Aideen Hayden (Labour) | Oireachtas source

Anybody who reads a newspaper or watches television here would imagine the Irish economy revolves around foreign direct investment and companies like Google and Apple. Many of the Senators who have already spoken have pointed out that the SME sector here is central to and is the backbone of our domestic economy. It accounts for approximately 54% of total employment and 70% of total private sector employment. SMEs also contribute approximately 48% of value added funds. In 2011, which probably represents the low point of the Irish economy, SMEs created 90,000 extra jobs in Ireland, despite the fact that 50% of SME businesses failed. Apart from employing a large number of people, SMEs also represent risk takers, innovators, entrepreneurs, the tourism and retail industries and the construction sector. Many of the companies that have led and are leading the economic recovery are in the SME sector.

As mentioned, SMEs face an environment where access to credit is hampering the recovery. This is partly due to systemic factors, such as lack of collateral or lack of a track record, but in general the lack of credit is a response to the economic downturn. For example, in the construction sector, the equity gap between what can be raised through bank finance and what is required by the builder is in the region of 40%. At the end of 2012, some 94% of all external finance to SMEs came from banks, but between March 2010 and March 2015, lending to SMEs by financial institutions fell by 23%. Senator Henry has provided good figures to show how Irish SME lending from banks and financial institutions compares with other European countries. Unfortunately, since the crisis, SMEs have also become more risk averse and are less likely to borrow, and are now increasingly more dependent on short-term finance, such as overdrafts and trade credit. Viable businesses are failing due to a lack of liquidity. It is important to emphasise the less than proud record of Irish financial institutions in terms of the interest rate they charge in comparison with other European countries. This is also reflected in the interest rate being charged on mortgages, both old and new. This raises an issue for the sector.

The credit guarantee was introduced in 2012 and while it has come in for some criticism, it can be argued that the scheme has been successful. It is estimated that 864 new jobs were created and 601 jobs maintained as a result of the €31 million loans. However, it is accepted that the scheme did not achieve the uptake expected. Ian Lucey, whose foundation helps entrepreneurs, has argued this was partly due to a lack of awareness. Not only did the banks not advertise the scheme, but there was a lack of knowledge within bank branches and a failure to actively encourage SMEs to take up the scheme. Some 90% of SMEs admit to having low awareness of Government schemes and 80% say more information should be made available. A review of the scheme found improvements could be made and this is what this Bill seeks to do.

The Bill proposes to increase the guarantee period from three to seven years, to increase the overall amount available from €31 million to €150 million and to allow the Minister to guarantee up to 80% of a loan. The types of loans covered have been extended significantly, to include other products such as invoice discounters, non-bank financiers and other financial products, such as invoice financing leasing and overdrafts. Overall, it is expected there will be 1,350 successful businesses assisted as a result of this scheme. I understand the Bill will enhance the capacity of Microfinance Ireland, a welcome initiative. Microfinance Ireland was established to deliver the microenterprise fund and to provide small unsecured loans of up to €25,000 for commercially viable proposals at favourable conditions.

There is no doubt that this Bill goes a considerable way towards improving the environment for SMEs. As mentioned, an important part of the amended Bill is that it contains new provisions to enable the State's promotional financial institution, the Strategic Banking Corporation of Ireland, to work with the Minister in enhancing the provision of credit to SMEs. It also empowers the Minister to give counter guarantees. This is important when we consider the level of funding, through quantitative easing, that is being made available at the European level. If we are to be able to access that type of funding, it is important the systems are in place to enable our businesses to compete on a level playing field with other European businesses.

There are one or two positive developments I would like to highlight that I believe will assist Irish SMEs. This Bill is an important part of the process of enabling our businesses to access credit. The capital markets union will create a single market for capital in Europe and will help unlock capital and liquidity for businesses. One of the disadvantages here is that our SME sector is highly dependent on bank funding. We are the most dependent on bank funding of any of the 28 EU countries. The idea behind the capital markets union is to enable businesses to access venture capital funding and to put in place the provisions that will enable that to happen. I welcome this, but at EU level it is important to ensure the relatively small size of Irish SMEs is borne in mind when agreeing on issues, such as the level of reporting that is required. Regulations that are overly onerous that do not take size into account would be very costly to Irish businesses.

I welcome the new Central Bank regulations on SME lending, which were released in December 2015. These regulations are aimed at strengthening protection for SMEs, at facilitating access to credit and at making the application system more transparent. I have come across a number of situations where SMEs have been refused finance. This has happened mainly in cases where the finance of the SME concerned has been tied up with borrowing for something such as a property investment. Where the borrowing is blended, there has been a major issue for Irish SMEs to access credit in certain circumstances. I believe an SME that has reached an agreement with its creditors is entitled to know why an application for credit is being refused by a lender. The new system being introduced will be a valuable mechanism for ensuring that viable SMEs are not unduly prejudiced by the hard times they have faced following the collapse of sectors of our economy.

If we want a knowledge economy and want to lead recovery through innovation, we need the requisite capital financial systems.If we do not improve our credit market, whether through the traditional banking sector, venture capital funds or other means, the people who want to set up the next Stripe, which enables websites to access credit and debit card payments easily, will go elsewhere. The website hassle.comis a Hailo-type business for cleaners and Fenergo provides software to investment banks. They will go somewhere else. This Bill represents an important step in encouraging job creation and opportunities for businesses and employees in the country. I commend it to the House.