Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

As the Deputy will be aware, the Taoiseach mentioned in this House shortly before the recess that he had held discussions with Chancellor Merkel on finding ways to reinforce Ireland's economic recovery by improving funding mechanisms for the real economy, including access to finance for SMEs. The German Government has asked KfW, the German development bank, to work with the German and Irish authorities swiftly in order to deliver on this initiative at the earliest possible date.

Officials at my Department, with the assistance of staff of the National Pensions Reserve Fund, NPRF, have worked quickly to investigate ways to ensure that the benefit of this co-operation to Irish SMEs can be maximised. A small party of my officials travelled to a meeting with their counterparts in Berlin in early December and a week later a similar meeting was held at KfW's headquarters in Frankfurt. Officials from KfW and the German Ministry also met with the project team from Ireland in Dublin for a further exchange shortly before Christmas. Both sides have been represented at senior management level for each engagement. In addition, there have been regular conference calls between the parties.

As the Deputy may be aware, KfW channels its funding for SMEs in Germany through a system of on-lending using commercial banks in Germany as the distribution mechanism. Typically, the SMEs can avail of KfW funding at different terms and conditions applicable to that offered directly by the financial institutions. This model is similar to the on-lending arrangements available to Irish domestic institutions using funds from the European Investment Bank, EIB.

The precise arrangements for the structure, level of funding and distribution options are the subject of the discussions between the relevant officials at present and will have to adhere to EU state aid considerations. Experience in other countries suggests that any lending facilitated by a state-sponsored investment institution like KfW is generally complementary to SME lending already taking place in an economy and can assist in improving both the supply and demand for finance.

The Government recognises that SMEs are the lifeblood of the Irish economy and play a crucial role in employment growth. Since March 2011, Government policy has concentrated on ensuring that viable micro, small and medium-sized enterprises have access to capital, equity and debt funding from a more diverse range of sources. The potential new arrangement with KfW, which my officials are exploring, represents a continuation of the Government's concerted focus on ensuring that viable SMEs have access to finance in a manner that supports economic recovery and employment growth.

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