Peadar Tóibín (Meath West, Sinn Fein)

Tá sé deacair go leor fáilte a chur roimh an mBille seo. Ní thugann sé an tacaíocht atá riachtanach do ghnólachtaí beaga na tíre seo. Dúnadh 1,600 ghnólacht an bhliain seo caite. Dúnann sé ghnólacht gach uile lá. Tá sé sin níos mó ná an méid a osclaíonn gach lá.

It is difficult to welcome this Bill because each of the 1,600 businesses that become insolvent every year represents jobs lost, hope broken and debt incurred. No one starts up a business to fail. It is a significant challenge, as well as an emotional and human investment, never mind the financial end of it. It is a tragedy for a business owner when his or her business fails, as well as for the families and communities involved. What makes it more frustrating is that many businesses are closing because of a lack of credit. Credit flow to business is a disaster. ISME stated just under 50% of its businesses which it surveyed have been refused credit. Not long ago, the Dáil debated the Construction Contracts Bill which highlighted the contagion effect in different sectors of enterprise when a subcontractor does not get paid. Credit is a major part of the hole in the system which is bringing down these businesses.

This legislation could be used as a possible component in a suite of solutions for small business funding. However, it has been very slow in coming. For many businesses it is too late. Since this Government took office, almost 2,000 companies have become insolvent. With ISME's figure of 50% of SMEs not being able to get credit, just under half of those would have had a better chance of survival had credit been available to them. This proposed credit guarantee scheme is not new. Partial loan guarantees are in place in up to 100 countries with up to 2,000 schemes in operation.

A scheme in the North has been operating since the 1980s. That is another example of how, if there is joined-up thinking on the island of Ireland, we could learn from and work with each other.

Loan guarantee schemes have been evaluated and developed over decades but this Department only started such a process in 2009. It was promised over a year ago by the Government and only now are we getting a chance to scrutinise an enabling Bill that does not fully outline the scheme it is hoped to operate. The idea of "better late than never" does not have currency here for the thousands of businesses which have closed in the interim. This Bill has come about due to the failure of the banking system and the inability of banks to understand small businesses. Over the past two decades we have seen banks migrate from giving loans to small businesses to giving loans to property developers, with property as the basis. In that period, an entire generation of expertise in banking that delivered loans to small businesses has left the banking industry, and many individuals in the banking industry currently do not have the expertise to formulate loans to small businesses. They do not have the expertise to examine cash flows and understand the necessity for loans to those businesses.

We need a complete refocusing of the banking industry on the small and medium enterprise, SME, sector. The Minister has outlined how the Bill is measured, as it were, in scale, but in reality it is very modest. The State seeks to guarantee up to €150 million in any year over three years, targeted at growth of SMEs and small businesses, especially those with a lack of collateral. We welcome that targeting but the scheme is limited, with benefit accruing to between 2% and 4% of SMEs. Market failure is not limited to 4% of SMEs, and I have noted how almost 50% of ISME's clients cannot get credit. The question must be considered of what will happen to the 96% of businesses which still have difficulty in the market.

Bank of Ireland and Allied Irish Banks, AIB, are by far the biggest lenders to SMEs and they have both failed to step up to the plate in delivering credit. The Central Bank recently found that a third of SME loans went to the construction sector and of these, 60% went to roll-over funding for non-performing loans. The construction sector, which is now only a small part of the SME area, is still a massive target of lending for Bank of Ireland and Allied Irish Banks, with a good chunk of the lending roll-over lending rather than new lending.

This current pattern of SME lending highlights the need to deal definitively with underperforming loans that are dragging down viable businesses. Throughout the State one can see people who have functional businesses on one side but investments in property portfolios that no longer function on the other. The businesses that are functioning are being brought down and annihilated by the non-functioning elements of business. Therefore, people who are working daily to keep a business running and make a profit, and who may be doing a good job in that element of business, are losing their jobs. That issue should be tackled.

The Government must assert its position as owner of AIB and major stakeholder in Bank of Ireland, and the Minister and his colleagues must assert the power of that shareholding within this sector. It is ludicrous these banks have access to low-cost loans from the European Central Bank, yet many SMEs struggle to gain access to loans at accessible rates. We have seen time and again in this State how the unreal economy is flush with cheap loans but the real economy struggles to get any credit flowing. The Government must exercise the full extent of its investment within the banks. This legislation may be part of a suite of action to address the issue, and as such, we are giving it a cautious welcome. We must look to shape the practices of the banking sector, holding it to account for the significant sums of money it has received over recent years.

Other sectors involving SMEs should also be addressed, including the micro-enterprise sector. That is the layer which sits at the bottom of the SME sector and requires specialised and tailored support. It is often the most vulnerable of the elements of small business. When the Government first announced it would proceed with a partial loan guarantee scheme, it also promised to proceed with a micro-enterprise scheme. More than a year has gone by while this has been talked up but not a single loan has been delivered. At the same time, €200 million became available under the European Progress micro-finance facility, which was operational since before March 2011. In February this year I asked the Minister of State responsible for small business, Deputy John Perry, and the Tánaiste and Minister for Foreign Affairs and Trade about this but neither gave a satisfactory answer as to why 11 other countries in Europe had managed to draw down from that pot of money but this State had not drawn down a shilling.

We have concerns about the Bill and want to see them addressed. This is enabling legislation and gives the Minister considerable power to determine the range and conditions of loans. We welcome the fact that loans are limited to firms with fewer than 250 employees and €50 million in turnover. Larger firms would have a bigger draw on the fund, meaning the money would not see to as many business needs. Those firms would have a better chance of gaining loans from the traditional banking sector in any case, and companies further into development should be dealt with through the banks.

This programme cannot allow the banks to abdicate or substitute in any way their responsibilities towards SMEs. The programme is designed to deal with market and banking failure but it should be additional to existing bank lending rather than lead to any level of displacement. I ask the Minister to outline the steps he intends to take to ensure loans which should be dealt with through the banks are not added to in any significant way. We have heard through the grapevine the stories of funds coming through the European Investment Bank to Irish banks to be delivered to new businesses, but some banks use the funding to supplement existing loans. In other words, they would deleverage from the risk initially involved by substituting new funds from Europe for those loans. The real economy does not see those loans.

We welcome the arrangement by which the risk is shared with lenders and the liability of the State is set at a maximum of €11.25 million per year on a total guarantee of loans not exceeding €150 million per year. However, in limiting the exposure of the State, the legislation is silent on the value of any security offered if there is a default. If the lender requires security against a loan, will there be a pro rata process with the Government on any call on security if the loan fails? Will the lender recover the losses before the State can take a call? I note this will be an issue for discussion with the lender but I ask the Minister to outline his thinking on the matter.

Section 7 deals with public accountability. We welcome that the credit guarantee schemes will be placed before the Oireachtas and I ask the Minister how that process will be used in practice. Will there be a statement, debate or publication of the scheme and how will the approach deal with commercial confidentiality and accountability for the spending of public money?

We are concerned about section 8 which places a 2% charge on the borrower, which may be an excessive burden on an SME and undermine the objectives in the scheme in the long run. It should be noted the banks have received €64 billion in bailouts by successive governments and can achieve cheap European loans. We are putting an extra burden on the real economy, made up of small businesses, and flushing the unreal economy with cheap loans and free money. It may be more appropriate for the lender - the bank - to absorb the cost, or if the EU requires that the lender pay this fee, it should be paid to the Government.

Will the Minister outline the options the Department examined to minimise the costs to business and to ensure the cost of the loans will not be prohibitive?

Section 10 provides for the Minister to conduct a review of the operation of a credit guarantee scheme. This is a sensible provision. Given this is a new programme, will the Government agree to produce an annual review of the operation of the whole scheme? This will allow for greater oversight and assessment.

I note in publishing the Bill and within the regulatory impact assessment, a number of assumptions were made that would provide a robust framework for the assessments, including the target of 1,875 business loans, with an average value of just under €80,000 and the creation of 1,000 jobs, as well as other assumptions regarding additional sales, default rates and so on. In a reply to a question from my colleague, Deputy Sandra McLellan, the Minister set a target of 1,300 new jobs and more than €25 million in Exchequer benefits through tax revenue and welfare savings. If these assumptions are to be of any value, they should form part of the annual report on the operation of the scheme. There is a danger that we set targets at the launch of these schemes but the targets are like seagulls flying over Phoenix Park, they are never analysed.

I ask the Minister to look again at the cost of the scheme and identify where savings can be realised. I note again in the reply to my party colleague, Deputy McLellan, the Minister said the operation of the initiative would be outsourced by the Department as it would not have the infrastructure, capacity or skills to resource and operate the scheme. I ask that the infrastructure, capacity and skills, if they are not available in his Department, should be sought in the Department of Finance or Central Bank so the State delivers this.

Administration costs are set at €500,000 per year and are aggregated over the potential eight years of the programme. Does this mean that over the last two years of the project, when there are no functioning loans, or the loans have all been given out, the State will continue to pay €500,000 to administer possible defaults?

I hope the Minister will clarify these points. We all share the common concern and desire to see businesses have the opportunity to develop and grow. Small businesses are key. It is a fragile area of Irish society. Six businesses are closing every day, more than are starting up each day. The trend for business closure has accelerated in the first quarter of this year compared to last year. It is vital this is expedited and that micro finance is made available. It is important costs are not levied on businesses that are already struggling. It is also important that the banks are re-engineered to do the job they are meant to do and that the Government flexes its shareholder muscle in the banks so they function for the real economy. That must be to the fore of the Minister's thinking when he is developing this Bill.

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