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

I hope it will be successful in that way. In building any organisation from start-up, it is reasonable to phase its development. While we want to empower it to lend directly, the first phase incorporates an on-lending basis. A bank without a network must consider the logistics of direct lending. A bank could lend directly from a head office for big projects.

For smaller projects, the on-lending model works best. One of the earliest steps will be taken this summer, in that there will be marketing and promotion of the strategic banking corporation of Ireland, SBCI. SMEs will know from where they can get SBCI loans. Like everything else in private business, the incentive for the on-lending banks will be their profit margins. This will largely depend on what margin is negotiated. Due to the reduced risk for and availability of money to on-lenders, they should not charge much more than a handling charge plus a small risk premium. We know there is a willingness among the banks to participate and the details will be worked out in the coming months. I am anxious to get this model up and running this autumn so that actual lending to the SME sector will have taken place in 2014.

Although the previous measures we have tried might not have worked 100% and all of the money earmarked for SMEs in 2011 was not be drawn down, the situation improved in 2012 and 2013. In co-operation with us, the Central Bank asked RedC, the polling agency, to examine the funding of SMEs. The latest returns show that more than 80% of applications for investment funds from SMEs are being sanctioned by banks. A residue is not being sanctioned, but the situation has improved substantially. We are not claiming 100% success for any of our initiatives.

Regarding the Deputy's original proposition, there is also a demand-side problem with people who are indebted not wanting to borrow further. For those who were burned badly playing in the property market, the last place they will go is near the fire again. In general terms, Irish entrepreneurs and SMEs have become risk averse. Many try to limit their borrowing and are working with cash only. While this is prudent, we need SMEs to borrow, to invest, to grow their businesses and to provide jobs if the expansion we require is to happen. This is an objective we all share.

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