Brendan Ryan (Labour)

I welcome the Minister of State, Deputy Kelleher.

The Labour Party supports the Fine Gael motion. Many small and family businesses cannot access the loans they need to keep afloat. Paying wages and suppliers is a major struggle for many such companies. Viable, profitable and well run businesses are going to the wall because they cannot access credit.

More than two years on from the introduction of the blanket guarantee scheme the banking system is still in crisis. We were promised that the guarantee, NAMA and the recapitalisations would result in credit flowing, but contrary to what the Government promised when it announced the guarantee, the banks are not lending. According to the Bank Watch Survey conducted by the Irish Small and Medium Enterprises Association, at the beginning of this year 55% of businesses had been refused funding by their bank. Some 58% of those refused had been with their bank for ten years or more.

Banks like to create the illusion that they are lending and often quote statistics to the effect that nine out of ten loan requests are approved. That is not the case and is completely misleading. According to the chief executive of ISME, Mr. Mark Fielding, the figure of nine out of ten loan requests being approved is spin by the banks and needs to be knocked on the head, as it relates specifically to fully completed formal applications. The majority of SME owners and managers never reach that stage of the process, as they are discouraged, either over the telephone or at first meeting stage.

The banks remain critically undercapitalised and risk averse. The Labour Party has been calling for the introduction of an SME working capital guarantee scheme for more than 18 months. Therefore, we are happy to support the motion tabled by Fine Gael which contains similar proposals. Deputy Burton has asked both the Minister for Finance and the Minister for Enterprise, Trade and Innovation to explore the options for introducing such a scheme to help to address the small business credit famine and save jobs. As other Senators mentioned, similar schemes are operated successfully in the United Kingdom, Japan and Hong Kong, to name just a few locations. What we envisage is a co-guaranteed, risk sharing scheme under which the banks would make the lending decisions but the Government would step in to guarantee perhaps 50% of the loan. The beauty of such an arrangement is that there would be an alignment of interests between the loan originator and the guarantor. Where the banks' capital was under pressure, as is the case in all of our commercial lending banks, the availability of such a guarantee would reduce the level of the risk weighted asset. By extension, the level of capital needed to back the loans would also be reduced and the expected loss, through bad loans, would be likely amount to less than 5%. Therefore, the volume of loans that could be supported through such a guarantee would be significant. Such a loan guarantee scheme would see the Government acting as guarantor to facilitate individual SMEs in securing loans from participating lending institutions to acquire business installations, equipment and working capital. A working capital guarantee scheme would provide greater flexibility for companies in managing their cash flow and make an important contribution to their survival. A loan under such a scheme would assist companies in maintaining adequate cash flows to meet their vital day-to-day operational needs. As I stated previously, such schemes works elsewhere. Therefore, this is the time to embrace something similar here. It might not be the same as our proposal or that of Fine Gael, but the purpose of the motion is to seek a commitment that something will be done.

Some 700,000 are working in approximately 230,000 SMEs. These small companies are dotted across the country with perhaps three or four jobs in every parish, village and town. They play a pivotal role in securing the lifeblood of these areas by allowing people to work close to home. When these areas experience job losses, they are not headline losses and go unnoticed nationally; they usually do not make the main evening news bulletin, but they add significantly to the live register figures. A loss of nine or ten jobs in a small rural area is the equivalent of 500 or 600 in a major town. It is important that people be kept in their localities so they can contribute to the vitality of the area and maintain essential infrastructure like schools, churches and sporting teams. Finally, the proposals from the Labour Party and Fine Gael represent positive contributions and should be taken on board by the Government. We support the motion.