Peadar Tóibín (Meath West, Sinn Fein)

Ba mhaith liom fáilte a chur roimh an Bille seo ós comhair na Dála inniu. The legislation has been a long time coming. When the Government took office, the European progress microfinance fund was created simultaneously. The fund is open to all European countries and, at the last count, 11 countries had drawn down money from it, including Bulgaria.

In the 16 months since the Government took office, roughly 2,064 companies have gone bust - not to mention the number of sole traders that have lost their businesses. While it is hard to believe, in the last week alone, 27 companies have closed per working day. A large proportion of these are closing because demand has fallen off and there is a lack of credit. Not included in those figures are business start-ups that were sole traders or potential business start-ups that were stillborn. They were stillborn due to lack of demand and credit. Many of these former entrepreneurs, some of whom never got started, are languishing and struggling on the dole trying to make ends meet or are scattered across the four corners of the world, probably utilising their skills to the benefit of other economies.

Prior to my election as a representative of the people of Meath West, I worked over a seven year period with approximately 2,000 microenterprises throughout Ireland, North and South and in Scotland. These businesses are the engine of the economy. They are not the headline grabbing businesses like foreign direct investment but they account for the vast majority of businesses in our economy. They are rooted in all of our communities. Every corner of this State is dependent upon these businesses, which are made up of sole traders, craft workers and local retailers, who are, beyond any shadow of doubt, suffering. Many business owners in order that they will not have to let people go are not taking wages. They are doing their damnedest to get their businesses through this hard time without having to let go good staff, many of whom have been working for them for 20 and 30 years. This can only happen for so long. As each month passes, many are going to the wall.

Of the 195,000 private enterprises in this State, 99.8% are in the SME sector and account for 70% of employment. The vast majority of these microenterprises are sole traders and employers of fewer than ten people. They are the backbone of the Irish economy. It is on this sector that we need to focus much of what we do. Much of the talk in this Chamber since this Government took office has been about foreign direct investment, which employs fewer people than do microenterprises even though it accounts for a far larger proportion of the economy in terms of output. The vast bulk of our microenterprises are suffering because of demand and the freeze on lending, both of which are in reality the outworkings of Government policy. These entrepreneurs are highly motivated people. They are individuals who have invested their whole lives and often all of their savings in their businesses. I am often told by individuals that when asked by people when walking down the road how they are getting on they immediately think people are inquiring about their business because they do not differentiate between their businesses, which are struggling, and themselves. The identity of most of these individuals is wrapped up in their businesses

Up to now, much of this motivation and energy has been obstructed by a lack of support from the banking sector and some of the business agencies. The first objective of this State is to make the banks deleverage significantly from the economy and, second, to make them lend €6 billion to small businesses. Those two objectives are mutually exclusive. The Government is telling the banks to have less exposure to the economy and to lend more. The reality is that the banking policies of this State are procyclical. They are further deepening the economic trough in which we find ourselves, causing damage to small businesses on the ground.

The sole focus of the banking sector up to 2007 was property loans and development. Bonuses were given to staff who could lend as much as possible to this sector. Skills previously the core of small business have been lost. The lack of support since 2007 for microenterprise and small business has become acute. Despite €64 billion of our money being sunk into the banking system it is failing the economy. I recall the previous Taoiseach saying that the purpose of the blanket guarantee was to ensure we had a banking sector that functioned and served the economy. Yet, in 2012 we still do not have a banking sector that is properly functioning or serving the real economy.

ECB data indicates that businesses operating in the south of Ireland are between 15% and 18% more likely to have a request for credit rejected. That is 15% to 18% higher than the European average. I believe the true figure is greater. Despite the rhetoric of "Not one more red cent" this Government continues to pump money into the banks and to be powerless to direct the banks, which it owns, to function in the public interest. This process is happening throughout Europe. Last week, €100 billion was put into the Spanish banks. This money will be used to pay off bond holders and to recapitalise the banks, which, owing to their paranoia about their capitalisation levels, will withdraw from functioning with the real economy, which is exactly what happened in this State. The European Union is persisting with this extremely detrimental economic policy.

On behalf of Sinn Féin I have continually called for the establishment of a microenterprise fund. We welcomed the programme for Government commitment to the establishment of a €100 million microfinance start-up fund, in addition to the establishment of a working and effective banking sector. What we have now is a €10 million fund in an attempt to offset our banking shortcomings. While we welcome this initiative, the sum provided is shockingly low. Given the scale of demand in this area an initial fund of €10 million will not be sufficient. We believe far more should be done within the lifetime of this Government to fully achieve the €100 million fund as set out in programme of Government. It is now a constant theme that this Government promises much but delivers little. What it delivers is always below expectation.

This legislation and fund have been developed to plug a market failure. Banks are not lending to business. ISME has stated that fewer than 50% of its members requiring credit receive it. This should be addressed directly with the banks. The Minister knows as well as I do that the banks are not lending. Even with a functioning banking sector there would still be a need for some form of microfinance. That is the international experience of institutions in the developing world such as the Grameen Bank. There are other examples across the EU. In looking at the failure of banks to lend for a number of reasons, such as those which I have outlined, it is important to ensure the banks are re-educated about how to lend to small business. The success of the Government in terms of supporting microenterprise hinges on its ability to tackle these issues. No one single initiative will succeed in solving the problem.

As I stated earlier the Government needs to tackle the banks that have been recapitalised and to address funding to microenterprises. I hope that the Minister will ensure that his plans to close down the county enterprise boards will address the issue of building capacity and support for this sector. The most famous and successful microenterprise programme of which I am aware is the Grameen Bank to which I referred earlier, the focus of which is not only on providing credit to small business but on peer lending. This approach shares risk across a number of small businesses, leading to greater support and mentoring between the peer groups. If a loan is defaulted upon it affects everyone involved in the group. I suggest that the Minister peruse this model of peer lending, which not only delivers credit but provides business support.

I note that the regulatory impact assessment states that the objective of Microfinance Ireland is to provide loans to start-up, newly established and growing microenterprises. We all accept there is a failure here. I am concerned the regulatory impact analysis also makes it explicit that an application to the microenterprise fund must be made after rejection by a bank. I understand the Minister wants this microfinance to be a last resort. He wants the normal economy to function and he does not want to let the banks off the hook with regard to their responsibilities. However, due to the fact the banking system does not have the necessary skills the banks require over the top documentation. While documentation is important and good business plans are pivotal to the development of the business, in my experience sometimes due to their processes banks require too much in this regard. The information is then delivered up the food chain in the bank far too slowly and often the person with the power to make the decision has not read the business plan and will only see an executive summary, or met the entrepreneur because he or she is three or four steps away. Given these problems, it would be beneficial for businesses to be able to apply to the microfinance fund directly. This could be another hurdle in the process of receiving funding.

Will the Minister outline the support that will be available to businesses to build their capacity to develop business plans and feasibility studies? The county enterprise boards do some of this work, and I hope the new formation will too but it is important to buttress this aspect of enterprise development at the microenterprise funding stage. Given that these are start-ups and new businesses will the Minister give consideration to the microenterprise fund becoming a first port of call for business? This is not to let the banks of the hook.

While I note the Minister's intention to develop the fund, from the outset the working and practice of the fund should be based on the needs of microenterprise. It should be microenterprise-centric. In this regard, a point of contact should be established between the microenterprise financing agency and the business to gather information on behalf of the business prior to and after an application is made and for consultation purposes. This would draw on the existing agencies, in particular the enhanced role of Enterprise Ireland. This type of wraparound facility for small businesses, including support and mentoring, could increase the professionalism and feasibility of the initial request for microenterprise funding, strengthen the business and reduce the risk of default in the long run, which is in the interest of the Government and State.

I am concerned the structure of the microenterprise funding agency is a little convoluted. It could be expensive and may not offer a comprehensive service. I note from the annual report of Social Finance Foundation that it worked with the Department and consulted with stakeholders to develop the proposal that is now under consideration. I do not want to cast aspersions on this fine organisation which has done good work, but I am always concerned when the body consulting on and drafting the proposals will also be the body to deliver it. Often, not in this case directly, it can lead to the researching body writing a role for itself and orienting the programme to include itself.

I also note that over the past year the administration costs of Social Finance Foundation doubled without taking on additional roles. I further note that when established, Social Finance Foundation was a provider of wholesale finance and that delivery bodies applied to it to pass on credit. First Step, one of the few organisations that delivers microenterprise funding worked in this regard. My understanding is that the proposals as set out in the legislation and the regulatory impact analysis change the role of Social Finance Foundation from a credit wholesaler to a direct deliverer through the microfinancing agency. Will the Minister clarify the experience and capacity Social Finance Foundation has to deliver this new role? What will be the role of First Step and will the microenterprise funding agency support intermediaries?

I seek this clarification not to undermine Social Finance Foundation but to ensure the support available to microenterprises is straight forward, accessible and speedy. While we need more than one provider we do not need a plethora of them, as this would mean excess administration which would confuse businesses and support organisations and draw on the resources of the fund. Will the Minister clarify exactly how the body will be established and accountable? The legislation must ensure there is no potential for lobbying by any elected representative on behalf of a small business. Decisions should be made in a clear cut manner and should be transparent and open for the State to see.

The legislation gives the Minister the power to dismiss board members from the microfinance fund, which will be a subsidiary of Social Finance Foundation, but not the power to appoint board members. However the regulatory impact analysis states that the chairperson of the Social Finance Foundation subsidiary, Microfinance Ireland, will be appointed by the Minister who will also approve the board members. Which version is correct, the legislation or the regulatory impact analysis? I hope those appointed to the board are fully independent.

The establishment of Microfinance Ireland as a subsidiary of Social Finance Foundation also confuses the issue of operational accountability. As a subsidiary the normal practice is that it would be accountable to the parent company and not another body. The regulatory impact analysis states all governance will be overseen by the Minister. Will the Minister assure us the operation of the board will be fully accountable to the Minister and the Oireachtas? If I have difficulty following the lines of accountability for this process and knowing who is responsible for lending and lending practice where will it leave prospective borrowers and start-ups?

Given the need for a clear microenterprise-centric approach, has the Minister given any consideration to developing the fund under Enterprise Ireland or another agency to ensure a one-stop-shop for enterprises which would bring together support, credit and grants? I would welcome the Minister's assessment of the ability of Microfinance Ireland to make an application to the European progress microfinance fund. This fund was established with more than €200 million and has been operational for more than a year. A number of EU countries have drawn down this support

The regulatory impact analysis makes a number of assumptions on the roll-out of the fund and these are highly optimistic. Is the Minister confident about this analysis and will he make this the basis of the review of the work of Microfinance Ireland? If the microfinance fund is to meet the needs of microenterprises and redress market failure, loans must be offered a rate that will support business growth. It is maddening that the banking sector can access funds from the ECB at a rate of 1% yet businesses have to go over the odds for support. It is another case where the short-sighted needs of banking are undermining the real economy. There is a need for loan terms to reflect the support and leg up that new businesses require if they are to become sustainable and build employment.

Despite these concerns about the length of time it has taken to develop the initiative we welcome it as a positive step in supporting microenterprises. We are mindful of its limitations and the need to resolve them and we look forward to doing so on Committee Stage.

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