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

As a number of Deputies have pointed out, we are dealing here with a wholesale model. The SBCI's business model is based primarily on the on-lending model which has been operated successfully by Germany's promotional bank, KfW, and Spain's state investment bank, Instituto de Crédito Oficial, ICO. The SBCI is being set up initially as a wholesale funder which will work with various on-lenders in order to minimise the overhead expenses of operations. This is designed to get the SBCI up and running as soon as possible so as to leverage the existing networks and capabilities of on-lenders for the benefit of SMEs. That will ensure that SMEs obtain the best value possible. The money will be forwarded to on-lenders in tranches. Of course, those lenders will be subject to rules and regulations laid down by the wholesale entity. There will be contractual agreements and these will specify the nature of the product which will be on offer to SMEs and also the terms and margins involved. As the money involved will be obtained very cheaply, the risk carried by on-lenders will be covered by the margin charged. The wholesale entity, namely, the SBCI, will put in place a protocol that will cover that margin. This should work reasonably well in practice.

On Deputy Pearse Doherty's question about microfinance, the SBCI team will be working with the Department of Jobs, Enterprise and Innovation and Microfinance Ireland in order to identify how further demand-side solutions can be facilitated as soon as possible after the company has been established. In other words, we will establish the company and get it working as an on-loan wholesale bank. Money will then be lent to on-lenders such as the existing banks, which will lend in the normal way but subject to protocols set down by the SBCI. At that point, the Department of Jobs, Enterprise and Innovation and Microfinance Ireland will become involved in order that they can be used to deliver microfinance to small industries. The model is fairly well worked out and it will be flexible enough to deal with any day-to-day problems which might arise.

The facility will not be confined to existing lenders; new entrants to the market will also have access to it. All funding drawn down by the SBCI must be used or returned to it. The Directorate General for Competition and the SBCI will require proof that the moneys involved have been passed on to SMEs. As a result, there will be no question of investment funds going anywhere other than to SMEs, which, of course, are the intended target of such funds. In addition, the SBCI will supply credit products that are innovative, that are in no way designed with the lender in mind and that are tailored to the needs of SMEs.

I am sure we will discuss this matter on many future occasions. However, what I have outlined is the general shape and scope of and intention behind what is involved. We will deal with any practical difficulties that arise as we proceed. I stress that the SBCI will operate independently of the Minister for Finance and the Government and in accordance with its own mandate.

The provision of credit directly from the SBCI is not precluded under the legislation. Section 8(1)(a) will ensure that direct and indirect lending can be made possible. The intention is, of course, to facilitate indirect lending in the first instance. Under section 8(1)(a), the corporation will be legally empowered to become involved in direct lending subsequently.

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