. Eventually, he is directed to the leader of the local Mafia who offers him a loan. However, the latter also does not like his collateral or his cash-flow projections and states that while the money will be provided, the Mafia will have to take the preliminary precaution of breaking Moe's arms and legs in advance.

There are 200,000 small businesses in this country and they employ more than 655,000 people. Small business is the backbone of the economy but it is being starved of credit. The Minister need not take my word for that. No less an authority than the Governor of the Central Bank, Professor Patrick Honohan, has stated that for small businesses, Ireland is the most difficult country in the eurozone in which to access credit. That is some statement from the Governor of the Central Bank. As the Minister indicated, the Government imposed lending targets on the domestic pillar banks. The figures were €3 billion for 2011, €3.5 billion for this year and €4 billion for 2013. The difficulty is that a study produced by Fergal McCann of the Central Bank found that for the first nine months of 2011 - these are the most recent figures available - the amount advanced by these banks was €1.6 billion. At the same time, however, they removed €2.4 billion in credit through the closure of credit facilities. For the first nine months of 2011, therefore, overall lending to SMEs was down by approximately €800 million. This downward trend appears to be continuing.

The Minister referred to the Credit Review Office, which was established by the previous Government. While we like to claim credit for things we do in life, I am not going to claim any in respect of the activities of that office. The Credit Review Office accepted, at face value, the figures provided by the banks. The latter counted approvals instead of drawdowns as evidence of lending and the restructuring of loans as new credit. The Credit Review Office swallowed this whole and its figures reflected those provided by the bank, which were completely false.

A study carried out by the Irish Small and Medium Enterprises Association, ISME, last March indicates that 91% of small firms are of the view that the banks are making it more difficult to access finance and, unsurprisingly, that 92% of SMEs state that the Government is at best making no difference to the situation or is at worst having a negative impact on it. Mark Fielding, CEO of ISME, stated, "access to credit is abysmal, the application process is getting longer ... the banks are simply the living dead ... They restrict credit lines, delay decisions, miss deadlines and generally hinder progress". Mr. Fielding was not overly impressed with the Government and said, "While the Government dithers and waffles, vulnerable small business owners are being terrorised by bankers, leading to a massive build-up of anger and frustration within the business community."

I would like the Minister to address not only these issues but also that of the micro-finance guarantee facility from the EU. What is the exact position in respect of that facility? Will the Minister also comment on the commitment contained in the Labour Party's manifesto for the most recent general election and in the programme for Government in respect of establishing a strategic investment bank? I notice the concept of a bank has been dropped and that what is now proposed is a strategic investment fund. This sounds suspiciously like a strategic investment fudge.

On 4 April, when the Government had been in power for more than a year, we were at last presented with the legislation to establish a credit guarantee scheme. I take no satisfaction from stating that I find the Bill before the House extremely restrictive and very disappointing. I detect the hand of the Department of Finance in literally every line on each page. My heart sank when, for example, I read section 5(1) which gives the Minister the right, with the consent of the Ministers for Finance and Public Expenditure and Reform, to establish a scheme. We are some 15 months into the lifetime of this Government and thousands of small businesses have gone under while we were awaiting this legislation. However, what we are not told is that all the Bill will do is allow for the scheme to be established. When will it be established and - this is a matter of equal importance - to what sort of scrutiny will it be subjected? I very much doubt it will be brought before both Houses of the Oireachtas in order that Members might scrutinise its terms. The meat of this matter lies in the scheme, which the Bill gives the Minister only the right to establish.

The Bill has finally been brought forward but we remain in the dark. More importantly, business people who want to access the scheme are also in the dark in respect of fundamental matters such as the minimum and maximum amounts that can be lent, the conditions that will apply and the type of enterprises that will be covered and the type that will be excluded. There is no information on whether the banks will be still able to request personal guarantees in respect of Government-guaranteed loans or on whether they will still be able to insist on people using their private residences as security for such loans. We are completely and utterly in the dark in respect of these fundamental details.

The Minister stated that there is additional lending involved here. He paid lip service to the idea that it must be additional. I can envisage what will happen here, namely, in respect of loans they would issue in any event, the banks will inform the Government that they will not issue them unless they are guaranteed. There is a grave danger that there will be no additional lending and that the Government and the taxpayer will end up guaranteeing loans which the banks would have advanced in any event. The Minister indicated that he does not want this to happen. That is fair enough and I agree with him in this regard. He states that he has taken steps to ensure that it will not happen. What are those steps? I have perused the Bill from beginning to end and I cannot find them. There is nothing in the Bill which will prevent what I have outlined from happening.

What constitutes a loan is defined in section 1 and overdrafts are specifically excluded in this regard. That is very disappointing because it means the re-financing of existing loans will not be covered by the credit guarantee scheme. As a result, the scheme will be extremely restrictive. I have considered the schemes in other countries and I am convinced, without a shadow of a doubt, that Ireland's will be by far the most restrictive scheme in the world. The Minister will be aware that many companies have overdraft facilities which are used for day-to-day trading. This is because payments in respect of goods and services are being made later and later. It is small wonder that ISME described the scheme as marginal.

In the United Kingdom, new guaranteed loans can cover the re-financing of existing loans where the loan is at risk due to deteriorating value of security or where for cash-flow reasons the borrower is struggling to meet existing loan repayments. The UK scheme also allows for conversion of an overdraft to a loan in order to release capacity in the overdraft to meet working capital requirements. It further allows for guarantees on invoice finance facilities. The type of activity in respect of which loans can be granted in this country is nowhere to be found in the Bill. This will be only contained in the scheme, whenever it is brought forward.

In Canada loans can be used for financing up to 90% of the cost of purchasing or improving land, real property or immovables, purchasing new or existing leasehold improvements or purchasing or improving new or used equipment such as commercial vehicles, etc. In the United Kingdom, loans can be given for the re-financing of existing loans. The overdraft guarantee which will provide a guarantee on new and increased overdraft borrowings for small and medium sized enterprises, SMEs, is viable but it is inadequate security to meet a lender's normal requirements.

In the UK, there is a target of 20 working days from application to decision. In Canada, the UK and even in Chile, the schemes are more imaginative, expansive and more accessible than what is in prospect here. The Minister stated it will be a three year guarantee. In my experience, many SMEs cannot get a loan for three years or less and, instead, have to take a five year loan. What happens in year three when the guarantee is withdrawn? Technically, at that point the borrower is in breach of the terms of his loan because it is no longer covered by the State guarantee. Can the loan be instantly withdrawn at that stage?

The 2% upfront charge may seem small but it must be remembered SMEs are experiencing unprecedented cash flow problems as well as lack of access to credit. Why does this have to be an upfront payment? The Irish Small and Medium Enterprises Association, ISME, and others accept there has to be some charge but it should be payable in instalments and at the same time as full loan repayments are made. This suggestion seems to me to be imminently sensible.

In the last 12 month period for which figures are available, the loans outstanding to small businesses were in excess of €58 billion. This Bill proposes an extra €150 million a year in extra lending. It gives me no satisfaction to say it but we are barely scratching the surface with this legislation. The explanatory memorandum and several press statements made by the Minister state this scheme will be demand led. At the same time it is capped, however. Those two concepts are mutually exclusive.

The Minister has stated that while the scheme may cost €6.38 million per year, the direct benefit to the Exchequer from increased business activity will be €25 million, a 400% return on the investment. If there is going to be a 400% return, why not increase the investment? If someone was offering me a 400% return, I would mortgage my house and get access to as much cash I could from whatever sources to rush in to invest in it.

I thought this scheme would be an imitation of the UK's scheme. Now I find it is just a pale, skeletal and restricted imitation. It is supremely ironic that on 4 April, the day this Bill was published, it was announced in the mainstream UK media that the Chancellor of the Exchequer, Mr. Osborne, had brokered a deal with the organisation representing hedge funds in the City of London to arrange for them to lend to small businesses. The reason for this was the UK scheme, which is in many ways superior to ours, had proved to be a failure.

My party has asked me about this legislation. Whatever we might say about the scheme, it improves the situation somewhat, however marginal that may be, so I cannot, in conscience, advise my party to vote against this Bill. I am not trying to be political but my advice to the Minister is that, as we have waited 18 months for the Bill anyway and there is a real, pressing and genuine problem for SMEs, he should go back to the drawing board with this scheme. He must go back to the Minister for Finance and Minister for Public Expenditure and Reform and introduce legislation to expand this scheme which will contain the scheme's details so at least we know where we are going and will give real hope and opportunity to small businesses which are starved of capital.

Small businesses are the backbone of this country and employ almost 700,000 people. In many cases they are under the most immense and unimaginable pressures, struggling from week to week to survive without much help from the banks. This legislation has been a long time in gestation. The Minister is correct the previous Government considered the scheme but did not go ahead with it. That Government was wrong and should have gone ahead with it. If it had, I would have been extremely disappointed if it had produced a scheme as restrictive and limited as this one, however.

I do not doubt the Minister's sincerity or intentions but I believe this scheme is not enough. It will not make any difference in reality. It is a marginal improvement on the situation in place. However, that is setting the bar very low because it would not be very hard to improve on that. Fianna Fáil will not be opposing the legislation but I urge the Minister, if only between now and Committee Stage, to rethink it.

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