Sharon Keogan (Independent) | Oireachtas source

It is with a heavy heart that I address the issue of the Credit Guarantee (Amendment) Bill 2020. Whatever view one takes on the details of the Bill, it is clear the effects of Covid-19 on our economy will be profound. I am not convinced that debt through loans is the way to proceed. That is certainly what the SMEs I have contact with are all indicating.Taking on further debt through loans, in any form, is not something that they want to do.

In the shorter term it may be more effective to focus on the implementation of grant schemes which will help SMEs get back to work, and then begin to drive forward some level of economic recovery. In the longer term, however, loans are an essential part of driving the economy forward and it is with that in mind that I look to the legislation before us. The Bill, while quite technical, essentially makes changes to the Covid-19 guarantee scheme by increasing the amount of credit that will be guaranteed and increasing the cap on such credit from 50% to 80%. Given the effect of this on future generations and the speed at which the Government wants to enact this proposed legislation, which will prevent close scrutiny of it, the Government has an obligation to be straight with the people.

It is absolutely right for it to take the necessary measures to protect and sustain jobs in the SME sector, but we cannot be blind to the problems with the Bill. When risk was shared evenly between banks and the State, there was a disappointing take-up. Even at a 50% take-up, the banks in this country were unwilling to take on the risks involved and advance credit. Opposition parties such as Sinn Féin said this would be the case. The Government has now had to move the cap to 80%. Is there any principled reason the banks here, unlike those in Australia, are resisting sharing the risk with the State? If so, we should be told.

Why do we continue to enable the same banks that are treating SMEs so badly? This is a firm indication that the Government needs to consider community banking as an alternative to this proposal to prop up the banks. My colleagues in the Dáil have described the proposed system as socialism for the banks and capitalism for the taxpayer. I cannot put it any more bluntly and aptly than that.

Much is made of the fact that the banks are applying their normal underwriting decision-making processes to applications for loans. How realistic, or even desirable, is it to expect that these standards will be applied if the banks are only on the hook for 20%? The Tánaiste said the revised cap will ensure that banks have skin in the game, that is, they will share the risk of default with the State. He is entitled to believe anything he wishes. If the banks truly have skin in the game, on what basis does he know that they will release funds if the cap is set at 80%? If moving the cap to 80% means the banks do not perceive themselves to have taken on any real risk, would it not be more honest to take the same approach as England and simply accept that the State will have to shoulder the entire burden of defaults?

Some £30.9 billion has been approved through the loans scheme in operation in the UK, a scheme which is widely regarded as being significantly less risky and easier to access than the Irish scheme which, by contrast, has issued a mere €1.6 million in loans. It is apparent that there must be multiple underlying issues if a scheme with funding of €2 billion has issued so few loans. Instead of serving SMEs, this Bill only serves the banks. They are the only ones in this situation that are being insulated from risk.

Under this scheme, the banks will become what could be termed middlemen. It seems logical, then, to do what many do in circumstances involving middlemen, namely, cut them out. We will be picking up the bill for the significant number of potential defaults coming away over the coming months. Why allow the banks to profit from the potential success of the scheme?

I understand the objectives of the Bill are to protect and support employment in the SME sector by counting credit. The problem is not those objectives; rather, it is how it is proposed to go about them. I seriously question whether it is an effective way to go about serving those objectives. The failure of the loan scheme will lead to the failure of our SMEs, an outcome that cannot be allowed to happen. I urge a complete and candid statement from the Minister of State on these matters.Two issues are important. Who can qualify for the guarantee scheme? For example, a firm in difficulty, FID, cannot access funds because that would be state aid under EU law. A FID is an accounting exercise and affects one's balance sheet while ignoring one's profit and loss, cash flow and growth plans. An FID will not be eligible for the scheme. More than 90% of Irish companies do not qualify because of the FID criteria. Who will be eligible? These loans have been around forever. They were provided by the EU in 2008 and only 15% of them have been distributed.

The other question that must be asked is: will the banks lend? The banks treat the applications as normal business loans. They test a company's ability to pay and its security. The Government provides security through the guarantee but most companies will not meet the repayment criteria the banks apply, well outside the terms of the credit guarantee system loans.

I understand the objective of the Bill is to protect employment and the SME sector. I urge the Minister of State to address the issues I have raised. I would also like him to address the issue of the enterprise support grant that was put in place and announced more than a month ago. Under that grant, non rates-based payers who are self-employed can access a grant of €1,000. That grant has not yet been made available by the Department. There is €1,000 available for each self-employed company that is not a rates-based payer. When will that grant become available to small businesses?