Richard Bruton (Dublin North Central, Fine Gael)

I thank Senators for their support for this Bill. Senator Barrett is correct that, sadly, we saw the banks take a wrong turning. A couple of years ago, Ireland was the easiest place in which to get a loan and the refusal rate was a mere 2%. This was a symptom of the problem. Banks had lost the run of themselves by issuing money but, sadly, they had demolished their capacity to lend other than on the basis of property. The Senator is correct that we now have to go about the painful reinvention of our banking system. Enterprise Ireland which is under the remit of my Department is working with the banks in this regard. To be fair to the banks, they are re-examining their model and seeking to rebuild it but they are doing so against a background of so much retrenchment in their balance sheets and risk aversion measures that credit is not getting through to small business. The current refusal rates for small businesses are now the highest in Europe. It is true that we need to move quickly to fill this gap but this is something the State cannot do. This Bill is a microfinance initiative which is only a tiny niche within the overall piece but it is a very important niche which is to help, for example, an unemployed person on the back to work allowance who needs a few bob to get a business off the ground. This is the sort of enterprise which the banks will not touch. We hope to rebuild that segment and it requires action across the whole spectrum.

The development capital fund is aimed at companies higher up the tree, so to speak. The loan guarantee scheme is aimed at another subsection. However, the main heavy lifting has to be done by the banks. The Government has demanded that each of the pillar banks would be accountable for lending €3.5 billion this year to the small and medium enterprise sector. The banks will also be accountable for the quality of the loans, for ensuring that these will be genuine new loans to new businesses. We need to relearn the banking and other skills necessary to underpin an export economy.

I thank the House for its support. The Government is anxious to enact this legislation as quickly as possible. The scheme has been developed. I thank my officials for their work on this Bill. It has not been easy because the system is not all that well disposed to financial innovation in this current climate. It took a lot of resilience on the part of my officials and co-operation across the system. This Bill will probably prove to be one of the most significant actions in this area. It is evident that this segment, even in a healthy banking system, will not attract a great deal of support. Small or micro-business is not of great interest to the banking system because of the cost of administration and the higher failure rate. However, from a community point of view it is very important that these small businesses which are not necessarily exporters, are given a chance to succeed. The Government is quite happy to cover a relatively high failure rate because the social advantages stretch well beyond the percentage of businesses which do not succeed. We will return to the House within two years with a report on how this scheme is faring. I hope we will return with a good news story at that point.