Gerald Nash (Louth, Labour) | Oireachtas source

When we took office in 2011, the programme for Government prioritised action to achieve access to finance for every business, finance which was needed for working capital and to feed investment, expansion, growth and job creation. In spite of recent progress, good access to finance for business remains very high on the agenda of Irish SMEs in the context of national competitiveness, with a recent Central Bank report indicating that 39% of SMEs still consider access to finance a matter of high concern. The Bill revisits credit guarantees to ensure Irish firms will have the full suite of supports necessary to compete and succeed and that they can operate on a level playing field with international competitors. Solving the problem of access to finance for SMEs - the section of the economy which accounts for 99% of business and 68% of employment - was a major challenge. No significant action had previously been taken to address the major area of concern to business. Accordingly, the programme for Government committed to introducing a credit guarantee scheme for banks against losses and qualifying loans to job creating small firms. It was designed to get banks lending again to viable businesses in cases where there was either a lack of collateral or where banks lacked an understanding of the operation of novel SMEs, their business models or markets.

In November 2011 the Government approved the urgent drafting of a Bill to give effect to the work undertaken and the future appointment of an operator for the day-to-day operation and management of schemes made under the credit guarantee legislation. In July 2012 the Credit Guarantee Act 2012 was passed. With the Act in place, a scheme under its provisions was drafted and an order was subsequently made to give effect to it. Finally, after conducting a public tender under public procurement regulations, an operator, Capita Asset Services Limited, was appointed and the scheme went live on 17 October 2012. In short, the 2012 Act and 2012 scheme were designed in double quick time to facilitate additional lending to small business.

As regards the operation of the scheme today, the Minister for Jobs, Enterprise and Innovation, Deputy Richard Bruton; the Department and I have at all times maintained very close contact with Capita Asset Services Limited, receiving detailed weekly, monthly, quarterly and annual reports. Some of these details have been published on my Department's website on a quarterly basis and I recently asked the operator for up-to-date figures, as of Friday, 22 January 2016, to present to the House today, which I will summarise.

Approximately €45 million in credit guarantee scheme loans were sanctioned, averaging €161,300 in over 279 cases.Live credit guarantee scheme facilities were approximately €32.6 million, averaging €159,700 over 204 cases. Credit guarantee scheme loans drawn down were approximately €16.2 million, averaging €123,400 over 131 cases. The employment impact is estimated to be 1,142 new jobs created and 907 existing jobs maintained.

The regional distribution vis-à-vissanctioned loans is as follows: the east, which is regarded to be Dublin, Kildare, Meath and Wicklow, stands at 56.52%; the mid-west area, comprising Limerick, Clare and north Tipperary, is at 11.84%; the south east, which includes Waterford, Wexford, Carlow, Kilkenny and south Tipperary, is at 10.88%; the south west, comprising Cork and Kerry, stands at 7.85%; the midlands, comprising Laois, Offaly, Longford, Roscommon and Westmeath, is at 6.67%; the west, which comprises Galway and Mayo, is at 4.61%; the north east, which comprises Cavan, Louth and Monaghan, is at 1.43%; and the north west, which comprises Donegal, Sligo and Leitrim, stands at 0.2%.

An integral part of the 2012 Act was the commitment in section 10 to review its operation, to ensure that we could learn from its operation and also to ensure it was fit for purpose in meeting the needs of business. In mid-2013 the Minister, Deputy Bruton, noting the fact that loan sanctions were running at less than expected, despite a relatively high estimated level of positive jobs impact and no loans defaulting at the time, commissioned a full external review of the operation of the Act and the scheme. This review was laid before both Houses of the Oireachtas in July 2014 and the contents were reported to the Committee on Jobs, Enterprise and Innovation in autumn 2013.

In short, the review concluded that while the scheme had real merit, its complexity, the narrow range of products covered and the apparent disproportionate skewing of risk distribution in favour of the State as guarantor, made it unattractive for the banks to operate. The review accordingly proposed changes in respect of the simplification of scheme procedures, the term of the guarantee, the spread of risk-sharing and the product range. On 3 February 2015, as an interim measure addressing urgent concerns brought to my attention at short notice and with the consent of both the Minister for Finance and the Minister for Public Expenditure and Reform, I made an order giving effect to a second scheme, namely, the credit guarantee scheme 2015. This made two revisions to the 2012 scheme by first, providing for the re-financing of some loans where an SME's bank was exiting the Irish SME credit market and, second, extending the maximum length of the guarantee from three to seven years. However, it was clear that more significant changes requiring primary legislation would be needed to ensure that the Irish credit guarantee system fitted the needs of business.

The review I referred to earlier was brought to the attention of Government on 17 June 2014 and approval was given to a draft Bill to amend the 2012 Act and associated schemes to enhance uptake, facilitate the growth of SMEs and support job creation. At that meeting, the Minister, Deputy Bruton, was also asked to work with colleagues to seek an appropriate role for the newly established Strategic Banking Corporation of Ireland in terms of the operation of the credit guarantee scheme. Work on this aspect was initiated immediately by officials at my Department and the Department of Finance. This Bill was published on 16 September 2015 and a detailed regulatory impact assessment, RIA, has been posted on my Department's website.

The Bill progressed through Second Stage in the other House on 25 and 26 November last. In advance of Committee Stage on 8 December 2015, a significant tranche of amendments, primarily a new Part 3 covering a role for the Minister and SBCI to work together in respect of counter-guarantees, was presented. In summary, this Part 3 was designed to leverage EU funding for Irish SMEs. A supplement to the September RIA, covering the new material, was also circulated to Deputies and posted on the Department's website. I will describe these amendments in more detail presently. In advance of the Report and Final Stages in the Dáil on 20 January 2016, I circulated a final tranche of amendments, this time adding a new Part 4 covering miscellaneous but necessary amendments to other pieces of legislation administered by my Department unrelated to credit guarantees. I have also arranged for additional briefing to be sent in advance to Senators and I understand this has been the case.

Part 1 is headed "Preliminary and General". Sections 1 and 2 are quite straightforward and deal with citation, definitions and so on, including at section 1(2) making it clear that Part 4, which amends other legislation, stands completely separate from Parts 1 to 3.

Part 2 is headed "Amendment of Principal Act", that is, the 2012 Credit Guarantee act. This Part covers sections 3 to 9 and is primarily concerned with expanding and improving credit guarantees from the form in which they have operated since 2011. Broadly speaking, the provisions are designed to amend the 2012 Act and the two schemes as follows: to broaden the definition of "lender" so as to cover additional financial products provided, such as lessors, factors, invoiced discounters and other non-bank financiers; to change the definition of loan agreements to include non-credit products such as invoice finance and leasing, and to include overdrafts; to re-balance the level of risk between the State and the finance providers, with the State taking a greater share; and to charge an appropriate premium for the guarantee.

Specifically, section 3 amends section 1 of the 2012 Act by providing definitions of new key concepts such as finance agreements, finance providers and related matters. Section 4 substitutes a new section 2 into the Act providing for certification and approval of finance providers. Section 5 substitutes a new section 4 into the Act allowing the Minister to take greater share of the risk vis-à-visparticipating finance providers, subject to constraints, in particular capital limits, to which I will return later. Section 6 amends section 5 of the Act to broaden the scope of future schemes to cover non-bank finance providers. Section 7 amends section 8 of the Act to allow the Minister to charge premiums on all of the products covered by the legislation and, in addition, sets out objective policies and principles that the Minister must observe when so charging, primarily to ensure that premiums charged in respect of credit guarantees should not exceed what is needed to defray the costs in whole or in part. Section 8 substitutes a new section 9 into the Act in regard to the withdrawal of the guarantee by the Minister in problem cases. Section 9 provides that existing schemes and guarantees are not affected by the change in this part when they come into effect.

Part 3 is new and deals with counter guarantees. As I mentioned earlier, when approving the Bill the Government also agreed that my Department and the Department of Finance would work together on additional amendments to the Bill in regard to a role for the SBCI in this area. In pursuit of this aim, Part 3 contains important new provisions. First, to enable State promotion of financial institutions - the SBCI currently, and perhaps also others in the future - to work with the Minister to enhance the provision of credit to SMEs and, second, to empower the Minister to give counter guarantees that will enable the SBCI to unlock matching guarantee facilities from EU sources, and thus better share the risk across the banks, the SBCI the Minister and the EU sources. It is envisaged that this counter guarantee will operate in conjunction with optimal leveraging of EU financial instruments in this area, such as the European programme for competitiveness of SMEs, known as COSME, the Horizon 2020 funding earmarked for SMEs and the European Fund for Strategic Investment administered by the European Investment Bank and the European Investment Fund, otherwise known as the Juncker plan.

Section 10 contains the definitions to enable counter guarantees to work. While it in some ways mirrors section 1 of the principal Act, as extended for section 3 of this Bill, on definitions for credit guarantees, it goes further in respect of counter guarantees, most notably in the defining the promotional financial institutions. While this is currently the SBCI, the way as left open for others in the future as that evolves. Section 11 empowers the Minister to give counter guarantees directly to the promotional financial institution, a move that is designed to enable the institution to in turn leverage funding from EU sources, as well as seeking funds from other finance providers. Section 12 is very important in that, in accordance with the relevant Government decisions, a monetary limit of €15.6 million is set on any risk liability of the Minister under not just counter guarantees but also credit guarantees. Section 13 provides for the making of a counter guarantee scheme by statutory instrument jointly signed by the three Ministers. Section 14 covers the payment of premiums to the Minister, with a like provision to that in Part 2 to the effect that, as with credit guarantees, any premium charged to the SME should not exceed what is needed to defray the costs in whole or in part. Section 15 provides for a review of the counter guarantee scheme, as in the case of the credit guarantees. Section 16 enables the Minister's expenses in running counter guarantees to be paid from public funds.

Part 4 comprises sections 17 to 20 and contains a number of unrelated amendments which were essential to the good working of other enactments. Section 17 amends the Employment Equality Act 1998 to insert a new section 101(4A) to ensure the complainant cannot seek redress under both the Unfair Dismissals Act and the Employment Equality Act in respect of the same dismissal within a new framework for the adjudication of disputes under employment and equality legislation which has been put in place following the establishment of the Workplace Relations Commission. Section 18 amends section 34 of the National Minimum Wage Act 2000 to correct a typographical error in regard to the numbering of the subsections. Section 19 makes two separate amendments to the Workplace Relations Act 2015. The first amends section 37 of that Act to make provision for transitional arrangements to apply in respect of the transfer of the power to prosecute for summary offences under employment related enactments from the Minister to the Workplace Relations Commission. The second amends Part 2 of Schedule 1 of that Act to correct an incorrect reference to the Employment Permits Act 2003.

Section 20 amends section 916 of the Companies Act 2014. That Act, as the House will be aware, consolidated the 17 previously existing Companies Acts into one Act and introduced a number of key reforms which designed to make it easier to operate a company in Ireland. The Companies Auditing and Accounting Act 2003, one of the 17 Acts that were repealed and replaced, established the Irish Auditing and Accounting Supervisory Authority. In section 14, it provided that the authority could levy accountancy bodies for the purposes of meeting its expenses. This section 14 was re-enacted in section 916 of the 2014 Act but in a way that inadvertently limited the purposes for which moneys from the levy on the accountancy bodies could be used. The amendment will enable the authority to use moneys from the levy to meet expenses properly incurred by it in performing its functions, as was originally intended.

An overarching challenge for this Government over the past five years has been to ensure Irish firms have the full suite of financial and other supports available to compete internationally and to grow sustainable jobs across the country for citizens in order to facilitate an economic turnaround. This legislation is part of the ongoing work of the Government to address these challenges. In October 2015, an OECD study of 37 countries found that most of them continue to support access to bank financing by SMEs through loan guarantees. In the amendments to our legislation which I am proposing today, we are not just beefing up credit guarantees as regards risk spread but also extending them to non-traditional, or non-bank, sources of finance. We are also introducing, for the first time, counter-guarantees by the Minister to the Strategic Banking Corporation of Ireland to both spread risk and leverage EU funding.

I am confident these amendments will ensure we have a range of products that they are fit for purpose in this area and that they will continue to help to drive the economic recovery across the country and secure a sound economic future for our citizens. For these reasons, and because it fits business requirements to successfully compete internationally, I commend the Bill to the Seanad.