John Perry (Sligo-North Leitrim, Fine Gael)

Yes, it will be provided.

The plan is an engine for change and will be reviewed and revitalised every year. It is the start of a programme of strategic interventions designed to aid economic recovery and clearly shows the Government's determination to get our economy back on the right path to sustainable, exporting, innovative and enterprise-led growth and through that the creation of sustainable jobs. The introduction of the State backed guarantee scheme this year is one of the commitments that the Department made which will deliver positive results for the vulnerable SME sector quickly.

With regard to the importance of supporting SMEs, the Government has placed supports for the SME sector at the heart of its strategy for economic recovery because of the important role that SMEs play and in recognition of the challenging environment in which they have operated over the past few years. SMEs play a critical role in Irish economic life. Indeed, the existence of my post as Minister for State with responsibility for small business clearly demonstrates the focus of Government policy on this key sector. SMEs form the majority of all businesses in Ireland. They are the creative and innovative backbone of the economy and are the job creators of the future. It is imperative that Government policy helps them to grow and prosper. The Government is focused on ensuring that entrepreneurs and all companies throughout the economy are supported in every way possible to develop their business, increase exports, and maintain and create jobs. This strategy will revitalise and rebuild the economy and lighten the burden we have all been carrying over the past years as a result of a failed economic model. The Credit Guarantee Bill is one of the Government's initiatives to give substance to this focus and commitment.

By far the most talked about problem in recent times facing the Irish small business sector is the lack of availability of adequate credit facilities. Financing of the economy is critical to long-term economic success. While large businesses have various options open to them, including the capital markets, SMEs are heavily dependent on the banking system. Therefore, a crucial aspect of supporting growth and recovery is fostering a favourable business environment including a well-functioning financial system. Clearly, to support the recovery, we need to find ways to ensure that credit worthy borrowers have access to needed loans. While this problem is not unique to Irish SMEs but rather a worldwide phenomenon, it is a problem which the Government feels needs urgent redress, hence the movement of the Credit Guarantee Bill.

The Government has been, and remains, particularly active in the context of addressing the issue of credit accessibility since it took office last year. The House will be aware that the Government secured a commitment from the main lenders, AIB and Bank of Ireland, to each make available not less than €3.5 billion next year and €4 billion in 2013 for new or increased credit facilities to SMEs. The aim is to restore the lifeblood of the market economy - the lending and borrowing that help fuel business investments, run factories, buy machinery and equipment and pay wages etc. This remains a key task and the establishment of this facility is another step in addressing market weakness in this area. New initiatives must complement rather than substitute for the main banks' lending commitments and activities under the recapitalisation package and they must represent value for money from the taxpayer's perspective. I have endeavoured to ensure that this guarantee scheme facilitates additional lending of up to €150 million, that would not otherwise have been extended by the banks, to directly assist businesses while at the same time ensuring appropriate safeguards are in place to protect the taxpayer.

With regard to specific market inefficiencies to be addressed, for all the efforts of Government in the area of getting credit moving, I would like to emphasise that it remains the responsibility of the banking system to provide credit to businesses. Government is prepared to offer additional targeted supports by identifying and addressing specific credit gaps or market inefficiencies which are impediments to lending. We have identified two distinct characteristics of the Irish SME lending market, namely lack of collateral and lack of comprehension of new markets or models by the banks which provide the rationale for a temporary partial credit guarantee scheme as follows. There is a cohort of commercially viable companies in the SME sector with growth potential that have experienced difficulties accessing credit as they do not have the security required for conventional collateral based bank lending. There is also an issue that predates, but has been exacerbated by, the banking crisis, whereby new companies or expanding companies engaged in new sectors, new technologies and markets struggle to secure finance. This can be due to a lack of familiarity or understanding on the part of the banks, of the new industry, the new product or the potential of new markets. These market failures in the provision of credit to viable businesses became particularly acute in Ireland during the property bubble, during which time the Irish banks lost capacity to assess credit risk in real economy companies that were unable to offer property related collateral.

This guarantee scheme will encourage lending to commercially viable SMEs and reorient lending to the real economy. It will encourage banks to lend to commercially viable SMEs in new sectors, technologies and markets, and in so doing place Irish firms on a more level footing with other international competitors that have access to similar schemes, thus making them more competitive and their jobs more sustainable and secure. The scheme will allow a business to not only acquire a loan it could not otherwise obtain but also to establish a favourable credit history with a lender so that the business may obtain future financing on its own. It will realign bank lending with enterprise policy and secure economic benefits from additional lending by increasing exports, creating and sustaining jobs and facilitating investment in the real economy.

The net Exchequer cost for an annual portfolio of €150 million of guaranteed lending is approximately €6.38 million. However, those costs should be seen in light of the benefits that will be generated by the additional lending attributable to the scheme. Economic gains arise in terms of improving the financing environment for SMEs, encouraging a banking system that is fit for purpose, increased GDP, improved competitiveness, increased innovation activity, job creation and maintenance, savings on welfare payments and increased direct and indirect tax payments. The benefits forecast to arise from this intervention in each year of operation, assuming €150 million of additional lending, include the creation of more than 1,000 jobs, over €25 million of Exchequer benefits in tax revenues and welfare cost savings, and a 398% return on the State's investment.

Section 1 defines certain commonly used terms in the Bill. Section 2 provides for certain conditions that must be satisfied in respect of participating lenders. The Minister will enter into an agreement with each lender and will accredit the lender to participate. For lenders to participate, we will require a detailed consideration of how the lender will use the scheme to support lending over and above that currently being achieved. In order to demonstrate an understanding of the additionality principle, lenders will be requested to provide examples of situations in which the scheme could have been used in the past, such as viable lending applications that were declined specifically due to the circumstances that the scheme is intended to address. Section 3 provides for specific eligibility criteria for qualifying enterprises. The guarantee scheme is targeted at micro, small and medium-sized enterprises, employing not more than 250 staff, as defined by the EU Commission.

Section 4 confers on the Minister power to enter into agreements with the banks to give them a guarantee for qualifying enterprises. The aggregate of loans permitted within the scheme shall not exceed €150 million in any one year, thereby capping the State's liability. The Government, having considered a range of possible combinations of guarantee rate and portfolio default limit that, when applied to the guaranteed portfolio, will deliver the desired overall risk share, has agreed on a guarantee rate of 75% and a portfolio default limit of 10%. This sets the overall portfolio claim limit at 7.5%. For a given portfolio of lending allocated to each bank, each loan in the portfolio would carry a 75% guarantee, but potential claims under the guarantee are capped by the 7.5% portfolio claim limit. Therefore, the actual default performance of a portfolio may in fact exceed the portfolio default limit. However, the extent to which the State covers overall losses is capped at the default rate of 10%, and any losses in excess of that must be borne by the lender.

Section 5 provides for the Minister to set up a credit guarantee scheme. The scheme may make provision for various terms and conditions such as conditions with which the participating lenders must comply, purposes for which loans may be given, reports and information by lenders to the Minister, conditions with which SME borrowers shall comply, and other matters. Section 6 requires the Minister to lay the scheme before both houses of the Oireachtas as soon as may be after it is made. Section 7 permits the Minister to appoint an operator via a commercial contract to administer the scheme after consultation with the Minister for Finance and the Minister for Public Expenditure and Reform regarding the terms and conditions of the contract.

Section 8 provides for a premium to be charged to participating borrowers in respect of loans guaranteed under the scheme. This 2% premium will be paid directly by the borrower to the State. The costs of the scheme will be partially offset by receipts of premiums paid by borrowers. Section 9 confers on the Minister the power to withdraw any guarantee if a lender fails or refuses to comply with the terms of the scheme. It also provides for protection for the SME borrower in the event that a guarantee is withdrawn from a lender, in that a lender cannot impose less favourable terms on the borrower upon the withdrawal of a guarantee. Section 10 provides for review of the guarantee scheme at any time. I have committed to review the scheme after 12 months of operation. The Minister must also submit a report of the review to both Houses of the Oireachtas not later than two months after the review is completed. Section 11 provides that costs associated with administering the scheme will be subject to sanction from the Minister for Finance, with the consent of the Minister for Public Expenditure and Reform, and will be met from moneys provided by the Oireachtas. Section 12 provides for the short title, the Credit Guarantee Act 2012, and commencement.

I must emphasise that facilitating small business financing is not a particularly simple or straightforward matter. Notably, the term "SME" encompasses a large mix of enterprises, and each SME faces a unique combination of local economic conditions and complex relationships with customers, suppliers and creditors. Hence, we are not advocating a one-size-fits-all solution. This scheme is designed to support commercially viable SMEs that are at the margins of SME commercial lending decisions. The initiative is a small step towards a more sophisticated and accessible financing environment for SMEs in Ireland, and is just one component of a suite of initiatives aimed at ensuring the flow of credit. Backing enterprise by providing a State guarantee to those who struggle to get credit from lenders meets a vital need. Such Government interventions inspire confidence and encourage small business owners and consumers to expand their businesses, invest in new plant and machinery, conduct marketing campaigns, be innovative, recruit new employees and increase the size of their businesses and of the economy. Therefore, it will add value to the measures already taken to address the SME credit supply issue, representing value for money to the State. I commend the Bill to the House.