Catherine Murphy (Kildare North, Social Democrats) | Oireachtas source

I welcome the opportunity to speak on this Bill and on the credit guarantee scheme. It sounds almost trite to say that we are living in unprecedented times. The only way we will emerge from this crisis will be by marshalling and investing an unprecedented amount of State resources. In doing so, it is important that we ensure that the State response is targeted, ambitious and evidence-based. In that context, there is a role for a State-backed loan scheme but it should only be one aspect of a much larger suite of measures. These loans may be suitable for a number of companies but others may require additional supports, and yet still others may require grant aid. The aim should be to achieve a job-rich growth whereby there will be good quality, secure employment. While I see the potential in what is being proposed, there are still a number of important issues and details that are outstanding and that have not been fully provided for. I would like these to be teased out, if not this evening then over the next day or so before the fate of this Bill is finally decided.

While the wider economy and access to credit for small and medium-size businesses is extremely important, it should never be the limit of our concern. For me, the benchmark by which we must judge all economic responses to the Covid-19 pandemic is our ability to protect people's jobs and livelihoods. I certainly do not want a situation whereby the stimulus will be spent on, for example, paying rents, and inflated rents at that. It has to be a stimulus and that means money in cash registers and in people’s pockets that actually gets spent.

According to the Department’s report on the final quarter of last year, only 64 loans were drawn down. The total value of these loans was just under €15 million. The Department estimates that this resulted in 1,057 jobs being maintained and an additional 274 being created, or a total of 1,331. This was an increase in shared liability of just over €11,000 for every job that was either created or maintained. These figures also serve to demonstrate the major issue with the current scheme that I fear may be carried over into this one. Since its inception, the level of take-up relating to the credit guarantee scheme has been constantly sluggish. The 2013 independent review of the scheme noted that the numbers of jobs created and maintained were significantly below the target of 1,000 per annum. This figure was disproportionately high given the generally low level of take-up relating to the scheme. It would be very interesting and important that we know what the target is for jobs. There has to be some link between both.

In light of the new and uncharted waters in which businesses find themselves, it is hard to see how the current proposal goes far enough to address the issues that exist and to bring uptake in respect of the scheme to the levels envisaged. Can the Minister of State outline what the ambition is? It is possible that the removal of the portfolio cap may be a positive step toward addressing this. The current scheme has a portfolio cap in place which limits the State’s exposure to 13% of the loan facilities. The Department has indicated that the removal of the cap is necessary to ensure that lenders provide the necessary liquidity. There is also evidence that this aspect of the existing scheme has given rise to the banks refusing to lend to some small businesses and applying unsustainable rates of interest to others. This aspect is going to be very important.

One of the aspects of the microfinance scheme, for example, when one looks at trends, is how difficult it was for young people in circumstances where they did not have the collateral. These well-educated people with good ideas should not be prevented from taking a risk to create new jobs. The attitude of the banks in taking a conservative approach could be very problematic particularly when these young people do not have the safety valve of immigration. This is a cohort of individuals of whom we should be very conscious.

Reading the quarterly reports, it is difficult to see how this alone could be the root cause of the low level of loans granted under the scheme. Between the beginning of the operation of the scheme in 2012 and the end of last year, only 730 loans were sanctioned. These had a cumulative value of €122 million, meaning that the average amount involved was just under €170,000. Even with the removal of the portfolio cap, I do not see any evidence that the Minister of State will be delivering a scheme that will be so attractive to businesses that the level of funding he is proposing is warranted. Can he provide details of the business case for the level of funding that he is proposing to attach to the scheme and the expected number of loans his Department is estimating will be sought and delivered under the scheme before the end of the year. There is no point in having something that is really ambitious in theory if the reality is very different for people who may well want to take it up.

For me, the crux of the matter is whether the scheme is fit for purpose. It is all well and good to throw potential liabilities on the balance sheet if one knows that they will never become real. We have to look at what is being offered and ask what is the real potential liability of approving this scheme.

If, for example, one is the manager of a struggling business, will it meet one's needs? That is where we will need to have ongoing input about how it is working, because it is only one of a number of initiatives. It ties up a significant amount of money. I must be clear that I am not opposed to the 80-20 split, with the banks taking some of the risk. I understand the arguments for the 100% State-backed loans but I also see where the Tánaiste is coming from with regard to the shared risk being a disincentive to reckless lending. However, I do not think the trust-but-verify approach in respect of the banks is good enough. We all have strong memories of how the banks conducted themselves in the past and none of us feel any great confidence in how they will treat this scheme. We are asking the same people to be involved even though we can see that there has not been a change in culture over the years. I would be surprised if everybody does not make the same point. Maybe the banks will surprise us - I hope that they do - but we have to be concerned about this aspect.

Last week, we heard the statement from the chief executive of the Irish SME Association that he believes this scheme will be the subject of a limited take-up because the targeted businesses were understandably completely debt averse. I have heard repeatedly that people are concerned about not having the capacity to take on more debt. The Tánaiste told RTÉ that the loans provided under the scheme will be on much better terms and conditions than those currently available. With the global pandemic and economic crisis, however, any level of uncertainty is too much for businesses and we should be concerned about this lack of clarity. I am of the opinion that the interest rate should be as low as 0% for at least the first year, regardless of whether we take on 100% of the liability or split it with the lender, with the State still shouldering the majority of the risk. Citizens should reap the major part of the reward.

The purpose for which the money is loaned is also important. The objective is to end up with good-quality jobs being either created or maintained. That is, after all, the basic foundation of banking. Banks take on risk with a view to receiving reward. It is a calculated gamble whereby the deck is entirely stacked in favour of the lender. With this in mind, I am concerned that the scheme does not go far enough to ensure ongoing lending by the banks. I understand that they will continue to apply their normal underwriting decision-making processes to the applications regardless of the reduced risks they are taking on. Perhaps the Minister of State will address that point.

In normal times, this would be a challenge to businesses. In the midst of a potential global credit crunch, it may be an insurmountable barrier for struggling businesses. I have friends who have small businesses and they are wondering, in light of some of the challenges they face, if they will be able to stay open. There have been occasions when businesses have felt that their applications have been unfairly treated. This scheme will be time-bound and available on 31 December of this year, yet the Tánaiste does not expect it to be up and running until September or October. This leaves a very small window for businesses to make their applications. Maybe I am wrong but that is my understanding of the position.

It is not clear if there is an appeals process or if one will be put in place. Under the current scheme, if an applicant is unhappy with a decision, he or she must follow the vendor's normal appeal procedure and have the option to escalate the matter to the credit review office. The office's average processing time to deliver an opinion is four weeks. We have tight timeframes here. I am concerned that the lack of a speedy external appeals process will leave applicants highly vulnerable to unfair lending practices. I point to younger people in particular in this regard.

The level of uncertainty surrounding the operation of the scheme is a cause of great concern. The interest rate and approval criteria are not set in stone and fully negotiated. The scheme is set out but there is much uncertainty about how it will operate.

In addition to the unspecified level of interest, there is a guaranteed premium attached to each loan. I am glad to see that this will be paid to the State at a reduced rate compared with the one currently in place. Under the proposals as they stand, the rate for SMEs will be 0.25% in the first year and 0.5% in the second and third years, then 1% for the remainder of the loan. The Department's information on the current credit guarantee scheme states that the existing premium is paid by businesses as a contribution towards the costs of the State providing the scheme. Even at the lowest cost proposed by the Government, this premium could serve to generate significant income for the State if anything approaching the full value of the scheme is drawn down. There is a doubt about whether this will happen but it is a matter to keep in mind. Is it the Minister's intention that moneys generated from the premium will serve any specific purpose? Will it be ring-fenced? Will it go back into the scheme? Will it cover administrative costs? If there is a business case available, I would appreciate seeing how this scheme was worked up.

The Minister of State dealt with the issues of fisheries, aquaculture and agriculture. Is there a prohibition in the current scheme for purchasing freight transport vehicles or in respect of other matters? He might address the areas that will be included under the new scheme that are not contemplated in the one we are debating.

I have some concerns about how we are handling all of this. I understand that we are in unprecedented times and that there are time limits. However, it should not go unsaid that there is a degree of speed involved in this that should cause some concern. The time available from when the Bill was published to table amendments is not the norm and it is important to put that on the record. At the same time, I accept that speed is needed. Businesses and their workers need help and support to make it through this crisis.

The full scale of the economic impact of the pandemic has yet to become clear but we know that we need to act now, taking bold steps to protect jobs and support indigenous industries. State-backed loans have a part to play in achieving this but we have a responsibility to make sure that it is done in the right way. The proposed scheme has the potential to help some businesses but it carries many of the hallmarks that held its previous incarnation back. The reforms which are being proposed to the existing scheme would have been welcomed in a period of normal economic growth. However, they do not appear to fully recognise the unprecedented situation that many businesses find themselves in due to circumstances completely beyond their control. In saying that, I recognise that this is just one of a number of measures.

The fact is that many businesses have racked up significant debts while trying to stay afloat during the lockdown. Taking on additional debt regardless of whether they are State-backed is just not viable at the current rates of interest.

I am concerned that the proposed scheme will not attract that level of uptake necessary to warrant tying up €1.6 billion. This will prevent us from doing other things if that proves to be the case. Will the Government be looking at the drawdown and timing in order that it may intervene at an early stage if it is clear that this is not going to be fit for purpose?

We cannot, however, make an accurate assessment of the scheme's potential effectiveness in the absence of that kind of information. We do not know the rate of interest that will be charged and we do not know the terms or the conduct of the banks. Would it be possible, for example, for some of the State agencies such as IDA Ireland or Enterprise Ireland to involve themselves more directly in that, to deal with it directly as opposed to the banks having that responsibility? I am sure it might have been possible. Those agencies have a jobs focus and they know what it takes to create and maintain jobs. The bank has a different remit and looks at risk.

I am not opposed to the scheme in principle but I cannot stand over any measure where the main beneficiary is the bank profiteering. This cannot be allowed to happen and it must be monitored very carefully. A more ambitious approach would be to build an element of social value into the application criteria of the scheme. I would like to have seen that done. If the scheme is to be reviewed, this should happen. If the State was willing to take on a more active role in assessing applications it could prioritise loans that would create jobs, or those that protect jobs that already exist in vulnerable communities or sectors. There is more than one way to achieve the goals of this scheme and I wonder what, if any, consideration was given to alternatives to the scheme. Was time an aspect of this?

I urge the Minister to present the business case for this scheme, alongside the full details of the terms and conditions he is seeking to agree with the banks. It is essential that this is done before the House votes on this Bill so that Members can be fully informed on how the scheme will play out.

See this speech in context