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

The establishment of the Strategic Banking Corporation of Ireland, SBCI, by increasing the availability of longer term flexible debt finance which is appropriately priced will provide SMEs with access to the type of patient intelligent capital that will increase productive investment, encourage growth and generate additional employment opportunities. In this context, the SBCI will be supportive of both domestically-focused and export-orientated SMEs. It is being established as a private company, but it will operate with a strong public policy mandate in providing additional finance for the SME sector, stimulating economic activity and contributing to the economic well-being of the State. As a wholesale lender, providing funds for on-lending institutions, it will enhance the supply of funding both by using existing channels and encouraging new entrants into the market. The provision of loans designed to meet the customised needs of SMEs should also incentivise demand and build confidence in the SME sector, thereby encouraging investment in growth and employment.

The strategic role of on-lending development institutions is a well established model that is both effective and successful in other markets such as Germany, Spain and France. The SBCI does not require a bank licence to carry out the activities which have been assigned to it and there is no need to spend time or resources on a process of applying for a banking licence. Its relationship with on-lenders will be vital to its effective operation. As part of this process, it will design products that on-lenders will provide for SMEs. Furthermore, it will also impose a number of requirements on on-lenders to ensure they use SBCI funding for SME financing to fulfil the purposes of the Bill. These will ensure the actual benefits of the funding arrangements provided by the SBCI are clearly passed on to the ultimate end user, SMEs.

The reporting requirements set by funders of the SBCI, in conjunction with the nature of the lending agreements with on-lenders, will also provide the SBCI and the Department of Finance with sufficient data and information to enable them to analyse and explore the effectiveness of the SBCI in financing SMEs. Moreover, this information will be utilised to inform and shape ongoing product development to ensure the customised financing needs of SMEs continue to be met by the SBCI. A key function of the SBCI is to finance projects which promote economic development. It is also possible for it to provide, via on-lending institutions, financing for social and environmental projects that enhance economic development, provided they present the on-lender with reasonable repayment prospects.

The SBCI is an important intervention in the SME credit market that will contribute to economic development; however, it cannot be expected to be the vehicle for addressing all policy issues, especially where such issues are already being tackled by other bodies and policy initiatives. At the same time it is important to recognise that the SBCI, in conjunction with NewERA and the soon to be established ISIF, will collectively provide a more robust infrastructure for financing productive investment in the real economy, thereby contributing to more sustainable long-term economic and employment growth. Achieving this type of economic and employment growth will provide not only economic but also social and environmental benefits for the country and its citizens. The SBCI Bill is being expedited to ensure the benefits that can be achieved through the formation of a State-sponsored financial institution can be brought to bear on the Irish market without delay. Negotiations commenced with KfW and the German authorities within days of the Taoiseach's announcement in November 2013. In addition to trying to ensure the formation of the SBCI was arranged so as to maximise and sustain the benefits for Irish SMEs of this enhanced co-operation, the project team also opened up discussions with the European Investment Bank. Adding another funder has meant that the SBCI can offer more liquidity to the SME market, but it also has meant more work on the establishment of the SBCI. Arriving at an optimal solution for the start of operations which does not preclude further evolution of the SBCI has taken some time and brought us to the point where legislation has been prepared but Oireachtas time before the recess has been limited.

In order to establish a company which can enter into agreements with both the international providers of finance and the on-lenders in the Irish SME market, we first need enabling legislation. Waiting until the autumn semester to commence or complete the legislation would effectively mean that the work that needs to be done in establishing the company could not proceed until September at the earliest and the sequential actions which follow such as the establishment of a board, the hiring of staff, the signing of agreements with the international lenders, establishing internal operations, signing agreements with the on-lenders and awareness raising initiatives could not commence until October or thereabouts. It was decided, therefore, to expedite the enabling legislation in order that additional and enhanced lending to SMEs would be facilitated this year and without delay.

It is important to note that officials from my Department provided a number of briefing sessions for the relevant spokespersons of the Opposition parties. Furthermore, the said officials also worked with the Bills Office to extend the time available for submitting amendments. I am sure Deputies are appreciative of this effort to accommodate their input into the legislative process.

On the matter of issuing guarantees, the potential exposure of the State has been capped at €4 billion in the legislation and the Minister is obliged to inform the Dáil of the use of the guarantee each and every time it is extended to the SBCI. The SBCI is also to be accountable to the Committee of Public Accounts for the effectiveness of its operations. I expect that the SBCI will be covered under the amendments to freedom of information rules which are the subject of a separate Bill, but this is subject to agreement with my colleague, the Minister for Public Expenditure and Reform. I consider, therefore, that the provisions in the Bill are sufficiently broad to ensure effective public oversight of the ongoing operations.

Under the legislation, the Minister of Finance is to be the sole shareholder in the SBCI. It is not our intention that the shares will be sold or disposed of at any time. The SBCI will be a key element in the future financing of the real economy and contributes to our stated ambition of creating a more diversified, competitive and responsive financial infrastructure that can finance growth in the SME sector as we move to a new phase of economic recovery and growth. State-sponsored development or promotional institutions are an integral part of the financial architecture in other countries such as Germany, Canada, France and Spain and it is recognised that they will continue to play a key role in the financing of the economy in years to come. It is important that SMEs in Ireland have access to similar financial products available to comparative enterprises in competitor states, otherwise they will be operating at a serious competitive disadvantage. The SBCI, with its concentrated focus on improving the supply and quality of financing to the SME sector, ensures Ireland will have in place an institution capable of supporting long-term investment in the sector.

A robust, dynamic and innovative indigenous SME sector is key to ensuring sustained economic recovery and employment growth. The establishment of the SBCI builds on the measures and initiatives already put in place by the Government to enhance SME access to finance and can be considered to be a major milestone in our continued economic recovery.

The SBCI is mandated to provide additional credit that is tailored to the business needs of SMEs. In carrying out its core functions the SBCI will make an important contribution to stimulating economic activity, enhancing competitiveness and thereby generating employment opportunities for people across the State.

Negotiations commenced with KfW and the German authorities within days of the Taoiseach's announcement in November 2013. The project team has moved quickly to establish the structures now being debated. While the assistance provided by the European Investment Bank has resulted in the SBCI being able to offer more liquidity to the SME market, it has resulted in more work on the establishment of the SBCI. Now that this work is complete, we have this opportunity to debate the Bill.

Deputy Michael McGrath spoke about the Bill as initiated. The Bill enables the formation of the SBCI in a flexible manner that will allow it to develop to cover any strategic area of investment. SMEs are singled out as indigenous growth will be necessary. SMEs always face a structural disadvantage in funding.

On Deputy Dara Calleary's point, the SBCI will demand from existing lenders and other entrants that all funding drawn down by it is used or returned to the SBCI. The Directorate General for Competition and SBCI will require proof that the benefits have been passed on to SMEs. Additionally, the SBCI will supply credit products that are innovative, are in no way designed with the lender in mind and in every case are tailored to the needs of the SMEs. For example, working capital is now available but this may only be available for a 12 month period. Term loans are also available to SMEs, typically over three years but up to five years in certain circumstances. What we are talking about here is low interest loans that would be available for development of a company, perhaps of a ten year duration. This fills a gap in the product market for SMEs wishing to expand and currently finding it very difficult to get the finance to do so.

Deputy Pearse Doherty in a thoughtful speech also made a number of points. Under the Bill "other persons" means that the SBCI can lend to any legal person and not only to SMEs. Flexibility to grow and adapt is key to the architecture of this legislation. We see it as organic. As experience is taken on board it will grow organically to serve wider needs in the economy but the particular focus will be on SMEs. The legislation has not only an economic mandate but a social and environmental mandate. I will be pleased to work with Deputies on all sides of the House to extend its mandate as we see fit to grow the economy and to create additional jobs.

Deputy Peadar Tóibín echoed a number of the points made by Deputy Pearse Doherty. I thank Deputies Richard Boyd Barrett, Shane Ross and others who contributed to this debate for their support for the principle of the Bill, even though they had some limited criticisms of it. On Committee Stage, we can deal in greater detail with some of the points made. I take the point that the Government has been in office now for three years and that Deputies have been calling for the establishment of a strategic investment bank for a number of years. While we committed in the programme for Government to the establishment of a strategic bank, it is only now that we have the investment capital available to put it in place. This capital was raised in the first instance through the initiative of KfW in terms of the talks between the Taoiseach and the Chancellor and then the decision of the European Investment Bank to not only equal the funding provided by KfW but to put more in. We also have our own strategic investment fund. In simple terms, approximately €800 million will be available in the first year and, as the company is renewed, the balance sheet should be approximately €4 billion. This money will be available to the SME sector. In comparative terms with other strategic investment institutions across the OECD countries this is a balance sheet which is proportionate to our economy and fits the need of the economy.

I thank Deputies for their support.

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