Michael Kitt (Galway East, Fianna Fail)
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Deputy Patrick Nulty had three minutes remaining but he is not present. As nobody else is offering to speak I call on the Minister of State to reply to the debate.

Seán Sherlock (Cork East, Labour)
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I am happy to conclude the discussion on Second Stage of the Credit Guarantee Bill 2012. This legislation will address some of the difficulties being faced every day by small and medium enterprises, SMEs, throughout the country, which I have been made aware of daily since being appointed Minister of State last year. The ability of our SMEs to succeed and grow underpins our future potential for employment, growth and prosperity, and this Bill shows our commitment to implement change and reform in a step by step approach, to re-energise the economy, meet the challenges of recovery, address a failed economic model, restore confidence and to enhance Ireland's position in the world.

Michael Kitt (Galway East, Fianna Fail)
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Can Members lower the volume please and give the Minister of State an opportunity to respond?

Seán Sherlock (Cork East, Labour)
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I wish to respond to some of the comments made by Members. In the context of the finer details of how the scheme will operate, the Minister will lay the scheme before the House as soon as this legislation is enacted. This provision is provided for in section 6 of the Bill. As for the use of personal guarantees, the banks still will be able to consider the normal and usual ways that security is provided by borrowers. Invoice discounting will be eligible for the guarantee scheme. The guarantee will be for three years but the loan may be for a longer term. The legislation provides for the premium payment to be paid upfront. However, this matter of the timing of the payment is being reconsidered and amendments may be tabled on Committee Stage. The scheme will be demand-led and the Government will follow performance and take-up closely. If figures show that demand exceeds €150 million, this figure can be revisited and amended, if necessary.

Regarding loans that are defaulted, the banks will follow their normal recoveries procedures. This matter of recoveries will be covered in the scheme. As for the issue of late payment of invoices causing difficulties to small businesses, the Department will transpose the new EU directive on late payments before 16 March 2013. With regard to ensuring additionality of lending under the guarantee scheme, the Department is in talks with the banks at present to ensure they fully understand their obligations. The loans provided under the scheme will be closely monitored to ensure they fall within the two market failures the scheme is designed to address. In respect of the risk-sharing ratio, this is a joint commitment by the Government and the banks. The combination of guarantee rate and default limit will deliver an overall risk share of 50:50. Losses over the default rate must be borne by the banks.

In the context of the microfinance fund, it will avail of the EU progress guarantee facility as soon as the lending entity is established. I also point out that First Step, which lends to micro-enterprise, already avails of this EU guarantee facility. Any further issues to which I have not responded will be addressed on Committee Stage.

As my colleague, the Minister for Jobs, Enterprise and Innovation, Deputy Bruton, noted in his opening comments on commending the Bill to the House, The Government's Action Plan for Jobs 2012 prioritises where it will place its efforts to best effect over the coming months. It adds up to a co-ordinated plan of vigorous and targeted action in order that the Government achieves change and makes a difference. Businesses need action from the Government, not words. This legislation is clear evidence of concrete action that will produce tangible benefits for the businesses that avail of the guarantee scheme. The Bill will help restore confidence, which is an integral part of economic health. It also forms an essential part of our recovery. Businesses must develop sufficient confidence in the future to begin expanding their order books and payrolls. Banks must be willing and able to lend sufficiently to meet the needs of business again. Consumers must regain the confidence to spend again.

The Government's overall strategy is aimed at making sure citizens and businesses feel confident it has their interests at heart and is implementing necessary change. The strategy is to ensure they have an outlet for entrepreneurial initiative and marketable ideas and the chance to turn them into commercial products. Making sure they can confidently go into business and create jobs is an essential element of the Government programme and making sure that Ireland is strongly perceived as a good place to do business is essential in generating such confidence. The Government has committed to making Ireland, to quote the Taoiseach, "the best small country in the world in which to do business" by 2016 and it can achieve that target. The Government has a legitimate and important role in improving the finance environment for small and medium-sized enterprises, SMEs. Carefully designed legislative interventions, such as this measure, can help markets function better, give certainty to business and confidence to consumers. I believe this legislation will inspire confidence among SMEs in the banks' abilities to provide an improved service to SME customers, including previously discouraged borrowers. It has been frequently acknowledged in the recent past that there will be a cohort of discouraged borrowers who assumed they would be turned down and therefore did not apply for credit. The introduction of a guarantee scheme may help to support this group to pursue business opportunities again.

The majority of Ireland's enterprise sector comprises small businesses. Now more than ever, ambitious and energetic business owners, entrepreneurs and managers who can play a real part in driving a positive uplift in the economy are needed. They are the job creators and innovators and must be encouraged and supported to have the confidence to make their mark and build a better future for themselves and this country. These are the all too often unseen risk takers and innovators and it always will be the hard-work and entrepreneurial skills of such individuals that will lie at the heart of the success of Ireland's SMEs. All these companies have financing needs through the various stages of business development such as start up, managing working capital, investing in new products or services, marketing strategies, innovation and research and development, expanding output and entering new markets. It is essential that the financial system supports the needs of SMEs through all these stages.

Many businesses have contacted the Department about the problems caused by their difficulties in accessing credit. All Members, as public representatives, are aware of the difficulties that face people within their constituencies and nationwide. Increased risk aversion among banks has made it significantly harder for smaller companies to obtain finance in recent years compared with the period before the crisis. Herein lies the mismatch between the needs of productive business and the bank finance available. While banks are trying to reduce risk, business lending, especially to SMEs, is risky. Entrepreneurship is risky. Introducing new products and services is risky. Exporting to emerging markets is risky. Innovation is risky. This Bill will enable the Government to absorb some of the risk of lending in order that businesses can get on with what they do best. We must dismantle unnecessary barriers that stymie growth and hold back investment. That is exactly what this Government is determined to do and this Bill moves us in that direction.

I personally have met various companies that are at the margins of SME commercial lending decisions because the businesses have insufficient security or the lender does not have the skills to carry out an appropriate assessment of the business proposition. It is essential to address this issue in a way that will not reduce the onus on banks to honour their commitments to increase SME lending overall but which would facilitate additional lending over and above those commitments.

In conclusion, this Bill is important legislation. It will assist in the Government's plans to reshape the finance landscape to render it more effective in meeting the needs of Irish businesses. The Government is taking decisive action to create the environment that supports new companies, new jobs and new economic opportunities. I refer to action that keeps open the doors of Irish businesses, supports existing business to scale up and expand and facilitates more people who have the ambition and drive to set up their own business. This Bill is just one of the many steps for delivery of such a challenging agenda.