Eamonn Maloney (Dublin South West, Labour)
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We are very fortunate to have a very strong credit union tradition. Credit unions are located throughout the country, both in urban centres and elsewhere. The Irish have a very strong attachment to the movement and my constituency is no exception.

I recently met representatives of four local credit union branches, namely Kilnamanagh Credit Union, Firhouse Credit Union, Tallaght and District Credit Union and Tallaght West Credit Union. They are very dedicated people who provide an excellent service. The credit union is traditionally described as the bank of the working classes. The movement has gone from strength to strength over the years and it has been very beneficial and sympathetic in the communities in which its branches operate. However, the credit union movement has not escaped the fallout of the collapse of the Celtic tiger. Recent legislation on credit unions has obviously resulted in changes. The movement and local branches argue that they are not happy with some of the restrictions placed on them. The credit union officers I met recently are perplexed and, in some cases, angry, especially consequent to recent comments by the Minister for Finance to the effect that they should start lending. This is exactly what the credit union movement and its local branches want to do. I am informed they would be only too happy to lend to their members but are precluded from doing so due to the restrictions imposed by the Central Bank under recent legislation.

The Central Bank has imposed lending restrictions on a large number of credit unions. In some cases, this is for a very good reason. I am not here to argue about that. Restrictions include a maximum loan to which a member is entitled and a maximum in loans that can be issued in a month, for example, €100,000. In many cases, there is a complete ban on commercial business loans. The latter does not apply to all but applies in most cases. This is a real issue for branches.

When one considers that the credit unions in this jurisdiction have in excess of €7 billion in funds, one can understand the desire of local branches to provide funding to local SMEs. Given the current climate, in which the economy is growing, albeit not fast enough for all of us, there is a desire to lend. Credit unions are prepared to step into this area, albeit with certain restrictions. The movement and I are asking the Minister to examine this matter and allow SMEs to avail of credit union loans.

Joe Costello (Dublin Central, Labour)
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I thank the Deputy for raising this important issue. I would like to confirm the Minister's view that credit unions have an important role to play in providing credit in local communities around the country. The Minister is supportive of safe and responsible lending by credit unions.

The Government established the Commission on Credit Unions in May 2011. The commission was asked to make recommendations in relation to the most effective regulatory structure for credit unions, taking into account their not-for-profit mandate, volunteer ethos and community focus while paying due regard to the need to protect fully members' savings and financial stability. Membership of the commission included members of the credit union representative bodies.

The commission published its final report in March 2012 and it was agreed by all members. The Government has accepted fully the commission's recommendations, over 60 of which are currently being rolled out under the Credit Union and Co-operation with Overseas Regulators Act 2012.

One recommendation by the commission is the introduction of a tiered approach to regulation for credit unions. This tiered regulatory approach will see some credit unions taking on a more sophisticated business model. Such credit unions will be subject to increased regulatory requirements. This will offer a flexible approach to the regulation of credit unions and will assist credit unions in determining the business model they wish to adopt. This approach could include some credit unions lending to SMEs, as referred to in the Deputy's question. It is not by any means ruled out.

A proposed tiered regulatory approach was outlined by the Central Bank in its recent initial consultation paper. The deadline for submissions was extended on request by the sector. The consultation process provided an opportunity for stakeholders to set out their views across a range of issues. Interest in this topic was demonstrated by the number of submissions received by the Central Bank, which exceeded 160. An analysis of all submissions is being undertaken, and the Central Bank will communicate with credit unions and other stakeholders in regard to the proposed next steps.

In line with the introduction of the tiered regulatory approach and on foot of recommendations from the Commission on Credit Unions, section 11 of the Credit Union and Co-operation with Overseas Regulators Act 2012 amends current lending provisions. These amendments provide for new Central Bank regulations to deal with a range of lending issues including the classes of lending that a credit union may engage in, for example, business lending; the duration of loans; large exposures; and concentration limits.

Section 11 will be commenced in tandem with new Central Bank regulations on lending, which are to be introduced as part of the tiered regulatory approach. This tiered approach will address a range of areas, including lending, investments, savings, borrowings, additional services, reserves and liquidity. These changes will help bring about developments in the credit union sector, which will see an expansion in the range of services and products being offered.

It must be acknowledged that credit unions have faced a huge amount of change in recent times and continue to face more change. It is a testament to the sector that it has embraced these changes and faced up to its challenges. While some of these changes will support a number of credit unions in taking on a more sophisticated business model, which could include business lending, lending to SMEs is a specialised form of lending. This type of lending is risky and clearly requires specific skills and expertise.

The Government recognises that the credit union sector nationally plays an important role in providing financial services. However, the Registrar of Credit Unions in its recently published, Credit Union PRISM Risk Assessments: Supervisory Commentary, highlighted that the majority of credit unions visited have been required to implement actions to remediate risk and substantially improve their lending and credit risk.

Indeed, even the banking sector, which has a high level of expertise, continues to seek an appropriate mechanism for safe SME lending.

Eamonn Maloney (Dublin South West, Labour)
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I thank the Minister of State. I am sure the credit union movement welcomes any steps towards resolving the difficulty I outlined at the beginning, that is, the potential for credit unions to engage with SMEs in terms of loans. I accept that not every credit union branch will want to engage in that practice or may not aspire to it, and we have no difficulty with that. However, there are credit union branches which have the wherewithal financially to engage in lending to SMEs, which is healthy and should be welcomed by all.

I want to raise a parallel issue in regard to credit union lending. The Minister of State will be aware that lending requirements as set out in section 35 of the Credit Union Act also impose a significant obstacle for credit unions hoping to get back to lending. The requirements reduce credit union ability to lend by restricting credit unions from offering further credit to members where the loan has been rescheduled. This is a real problem for many credit union members.

I do not believe any legislation should be written in stone and should not be the subject of reviews. In particular, I strongly urge the Minister of State to urge the Minister for Finance to review the section 35 restrictions. Put simply, they hamper the ability of credit unions to lend and are preventing members from taking advantage of improvements in their own economic fortunes. For example, fortunately, people are going back to work, if not in the numbers we would wish for. While they may have had difficulties in terms of being unemployed while being a member of a credit union, we need to take into consideration that if they now have a job and an income, the situation of such people should be reviewed. That is all I ask.

Joe Costello (Dublin Central, Labour)
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The Government will, of course, continue to support the credit union sector, which is an essential and important sector for the entire economy, particularly for communities throughout the country. It is very much the people's bank in that respect. The Government will continue to engage with the movement to ensure there is a stable credit union sector into the future.

I will bring to the Minister's attention the Deputy's remarks in regard to the section 35 restrictions on the rescheduling of loans. I will ask him to report back to the Deputy directly.

The new regulations from the Central Bank arising out of the recommendations from the commission on the credit unions allow certain business lending to take place to SMEs, so that is a movement in the direction the Deputy has been seeking. However, the Government is also looking very closely at the whole financing landscape for SMEs and has indicated that it would be seeking reorientation in regard to the National Pensions Reserve Fund and the Ireland Strategic Investment Fund in order to support economic activity and employment, in addition to the traditional banking sector. It is an area that is of very much concern at present.

I welcome the Deputy's remarks in regard to how we might maximise and optimise the €7 billion that is available within the credit union sector in order to promote small and medium businesses.