Michael D'Arcy (Wexford, Fine Gael)
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Question 42: To ask the Minister for Enterprise; Trade and Innovation when he will make a decision on the introduction of a small and medium enterprise loan guarantee; and if he will make a statement on the matter. [25419/10]

Batt O'Keeffe (Cork North West, Fianna Fail)
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The Deputy will be aware that work is under way in my Department on the examination of a possible scheme of loan guarantees for the SME sector which could augment lending by banks by addressing particular market failures. This is in line with one of the recommendations in the Mazars review on bank lending to SMEs.

Enterprise Ireland and Forfás carried out examinations of loan guarantee schemes in the UK and in some other countries. Following more detailed examination, Forfás recently submitted a report to my Department, which is being considered. A key issue to be addressed is the role such a scheme might play in improving access to finance, particularly in current circumstances, for viable companies, such as start-ups and technology companies, that do not have bankable substantial assets.

Studies that have been consulted attach considerable importance to the design of such schemes to ensure that they benefit companies and to minimise the cost to the Exchequer. From the company perspective, the key issue concerns additionality, the extent to which a scheme increases the amount of lending to SMEs. To the extent that substitution occurs – companies that would be funded in any event being covered by the scheme – such schemes merely increase the cost of borrowing to the companies concerned. From a cost perspective, the premium charged to the borrower is intended to offset the cost of defaults but in most schemes some level of public subsidy is involved. The design of any scheme is obviously critical. The scheme must have clear objectives and be carefully targeted. The issues are being examined in detail in my Department and on completion of this work I will bring the results before Government.

In addition, the Deputy will be aware that the Government has taken decisive action to get bank credit flowing to viable businesses, which include specific SME funding initiatives by AIB and Bank of Ireland.

Deirdre Clune (Cork South Central, Fine Gael)
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I am confused. Is the guarantee happening? There has been much soul searching, examination and reports while small businesses are crying out for immediate finance to pay a lease, buy stock or invest in the business. That is the real issue. Business people do not have time for the lengthy process in which the Minister's Department is engaged. Is the Minister intent on introducing the scheme or will yet another report be given to someone to examine to see if its recommendations can be implemented?

Batt O'Keeffe (Cork North West, Fianna Fail)
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Generally speaking, I implement the recommendations in reports. However, we must be careful in this instance. We have looked at the UK and other countries. The design of a loan guarantee proposal is of vital importance. If the design is not right the guarantee might supplement credit that is already available, which could cost the country much more in the long run.

We asked Forfás to do a detailed analysis to see what benefits there would be for companies, over and above the increase in credit now available through the banks and through recapitalisation. If we do not get it right there will be exposure and further losses to the taxpayer. I know what Members on the other side of the House would say in those circumstances. I have had the Forfás report for three weeks and it is being examined in the Department. I will bring proposals to Government before the summer recess.

Arthur Morgan (Louth, Sinn Fein)
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I accept the need to examine models and that it is right to protect the taxpayer. When the Minister has brought proposals to Government when will the guarantee hit the streets? There is a high risk to the taxpayer. However, companies need funding and we need to ensure they are viable. The big question remains. When will the guarantee get to the end user?

The Minister of State referred to a high level working group. Sometimes what is needed is a low level working group, to get at the real savings. It is often the people on the shop floor who can tell us how to be more cost effective.

Batt O'Keeffe (Cork North West, Fianna Fail)
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There are two issues here. First, we have increased the amount of credit available to SMEs through both banks. We hope that process will lead to greater availability of credit to small and medium sized businesses. Second, we do not want a loan guarantee to supplement that.

Some of the medium sized businesses find it easier to get credit than smaller businesses. Approximately 30% of the medium sized businesses avail of credit compared with 19% of small businesses. Many small companies do not have collateral. Many research and development and start-up companies do not have collateral and are not seen as credit worthy by banks. We must find a way to help, nurture and grow those companies.

We will bring the loan guarantee recommendations to Government and the Government will have to look at them and approve them. We must make sure they are tailor made and will not be a burden on the taxpayer.

Leo Varadkar (Dublin West, Fine Gael)
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I have some sympathy with what Deputy Morgan said. It seems that high level groups are the latest fashion in Government. I wonder if there is a hierarchy of groups. Are there medium and low level groups or are they all high level? I would be interested to hear the Minister's comments on that.

Conor Lenihan (Dublin South West, Fianna Fail)
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The low level stuff is all in Deputy Varadkar's party.

Leo Varadkar (Dublin West, Fine Gael)
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Has the Minister looked at the Chilean loan guarantee system, which is the preferred option of the Governor of the Central Bank? I think he is right about that, having read his lectures on the subject.

The question everyone else has asked and which the Minister has not answered is, will he introduce an SME loan guarantee?

Batt O'Keeffe (Cork North West, Fianna Fail)
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I will answer the last question first. I will put the proposals in the Forfás report to Government before the summer recess. It will be a matter for Government to take the decision. I was also asked whether we have examined the Chilean system. Yes, we have. That has been taken into account in the FÁS and Enterprise Ireland reports.

On the high level groups, it is fair to say we are trying to have joined-up thinking and joined-up action across departmental boundaries. I will give an example of something I was involved in when I was Minister for Education and Science. We got the universities in Dublin to tender for their energy costs and they saved more than €1 million. We got the universities and institutes of technology in Limerick, Athlone and Cork to tender for their energy costs and they saved €1.5 million. Great savings can be made by crossing boundaries and having joined-up action and joined-up thinking. I have asked the various agencies in the Department of Enterprise, Trade and Innovation to consider tendering for their energy costs and to see what they can do. We want to transpose that kind of thinking across departmental boundaries. That is why the high level groups are so important. They allow for synergies in what we want and need to do. The savings that result from that are important for the taxpayer.