Seanad debates

Wednesday, 4 March 2009

5:00 pm

Photo of Dan BoyleDan Boyle (Green Party)
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I move:

That Seanad Éireann supports the development of microfinance in this country with greater support of the credit union sector to allow for the creation of local economic initiatives, an important and necessary step towards bringing about national economic recovery.

It is a matter of some satisfaction to the two Green Party Senators in this House that every time we have had an opportunity to move a Private Members' motion, we have done so in a way that involves the entire House. To date, we have not had to divide the House on any issue.

Photo of Joe O'TooleJoe O'Toole (Independent)
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I take it that the Senator will accept our amendment.

Photo of Dan BoyleDan Boyle (Green Party)
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The amendment that is to be proposed will give Senators an opportunity to speak as part of a wider debate. In my contribution on the motion I have moved, I hope to talk about the legislative changes that are needed. The amendment that has been tabled refers to the ongoing difficulties that exist. While I accept that many of them need to be addressed, I suggest that now is not the time to do that. Specific legislative proposals are required to bring about the changes that are needed. I hope Senators can take that on board in line with the spirit in which this motion has been moved. I hope the motion will move the debate away from the narrow macroeconomic issues with which we have been consumed over the past year. It is obvious that global difficulties are affecting flows of capital. Nations and large institutions are finding it difficult to access credit. These difficulties are having their most marked effects on individuals. The extent to which credit is made available to people depends on the economic standing they have in the first instance. The difficulty is that people are excluded from credit for reasons that are sometimes arbitrary, especially in recessionary times. When access to credit is denied to people, they are pushed further down the social ladder.

The concept of microfinance, which has been developed and refined internationally, is growing in popularity in Ireland. I will explain that a particularly Irish version of microfinance has been available for many years. I hope this debate will focus on microfinance as one of the means of achieving national economic recovery. In its ultimate sense, microfinance involves giving people who cannot get credit by ordinary means access to small sums of money to help them materially as they develop the lives they lead and wish to pursue. In developing countries, there has been a tendency for community groups to benefit from microfinance. Most of those involved in microfinance in such countries are women, who tend to be excluded from credit by the nature of conventional credit in most societies. The principle that underpins the concept of microfinance facilitates the flow in a community of funds that would not otherwise be available.

Microfinance is especially helpful for people who are establishing employment opportunities. The most recent unemployment figures show that Ireland has entered a phase of double-digit unemployment, sadly. Opportunities need to be offered to individuals, families and communities to help them to meet the challenges they encounter. One of the effects of large-scale unemployment is that it does not discriminate between the communities in which it occurs. We know from our experience during previous economic downturns that if the national unemployment rate is 10%, the rate in certain communities is two to three times that figure. We need to avoid a recurrence of that phenomenon by offering certain means of financial support. A version of microfinance has been made available in Ireland over the years through this country's credit union movement, which is almost 60 years old. Credit unions offer people small loans to allow them to do some of the things that microfinance allows them to do. The loans offered by credit unions continue to represent a small proportion of overall lending in this country. When credit union lending is considered in the context of overall lending in this country, it is clear it is not as targeted as it could be.

Other countries have put in place legislative means of doing what I propose we should do. The US Community Reinvestment Act provides for money from social and commercial lending institutions to be reinvested in particular geographical areas. We need to take this concept on board as we continue to re-examine how we structure our banks and financial institutions. One of the lessons we should learn from the banking and financial crisis is that lending practices have not been used to add greater value to certain localities or even to the country as a whole. The prime criterion has been to achieve the highest return in the quickest possible time. It may be difficult for some people to accept there should be a social dimension to the lending of money. On behalf of the Green Party, I contend that the adoption of such a principle would lead to greater long-term returns for society and for those who make the original investment.

The amendment to this motion that will be moved mentions many of the difficulties that have been faced by the Irish credit union movement over the years. It, perhaps, mirrors the position in which Irish banks and financial institutions find themselves. There are liquidity difficulties. It is somewhat apposite that tonight's debate takes place shortly after a recent news report referred to the registrar of credit unions, who operates within the Office of the Financial Regulator, moving against a particular credit union. I am probably very familiar with that credit union as it is on the main road between Cork and Dublin.

Photo of Joe O'TooleJoe O'Toole (Independent)
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At the moment.

Photo of Dan BoyleDan Boyle (Green Party)
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It is a very large credit union and maybe some of its difficulties and those of other larger credit unions were caused by their attempts to be like banks — it was a case of too much too soon. Approximately 14 larger credit unions have broken away from the Irish League of Credit Unions in recent years. The credit union concerned, Mitchelstown Credit Union, was the first in Ireland to have an ATM machine. Adopting many of the characteristics of conventional banking may have created difficulties.

Many of the difficulties credit unions have are a combination of the credit crisis that exists anyway and legislative bars that exist due to legislation that needs to be reviewed. The Credit Union Act 1997 is 12 years old. It is an unofficial rule of thumb that ten years is the best period in which to review such legislation. With the changes being forced upon us we have an opportunity to examine the relationship between financial institutions and regulation in general, and how the credit union movement needs to be looked at in terms of how and by whom it is regulated and the legal structures. Now that a central banking commission has been proposed to supersede the Central Bank and the Financial Regulator, there is an opportunity for Members to question whether the registrar of credit unions should remain there or in a separate structure.

There are arguments by the credit unions about the types of restrictions they feel have been placed on them under the legislation. This is ironic because there seems to be more effectiveness or a greater willingness in terms of resources to use a regulation system for credit unions that did not apply to the conventional banking system. The office charged with enforcing that regulation, the registrar of credit unions, would argue that the legislation ties its hands in having the most effective form of regulation. I note that both problems are put outside. There are three problems: liquidity, the problems the registrar finds regarding enforcing regulations and the problems the credit unions have with the legislation.

The hope is that tonight's debate will address the need to re-evaluate the Credit Union Act and put in place a better Act and a system of regulation. This is needed for our system of social finance in this country and for better defining and using social finance, as it is for conventional banks and other financial institutions. On those grounds I move the motion and look forward to an open and interesting debate this evening.

Photo of Déirdre de BúrcaDéirdre de Búrca (Green Party)
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I welcome the Minister to the House. I am very happy to second the motion. I would like to address particularly the issue of microfinancing across Europe and the need to promote a much greater availability of these services to address the growing levels of unemployment due to the economic crisis in the EU and globally. As my colleague, Senator Boyle, said, microfinance aims to close the gap by providing small-size financing services to those who are excluded from traditional banks. Microfinance initiatives have been very successful in developing countries but to date this success has not been transmitted fully to the European microfinance sector. According to the EU multiannual programme, MAP, for enterprise and entrepreneurship, microfinance focuses on the supply of loans up to a maximum of €25,000 to new and already existing microenterprises. At European level it is the Green Party's view that policy makers must provide greater facilities for microcredit for the new unemployed.

In 2003, before the credit crisis and the knock-on effects on the European and global economy had hit, the European Commission's report on microcredit for small businesses and business creation said:

The insufficient supply of microloans is a major issue, in particular where business founders are unemployed persons, women or part of ethnic minorities. Supporting the supply of microloans is, therefore, not only an issue of entrepreneurship and economic growth, but also of social inclusion.

In Europe 2 million enterprises are created every year, 90% of which are microenterprises with fewer than five employees. Many reports note the success of microlending around the world. Nearly 70 million individuals are served by microfinancing institutions, MFIs, worldwide. A European survey in 2001 found that 93% of the 2.5 million European SMEs are also microenterprises.

Within five or six years of the collapse of the Berlin Wall, microfinance institutions in central and eastern Europe and the new independent states had attracted more than 1.7 million borrowers and 2.3 million depositors with an average client growth rate of 30% per year. In addition to the involvement of MFIs and NGOs in providing microfinance in eastern Europe, commercial banks also became increasingly interested in downscaling to provide microloans for the poor. In those years the microfinance sector expanded and became more highly structured.

In western Europe microfinance is regarded as a tool for economic growth and social cohesion, and many small businesses and families that lack access to financial services, in spite of our banking network, tend to turn to microfinance services. Micro and small enterprises form the core of the western European economic system, representing 99% of the 2 million start-up enterprises created every year. Traditionally one third of these enterprises have been launched by the unemployed. We should take on board that important point as we face into a number of years when we can expect EU unemployment levels to grow considerably. These businesses have both an economic and a social impact and the ability of the traditional banking system to reach and serve such small entities is vital to the achievement of general socioeconomic improvement. Exclusion from banking services generally constitutes a major obstacle to the launch of new business activities.

The European Microfinance Network report 2007 on the status of microfinance in western Europe noted:

Demand for microfinance in western Europe is less strong than in less developed countries. Yet [this is difficult to understand] the share of micro enterprises — enterprises with less than ten employees — amounts to 93% of all European enterprises. Small and microenterprises account for 65% of the European GDP. A recent European survey among existing companies noted that sufficient access to capital is still a huge constraint for about 20% of European MSMEs.

The European Microfinance Network report 2007 also noted:

Microfinance programmes in western Europe are not and possibly will not become profitable, but make economic sense. The average costs for someone supported within a microfinance scheme — particularly since the monetary support is interest bearing and repayable — are often below the cost for one year of support within the traditional social welfare system, where costs thereby incurred are "lost" subsidies.

I will give some other significant facts on the microlending sector in western Europe. It is a relatively young sector and there is plenty of room for it to expand and grow. Some 70% of the microlending organisations in the then EU 15 have been established since 2000 and 17% of those have begun lending since 2005. In the EU 25, 41% of micro-loan clients are women, 7% are ethnic minorities, 7% are immigrants, 7% are youth and less than 1% persons with a disability. Most microfinance institutions focus on start-up business or registered businesses with fewer than five employees. A significant number also assist businesses in the pre-start up phase by financing feasibility studies and the like.

In 2005, 27,000 microloans were disbursed in the EU 25. By country, the greatest coverage was in Poland, France and Finland. In France and Finland, single organisations disbursed 95% to 100% of all microloans and, similarly, in Poland one organisation made 80% of the loans reported in the new member states.

In Europe loans worth €25,000 or less are considered to be microloans. The maximum size of microloans provided ranges from €25,000 to €37,000. The average loan size across Europe is approximately €7,700. In the EU 15 the average loan value is €10,240 and in the new member states it is €3,800. The average maximum interest rate is 10% and the average minimum rate is 4%. This varies greatly according to the regulations in each country, with the UK having the highest rates in western Europe and Poland having the highest rates in the new member states.

The provision of support and advice is also a crucial aspect of microfinance in western Europe. Some 70% of microlenders offer training and counselling on a range of related subjects. Only 20% of microlenders offer financial services other than loans for microenterprise, development and self-employment. Those other financial services which are provided include consumer personal loans, savings products, transfer services and insurance.

The repayment rate on average is 92% and the average portfolio at risk is 11%. Microlenders have widely varying operational performances across Europe demonstrating a need to agree common performance indicators and a focus on capacity building.

I emphasise that the Green Party believes the model of microfinance needs to be promoted and mainstreamed to a much greater extent in the current economic situation in which we find ourselves. We will see large numbers of people becoming unemployed over the coming years and the microfinancing model seems to offer an opportunity for those who become unemployed to avoid long-term unemployment, to start up their own enterprises and to promote their social inclusion and also the economic cohesion and stability of member states.

Photo of Joe O'TooleJoe O'Toole (Independent)
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I move amendment No. 1:

To delete all words after "the credit union sector" and substitute the following:

"—and noting that loan impairments in some credit unions are running as high as 15% to 20%;

noting that almost one third of Irish credit unions had first quarter losses which on an annualised basis are between €100,000 and €1.2 million;

noting that many credit unions have been unable to pay dividends this year and that many other credit unions dipped into reserves to pay dividends;

noting that consequently liquidity has dried up completely in many credit unions;

noting the huge investment losses of many credit unions arising from ill-advised investment in perpetual and treasury funds;

noting that the ILCU is unable to provide or is refusing liquidity support to many credit unions as the savings protection scheme, SPS, originally set up to provide such a facility, is inadequately structured and has insufficient liquid funds to satisfy the day-to-day cash demands;

noting that because of flawed legislation unfortunately the regulator cannot take action against or sanction for reckless or bad directors; and

noting also that despite the regulator's attempts to impose higher audit standards and better governance standards, the reality is that the regulator has no power to take action against them for non-compliance;

calls on the Government:

to make funds available to the credit union movement to give it liquidity and to make credit available;

to amend the credit union legislation in a manner which will, inter alia,

(i) establish an independent deposit protection scheme;

(ii) confer additional power and authority on the Credit Union Regulator; and

(iii) allow the regulator to act independently of the Department of Finance.

to establish a commission to examine and report on consolidation, liquidity, investment protocols, governance and amalgamations of credit unions; and

to allow credit unions to benefit from the proposed Government support fund for viable but vulnerable companies."

I welcome the Minister of State, Deputy Sargent, to the House. He and I have a vested interest in this as the founder of the Irish credit union movement, Ms Nora Herlihy, was a member of our trade union. As a founder member of one of the larger credit unions, the INTO credit union, I feel a certain proprietorial interest in this.

There is also a sense of déjÀ vu in that I stood here two years ago trying to put forward a proposal for an independent savings protection scheme for credit unions. It was opposed by the Government at that time on the basis that talks were going ahead between the Irish League of Credit Unions, the regulator and the Department of Finance to do just that. I was given a commitment that the talks would be concluded and that legislation would be brought forward or at least there would be a conclusion to the negotiations by 31 March last year. Nothing has happened.

It is my firm belief, backed up with much information here and there, that the regulator is being stymied in every move he makes by the Department of Finance which takes the view of the Irish League of Credit Unions at every opportunity. The Irish League of Credit Unions does not agree with the concept of an independent, self-regulated savings protection fund. The league wants to run it. It is utterly inappropriate that a representative body should also run the savings protection scheme, and no doubt the Deputy Leader would agree.

Everybody agrees on the issue of the need to have the legislation amended, which the Deputy Leader raised clearly. We discussed that also. It has not happened. My colleague, Senator Ross, who will speak on this, has raised the question of regulation time and again. This is a classic example of where people will no doubt eventually blame the regulator, but I want to put on the record that the Department of Finance has refused to implement the views of the regulator on a number of occasions, as I read in recent newspaper articles, which apparently are true, where there was a leaked letter which showed exactly that. I want to give two examples. This is crucial.

I do not have a problem with the proposal on microfinance but I do have a problem with the idea of extending the structures and putting in place new structures of microfinance when we have not got the existing microfinancing system, namely, the credit union movement, properly regulated with proper levels of governance. I will put this simply. The regulator has time and again put forward guidelines on the type of prudential investment that would be appropriate to credit unions and sent them out, and they have been ignored by many credit unions.

Even though it is correct to say, as Senator Boyle did, that the credit union movement has the difficulties I have outlined in the amendment, it is also important to state that a significant number of credit unions are being run properly and prudentially with good governance. When the people went to form CUDA years ago it is incorrect to state that they left because they wanted to form themselves into banks or a bank. They left because they wanted to modernise the structures at a time when there were all sorts of allegations that the credit union movement was being used to launder funds of criminals and that proper governance provisions were not in place. This was why they wanted to put provisions in place.

The regulator did his job and put forward the guidelines. Those credit unions which thumbed their noses at him were allowed to continue because we, as legislators, would not give him the authority to make them stick. That is a matter on which I hope the Joint Committee on Economic Regulatory Affairs will take strong action.

Similarly, the regulator also put forward guidelines on governance, dealing particularly with how audit and debt should be dealt with. My telephone has been ringing in my office for the past two to three years with people telling of the bad practices in badly run credit unions such as the use of tricks. An example would be people putting tuppence into a loan account of €5,000 once a year to show it was still active and not a bad debt. This goes on and nobody can stop it.

We will ask at some stage, like we asked in the case of Anglo Irish Bank, why the auditors did not spot it. The auditors are watchdogs, not bloodhounds. They cannot pick up these matters. The only way to deal with it is for us to give the power to the regulator to insist that what are now guidelines would be rules the credit unions would have to implement on the management of debt, the provision for bad debt, the issue of investment and all the other areas such as accounting, auditing and reporting standards. Knowing the Deputy Leader as well as I do, I cannot believe that he could not accept the need to put that in place. It is exactly a mirror image at a smaller level of what is going on in the banks and I ask him to look at it carefully.

What the Deputy Leader stated about microfinance is important because the credit union movement has given a good name to sub-prime lending. It is the only sector which has managed sub-prime lending. Well-run credit unions have given loans to people who cannot get them anywhere else knowing that if they gave a loan to a person for painting the front of his or her shop or building a small extension to his or her house, a staff member on their way to the next credit union meeting could see whether anything was happening and if not, could ask whether the credit union gave a loan to that person and what he or she was doing with the money. The debt is managed all the way through. Credit unions manage the liability and the debt right through from beginning to end and do not sell it on. The issue with the banking crisis was not just sub-prime lending. The selling on of the liability was also a problem. There are lessons that we can learn from it.

The credit union is also the only remaining mutual financial institution. I will acknowledge the EBS and perhaps one or two others.

Photo of Dan BoyleDan Boyle (Green Party)
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The Irish Nationwide Building Society.

Photo of Joe O'TooleJoe O'Toole (Independent)
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There is that other one that has been in the news a great deal lately which is also supposedly mutual. I make no comment on that.

It is a fact that one third of all credit unions lost money in the first quarter accounts which were published and sent to the regulator. One third of credit unions, many of them small in size, were losing between €100,000 and €1.2 million annually. That is a fact and it is time someone did something about it. There is an unprecedented combination of bad debt, liquidity problems, investment losses and falling deposits that could create a perfect storm for credit unions where they could collapse and be lost. Many of them are not run properly and will not be run properly until we have put in place the measures I have outlined.

The Davy bonds, the perpetual bonds, the treasury funds and the ISTC bonds have all lost huge amounts. At least one credit union has lost more than €10 million, with others losing millions in perpetual bonds. They have tried to get some of the money back but cannot get access to it. They went to the League of Credit Unions, which is supposed to provide liquidity in these situations, but it has refused so there are now credit unions lending money to each other. It is not illegal and is covered by legislation as long as the regulator approves, but there are things going on that we do not know about.

Until we deal with these issues, and do what I asked — ask the Government to provide liquidity while giving additional powers to the regulator — we are looking at trouble. I said two years ago that we were looking at problems. Were it not for the Government decision of 30 September we would have had huge problems. We are now looking at new problems but they can easily be dealt with through legislation.

Photo of Shane RossShane Ross (Independent)
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I second the amendment to the motion. It is unfortunate for the proposers of this motion that when they put it down, it was bland and innocuous and probably meant to launch them on a crusade that identifies with a movement generally considered to be harmless, successful and socially beneficial. What happened yesterday and today was tough on them, with events in Mitchelstown particularly unfortunate for Senator Boyle, being that it is his bailiwick. It was, however, useful for the sake of the debate.

There is a politically acceptable view of credit unions: they are good, they are involved in social finance, they are not banks in the classic sense and they operate in a way that helps those who do not or cannot have bank accounts. Senator O'Toole is right, in some ways they are the classic sub-prime lenders in that they lend to people banks will not lend to because they might be a greater risk, they lend smaller amounts of money and take fewer risks while doing a certain amount of social good, lending at lower rates and offering higher rates for savings.

It was a pity, therefore, that the bombshell broke in the newspapers this week that at least one credit union was in big trouble. We then had the usual obfuscating, with everyone issuing statements saying the credit unions are fine and that there are only one or two things wrong and they will be remedied in the next few days so everything will be okay, to reassure those involved and make sure there is not a run on the credit union. I do not know if there was a run on the credit union in Mitchelstown but if I had read The Irish Times yesterday, I would have taken my money out and suggest others would have done the same.

Credit unions are not well regulated. Traditionally they are a strange species in that they were founded by a laudable person who is generally respected and they have not been regulated because no one wants to use a big stick on those who appear to be doing good in the community, which they are doubtless doing. The problem there is that they are frequently seen by others as an accident waiting to happen and sometimes they are an accident that has happened. It is helpful that Senator O'Toole in the amendment has starkly spelled out, at great length — perhaps he took pleasure in that when drafting it — the problems that exist for credit unions.

The fact that almost a third of Irish credit unions had first quarter losses on an annualised basis of between €100,000 and €1.2 million is quite worrying. That they have liquidity problems, with many unable to pay dividends, is a flashing amber light. That makes one ask if Mitchelstown is a problem today, what will happen tomorrow? We are offered reassuring statements from the Financial Regulator and others, stating there are only ten out of 400 credit unions in trouble. That is quite a lot in such a situation and it is only ten out of 400 that have been discovered.

Credit unions have always been a murky, uninvestigated world. I do not mean that in a sinister sense, I mean it in the sense that they have not been regulated in any strict way. The same is true of the banks, although the formalities for regulating the banks were particularly stringent. They were not, however, applied. What worries me most about this motion and the state of the credit unions is that the Financial Regulator has his paws on these institutions. To read about these problems in the last two days and then find out the institution that monitors them is the same institution that has been completely discredited in its monitoring of the banks makes me wonder if they have done anything at all to monitor credit unions.

The Financial Regulator had a real problem with the banks. It had a light touch, was principles-based and had targets for inspections but it did not live up to those principles or carry out those inspections. It fell far short of its own extraordinarily modest targets. One must wonder if putting the Financial Regulator in charge of the credit unions offers any protection. I suggest it does not and what happens in cases like this is identical to what happened in the banks: someone discovered what happened, in this case through a letter being leaked to The Irish Times, the Financial Regulator discovers it itself, says it must investigate, claims it will set things right and that it will not happen again. As a result we must question if the credit unions are really being regulated properly at all. I doubt that.

I do not know much about the subject but I am aware that some years ago there was a crisis that the tax liable on depositors was getting special treatment or a blind eye was being turned to those who had deposits, particularly on the DIRT issue. There was a difficulty that was never properly resolved as to whether people were paying tax gross or net, if they had to declare it and if the credit unions were declaring it. Social finance is a magnificent idea but it must be subject to regulation that is as stringent, if not more so, as that of the banks. It has been the subject of a large number of accidents and appears to be utterly disorganised in its regulation. Whereas the aspirations in the motion are laudable, the amendment spells out the truth, which is that there is an enormous need for a far more exacting and forensic examination of these particular groups.

Photo of Trevor SargentTrevor Sargent (Dublin North, Green Party)
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Gabhaim buíochas leis an Seanadóir as ucht seans a thabhairt dom labhairt ar an rún atá os ár gcomhair. I welcome the opportunity provided by the debate on this motion to outline for Senators the extent and range of initiatives being taken by the Government to increase the flow of credit to the community sector, to small and medium sized enterprises and in the area of social finance. In light of the extent and range of measures put in place, I will deal with this in three broad areas: measures to get credit flowing to enterprises, credit unions and social finance.

In acting resolutely to ensure the continued functioning of the banking sector in this economy, the Government has focussed directly on the access to credit by small and medium enterprises. As part of the recapitalisation package announced in February, Allied Irish Banks and Bank of Ireland reconfirmed their earlier commitment to increase lending capacity to small and medium enterprises by 10% and to provide an additional 30% capacity for lending to first-time buyers in 2009. The banks have committed to public campaigns to actively promote their lending to these sectors. If the mortgage lending is not taken up, then the extra capacity will be available to small and medium enterprises. Compliance with this commitment will be monitored by the Financial Regulator. These banks have also committed to public campaigns actively to promote small business lending at competitive rates with increased transparency on the criteria to be met. The banks will make quarterly reports to the Financial Regulator, with the first report to end March 2009 to be submitted by end April 2009.

There have been reports that customers with viable business propositions are being refused credit, but there are also reports to suggest that falling demand for credit is the main cause of reduced credit flow. Notwithstanding these conflicting positions, a perception of limited credit availability can be damaging at this time of fragile business and consumer confidence. An accurate assessment of the situation is vital and the Government has therefore decided there should be an independent review of bank lending to report within a short timeframe. The banks have undertaken to co-operate fully with this review and to engage constructively in implementing any recommendations made. The appointment of independent consultants to conduct this review is imminent.

The recapitalised banks have also agreed to engage in a clearing group chaired by a Government representative and including representation from business interests and State agencies. The purpose of this group will be to identify specific patterns of events or cases where the flow of credit to viable businesses appears to be blocked and to seek to identify credit supply solutions.

In addition, a statutory code of conduct for business lending to small and medium enterprises was published by the Financial Regulator on 13 February. This code will apply to all regulated banks and building societies. It will facilitate access to credit, promote fairness and transparency, and ensure that banks will assist borrowers in meeting their obligations, or otherwise deal with an arrears situation in an orderly and appropriate manner. The business lending code includes a requirement for banks to offer their business customers annual review meetings, to inform customers of the basis for decisions made and to have written procedures for the proper handling of complaints. Where a customer gets into difficulty, the banks will give the customer reasonable time and seek to agree an approach to resolve problems and to provide appropriate advice.

Accessing seed finance for start-ups is critical for continuous economic development. Companies developing new products and services tend to make significant expenditure on research and development and have the potential to create significant new employment, particularly for graduates. Building on the banks' commitment to the indigenous venture sector, Allied Irish Banks and Bank of Ireland are both committing a further €15 million each to new or existing seed capital funds, in collaboration with Enterprise Ireland's seed and venture capital programme. The banks' funding will be matched, as appropriate, by funding under Enterprise Ireland's seed and venture capital programme and/or by funding from other national or international investors.

The recapitalised banks have confirmed they have each established, or are about to introduce, a €100 million fund to support environmentally friendly investment and innovations in clean energy. One of the recapitalised banks has already launched a €100 million fund to support the financing of Irish based renewable energy projects and plans further initiatives in this area.

Prompt payment is important to underpin cash flow, particularly for small businesses. The recapitalised banks have committed to prompt payment arrangements in future customer contracts, which will involve payment within 30 days and a late payment interest charge on any payments made after 30 days.

The Government is confident the measures I have outlined will support the flow of credit to small and medium enterprises, which is of course critical to continued economic development in Ireland.

I will turn to the issue of credit unions. The Government places immense value on the important role that credit unions play in Ireland. The continued success and growth of the movement in recent years stand as a testament both to the trust and loyalty felt by its members, and the dedication and commitment of all credit union staff, both professional and volunteer. Even with an increasingly wider range of financial service providers to choose from, due to their not-for-profit and co-operative nature, credit unions are still seen as the natural choice in many communities for people to save with and borrow from.

The Credit Union Act 1997 provides the legal framework for the regulation of credit unions. Within this framework the registrar of credit unions, within the Office of the Financial Regulator, is responsible for the operation of the regulatory and supervisory regime for credit unions. The Act was designed to provide the credit union movement with a regulatory structure that reflected and promoted the particular ethos and philosophy of the credit union movement, its strong tradition of volunteer service and the core objective of providing opportunities for saving and lending for members of credit unions.

The Credit Union Act has provided the legal and regulatory framework within which the credit union movement in Ireland has continued to grow and develop over recent years. The growth in assets of credit unions, largely comprising members' savings, highlights the continued success of credit unions in meeting the financial needs of local communities and occupational groups falling within the common bond.

The rules-based approach to regulation embodied in the Credit Union Act has served the credit union movement well by providing clarity and certainty to individual credit unions, their directors and members. It has helped to support the continued stability of the credit union movement and safeguard members' savings during a period of rapid growth. The Act provides some discretion to the registrar of credit unions to issue regulatory directions to individual credit unions in these matters.

The amendment to the motion claims the regulator has no effective power against non-compliance. As far as the points on regulation in the amendment are concerned, it is important to point out that the registrar of credit unions is responsible for the regulation and supervision of credit unions under the powers of the Credit Union Act 1997. This rules-based legislation provides extensive powers of direction to the registrar to ensure the financial soundness and safety of credit unions and to protect credit union savers.

Photo of Joe O'TooleJoe O'Toole (Independent)
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He cannot safeguard them.

Photo of Trevor SargentTrevor Sargent (Dublin North, Green Party)
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May I finish? The registrar can also issue regulatory direction and prohibition orders to a credit union concerning a broad range of issues, including investments, raising of funds, loans, assets and liability ratios, and the composition of their assets and liabilities. The registrar has extensive powers of inspection and investigation of credit unions as well as broad supervisory powers, for example, to appoint, suspend or remove a person as a director of a credit union, or to remove auditors. A number of offences are also provided for in the 1997 Act. In view of the extensive powers available to the registrar under the Act, it cannot be said the regulatory system relies on guidance only to credit unions. The Government, however — this is an important point for Senator O'Toole — remains open to consider further legislative reform on the basis that proposals are agreed in consultation with the major stakeholders.

The main priority for safeguarding credit unions over recent years has been the reform of the Irish League of Credit Unions savings protection scheme. The Minister for Finance is considering legislative proposals for the stabilisation in the context of the preparation of the financial services deposit guarantee scheme Bill 2009 which will be ready to be published during this session. The Bill's purpose is to give effect to the Government decision to increase to €100,000, with effect from 20 September 2008, the protection for deposits with banks and building societies and to extend it to credit unions.

Recent media reports have highlighted difficulties which the registrar of credit unions is dealing with in a minority of credit unions. The registrar has highlighted that of the 419 credit unions registered in the Republic, only a handful are affected by these difficulties. The registrar is continuing to work closely with the boards of these credit unions that are encountering problems. Very close oversight, monitoring and controls over these credit unions by the registrar of credit unions are intended to assist them in addressing current issues and to ensure their long-term stability and sustainability.

It must be stressed that, following the Government's decision last September on the extension and increase in protection available under the deposit guarantee scheme, all credit union savers can be reassured that their deposits and shares to the total maximum value of €100,000 are safe and secure. In addition, the credit union movement as a whole is in a relatively strong financial position with solid liquidity and reserves.

Photo of Joe O'TooleJoe O'Toole (Independent)
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That is incorrect.

Photo of Trevor SargentTrevor Sargent (Dublin North, Green Party)
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It should also be noted that the Irish League of Credit Unions maintains a savings protection fund in excess of €100 million which is available to help stabilise the position of any credit union that encounters problems.

At the heart of social finance is the concept of repayable loan financing provided at affordable terms for community-based projects and enterprises and local development initiatives. The objective is to provide access to credit for projects that would not be able to access loan finance from the mainstream financial system. Social finance encompasses the provision of micro-credit particularly for small enterprises. The key difference between social finance and commercial lending lies in the fact that social finance considers the wider social benefits from a social finance project going ahead.

Responding to two important reports advocating the development of social finance, Social Finance in Ireland launched by the then Taoiseach in September 2003, and In the Common Interest — the Case for Social Finance, the then Minister for Finance announced in the 2006 budget a commitment to launch the social finance initiative so as to enhance the availability of loan finance for social and developmental projects in local communities. The social partnership agreement Towards 2016 endorses the establishment of the Social Finance Foundation.

The initiative has been implemented through the establishment of an independent wholesale social finance provider, the Social Finance Foundation, which was launched by the then Minister for Finance in February 2007. The foundation was established on a not-for-profit basis to act as a wholesale supplier of social finance for on-lending by specialist social lending organisations to support social and developmental projects and social enterprise in local communities. The foundation is a private company established under company law and is governed by its board of directors under its memorandum and articles of association.

On its launch, the foundation received seed funding of €25 million from the banking sector for distribution to qualifying social lending organisations, SLOs, that on-lend to individual social finance projects. Several organisations have been accredited by the foundation as SLOs. As of December 2008, loans totalling €9 million have been approved by the foundation, of which €5.4 million had been drawn down, including a number of micro-credit loans.

The primary objective of the foundation is to use social finance to support social and developmental projects in communities and social enterprise. The foundation acts as a wholesale finance supplier providing repayable capital to social finance lenders who in turn lend to individual social and community projects.

By providing loans on a wholesale basis to SLOs that have the capacity and skills to manage lending to individual projects, the foundation will act as a catalyst for the further development of the social finance concept in Ireland. The Government's intention is to stimulate the potential present in our communities to ensure the quality and standard of local social and community infrastructure can be on a par with our level of economic development.

Towards 2016 endorses the establishment of the social finance foundation and provides that it will engage with and support existing providers, agencies and established networks of social finance providers and any new providers emerging from the sector. The foundation, in conjunction with relevant interests, is also examining ways to progress the investment of capital in social finance providers by charities, private individuals and businesses.

Several voluntary organisations have been active for some years in the area of social and micro-finance. For example, Clann Credo and First Step have each supported a wide range of projects with social finance. First Step has specialised in providing micro-finance to projects that cannot access funding from other sources.

The foundation is independent of the Government, although the Minister for Finance is responsible, for example, for nominating the chair and must consent to the appointment of directors. The Government, which has worked to facilitate the development of social finance, intends that the experience gained from the foundation's activities will help to guide the development of social finance in Ireland. Through the initiatives I have outlined to increase the flow of credit to the small and medium-sized enterprise sector, the actions of the Government are fully consistent with the objectives of this motion.

Photo of Liam TwomeyLiam Twomey (Fine Gael)
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I wish to share time with Senator David Norris.

Photo of Pat MoylanPat Moylan (Fianna Fail)
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Is that agreed? Agreed

Photo of Liam TwomeyLiam Twomey (Fine Gael)
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When this motion was first put down by the Green Party, it had not expected the events that occurred last weekend which have made this a far more interesting debate. The two Green Party Members, however, gave us a history of micro-finance across Europe, never addressing any issues raised in Senator O'Toole's amendment to the motion. Neither did the Minister of State address these issues.

There is nothing micro-finance about the credit unions. They have been a significant player and have large funds. Micro-loans may be considered micro by the banks but for the individuals with low incomes involved, the sums loaned by the credit unions are hugely significant. It is important the issues raised by Senator O'Toole are addressed by the Minister of State. There is a clear conflict between what he told the House and the concerns raised in the amendment to the motion. He claimed, "the credit union movement as a whole is in a relatively strong financial position with solid liquidity and reserves" which has been questioned. The Minister of State cannot gloss over these concerns. There is nothing cuddly and sweet about this; it is a serious issue.

It was also stated,"It should also be noted that the Irish League of Credit Unions maintains a savings protection fund in excess of €100 million which is available to help stabilise the position of any credit union that encounters problems". I do not believe the league is in the position to bail out all the credit unions if they run into financial difficulties. The Minister of State is also aware that the regulator does not have the powers he claims. The regulator can give direction but so too can many people. Even when the regulator has more than just direction, we see matters going wrong. The Minister of State must respond to this because it is far too serious.

The Minister of State also had plenty of time to study the amendment to the motion. It is an insult to the House that the amendment was printed well in advance of the debate but that neither Senator from the Green Party referred to it.

Photo of Dan BoyleDan Boyle (Green Party)
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I referred to it many times.

Photo of Liam TwomeyLiam Twomey (Fine Gael)
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The Senators on the Government side did not refer to the points of concern raised in the amendment. In addition, the Minister of State appeared to contradict what is stated in the amendment. Clarification is required in respect of these matters.

If the problems that beset the banking system are also at play in respect of credit unions, this will have a major impact on people's lives. I accept that the sums of money involved would not be enormous — they would certainly not be of the order of the billions required to recapitalise the two main banks — but millions of euro would still be required. There is also the fact that a far greater number of people would be affected in an extremely personal way if credit unions began to encounter difficulties. Members of the Green Party, who are in government after all, must take these matters on board.

Senator de Búrca stated that policy decisions must be made. Those in the Green Party should wake up. They are in government and are responsible for making such decisions. If they have good ideas to put forward, we would be delighted to hear them. Whenever Senator Boyle contributes to the debates on Private Members' motions tabled by those on this side of the House, he states that we need to do more, to expand on the points we are making and to put forward proposals. The ball is now in his court and he should follow his own advice. When replying to this debate, perhaps Senator Boyle might put forward the policies he would like to see being implemented and the protection he would like to be afforded to people who have saved their money with credit unions and to those institutions themselves in order that ordinary citizens will not suffer if anything goes wrong.

Senator O'Toole put forward counterpoints to those contained in the original motion which are easily understandable. These counterpoints must be addressed in a serious manner by the Minister of State in the coming days.

The Minister of State referred to the recapitalisation of Allied Irish Banks plc and Bank of Ireland. A number of weeks ago I made a contribution in respect of that matter but on this occasion I will try to shy away from mentioning the billions of euro we will be obliged to pay to get people out of the mess in which they find themselves. I will instead focus on what will happen to ordinary people who entered into fixed rate agreements for mortgages and loans with Allied Irish Banks plc or Bank of Ireland. The individuals to whom I refer are not in a position to break the contracts into which they entered and if they approach their local Deputies, they are informed that they should write to their bank manager. The reply that is usually received from the latter indicates that it will cost X amount to break the contract.

In view of the fact that the Government has recapitalised these banks and taken so much action in respect of the banking system, has any of its Ministers raised with senior bank officials the possibility of people breaking fixed rate contracts in order that they will not be penalised? Given that the Government is now intent on increasing taxes, not being able to break such a contract will have a major effect on many people.

Photo of David NorrisDavid Norris (Independent)
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I thank Senator Twomey for so generously sharing time. I cannot understand why the Government could not accept the amendment tabled by Senator O'Toole. Apart from any other consideration, the Senator possesses quite an amount of knowledge in respect of this matter because he is a founder member of a credit union. He has placed before the House certain clear facts which are apparently inarguable. As far as I can see, the Minister of State replied to them with bluster and assertion and I am surprised that he would do so.

I heard a report on the BBC World Service in respect of an Indian national — I believe he is a doctor — who is one of the originators of microfinance within his country. The immense good that can be done by the spreading of comparatively small loans out into communities is what I have always understood to underpin the notion of credit unions. I have various friends who are members of the credit unions in RTE and elsewhere and I am aware of the wonderful work these institutions do in supporting ordinary people. Credit unions provide people with loans to purchase cars, pay for weddings or funerals or fund repairs to their homes. Such lending is extremely socially constructive in nature.

When listening to the radio again in recent days, I discovered that the Mitchelstown credit union, which I hope will survive and prosper, has 17,000 members and had got above itself to some degree. I understand that some of the loans it has extended to people were for amounts up to €250,000. I would imagine that a loan for this amount represents exactly what is meant by a sub-prime mortgage. I presume that one would use €250,000 either to support another loan which has gone bad or to finance the purchase of a house. This matter gives rise to serious cause for concern.

I was trying to recall the identity of a certain person who was involved in the foundation of the credit union movement in Ireland 50 years ago and I realised that Marian Finucane's aunt was the individual in question. Ms Finucane often speaks about her aunt with great pride and she is perfectly right in doing so.

More than 50% of the Minister of State's contribution related directly to the amendment tabled by Senator O'Toole. One of the points he made, which was extremely instructive, is that the Financial Regulator does not have a very good track record. Regulators in this country are, in general, under suspicion. In addition, the Financial Regulator lacks teeth. When the House debated the legislation relating to libel, I raised a question as to whether the word "direct" actually means command. Those on the Government side stated that it does not mean command and provided legal definitions to support their assertion. They cannot have it both ways. Either the word "direct" means that one can command or inform people to implement a particular regime or else its meaning is different. The Minister of State indicated that the word "direct" does mean to command but Government advisers previously stated that it implies no such meaning. It seems the Financial Regulator is quite ineffective if it can only exhort institutions to take certain actions but does not possess the means to compel them to do so.

A clear conflict of fact has arisen in respect of the matter under discussion. Senator O'Toole referred to loan impairments and difficulties relating to liquidity. I had a brief, whispered conversation with the Senator — I hope it did not disturb other Members to any great degree — and I understand the Irish League of Credit Unions, ILCU, has been the subject of appeals from a number of credit unions which are in difficulty and which are seeking funds to improve their liquidity. The ILCU refused their requests.

Photo of Joe O'TooleJoe O'Toole (Independent)
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On the record.

Photo of David NorrisDavid Norris (Independent)
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Exactly. How can the Minister of State assert that their is no problem as regards liquidity? It simply does not make sense. I am not stating that the Minister of State is inimical to the truth or even that he is lying, which would be a frightful thing to say. However, I am stating that he has been ill advised and that the material he has placed on the record of the House should be revised. I hope he will have an opportunity to make such a revision. If not, perhaps his colleague, Senator Boyle, or whoever is charged with replying to the debate will address this point. Those on the Government side are not doing anyone any credit by not correcting the record.

I could support the Green Party's motion because I completely agree with the concept of microfinance which is extremely positive in social terms. However, I also strongly support Senator O'Toole's amendment. I would like the opportunity, therefore, to support both in a composite motion. If the latter is not forthcoming, I shall attempt to gallop back to the House from the micro-reception being held in Trinity College for the pro-chancellor to vote against the motion as tabled.

Photo of John Gerard HanafinJohn Gerard Hanafin (Fianna Fail)
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I support the motion, which is extremely positive and which, in light of the position in which we find ourselves, is surprisingly appropriate. The motion states:

That Seanad Éireann supports the development of microfinance in this country with greater support of the credit union sector to allow for the creation of local economic initiatives, an important and necessary step towards bringing about national economic recovery.

The amendment tabled by Senator O'Toole relates to regulation in banking and would be more appropriate to the debate on a different motion.

I am conscious of the fact that on occasion it takes time for people to recognise a good idea. The motion is not nebulous in nature; it is positive and extremely realistic. Proposals that would diminish its impact are unacceptable. Suggestions from the Opposition to the effect that because the Government has refinanced them, the banks should break legal contracts into which they have entered are nonsensical. The banks operate on the basis of fixed rates. Once a person enters into a fixed rate arrangement, a bank can then deal with this by either offsetting the money by paying a lower rate in respect of a long-term investment or by using existing funding. In other words, it is a fundamental aspect of banking business that once one becomes locked into a fixed rate, a degree of certainty is afforded to the bank and it can then make a counter-arrangement to balance that fixed rate. We could not request the bank to do that. It would have been wrong and would have broken a legal contract.

With regard to local developments, 250 years ago a gentleman at the Rock of Cashel in Tipperary developed a type of stout in his back garden. That stout is Guinness. We have also seen how the small co-operatives which started——

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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My God.

Photo of John Gerard HanafinJohn Gerard Hanafin (Fianna Fail)
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It was at the Bishop's Palace in Cashel, 250 years ago. One learns something every day.

The co-operatives, such as Kerry Co-Op, started as very small enterprises. They offered a great opportunity for people who had small funding to start something. I am also conscious of international developments, which show the importance of microfinance. We can take our lead from the United States. Let us start with Apple, the company Forrest Gump thought would be a good company to invest in because it was a fruit company. Of course, he was excellent in choosing his investment.

Photo of Liam TwomeyLiam Twomey (Fine Gael)
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Did he become the Minister for Finance in Ireland?

Photo of John Gerard HanafinJohn Gerard Hanafin (Fianna Fail)
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He became the finance spokesman for Fine Gael here. He knows more about health than he does about finance, that is for sure.

The Apple corporation was started in a garage by Steve Wozniak. Coors Brewing Company was started in the 1850s with very small capital and, in more recent times, Michael Dell founded the Dell company in his dormitory room in a Texas university with $1,000. Electronic Data Systems, EDS, owned by Ross Perot was also started with $1,000. The toy company, Mattel, was a micro start-up company, as were Wrigleys, Starbucks, e-Bay and so forth. This is a wonderful opportunity to provide seed capital at micro level to businesses and people who do not currently have a track record. They can now establish such a track record and, with it, secure further funding. We do not know what company will emerge successful but the beauty is that it will be an indigenous company. For that reason, I fully support the prospect of microfinance.

Senator de Búrca gave a useful breakdown of microfinance. The amount at issue is less than €25,000 in the European context. A total of 2 million enterprises are started every year in Europe and 90% of them are micro enterprises. A micro enterprise is a company with fewer than five employees. Worldwide, approximately 70 million individuals are serviced by microfinance institutions. A total of 93% of the 2.5 million European small and medium enterprises are micro enterprises. Microfinance offers us an opportunity because local initiatives will be essential for getting us through the severe international crisis we face.

A number of companies in Ireland provide this type of microfinance but there is room for others. First Step is an enterprise fund that is co-financed through the private sector and EU seed and venture capital funding. Bank of Ireland also takes part in this, as does the European Investment Fund loan guarantee scheme. The Department of Social and Family Affairs is involved through the back to work scheme. A number of companies in this country have already benefited significantly from First Step. They range from clothing companies to companies producing children's toys. They got their first step on the business ladder through a small amount of start-up capital.

Another interesting aspect of microfinance has already been mentioned in connection with the Nobel Peace Prize winner of 2006. The winner Mohammed Yunus started the Grameen Bank. He started when he noticed that a Bangladeshi village lady who was making bamboo stools learned that she had to borrow the equivalent of 15p to buy raw bamboo for each stool and, after repaying the middleman at interest rates as high as 10% per week, she was left with a 1p profit margin. That was the incentive for starting the Grameen Bank. The bank gives loans of less than $100 to individuals. Approximately 96% of the loans the bank makes are repaid on time, by the poorest of the poor. The bank has given those people the opportunity to live above subsistence level. Microfinance in the Third World is bringing people out of poverty.

I believe there are wonderful opportunities in Ireland for microfinance to develop businesses that otherwise would not have an opportunity to secure finance. Some people are not good at working through financial institutions and banks, but they might have good ideas and be hard working.

There has been mention of credit unions. The Minister said the registrar of credit unions is dealing with issues in a small minority of credit unions, approximately ten out of 419. Credit unions have deposits of €13 billion. Deposits in credit unions are secured by the State to the tune of €100,000 for every depositor. The security credit unions require is already in place through the State guarantee, which some of the Opposition parties voted against. Had that not been done at the time, we would be in a far worse situation than we are at present. It is fortunate we had the current Government to deal with that crisis when it arose and it dealt with it correctly.

Photo of Nicky McFaddenNicky McFadden (Fine Gael)
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I will share time with my colleague, Senator John Paul Phelan.

I agree with Senator Norris's remarks about a combination of the two motions. While microfinance is very important, especially at this serious time of recession, there must also be proper legislation in place so the regulator can regulate. That is his job. What is wrong with this country is that when a regulator is employed, they do not do their job. We must put the right legislation in place. The Minister is open to doing that and I welcome his response. I look forward to hearing his proposals on how to put legislation in place to give the regulator more power.

Credit unions are there to provide small loans for ordinary people. It really saddened me in the past couple of days to hear the size of loans that have been given to people and even — I am sorry to use the "D" word — to developers and speculators. These are now unable to pay back the loans and are causing difficulty for our credit unions. I resent that. Mr. Logue was quoted as saying in a letter that there is no contingency plan with regard to Mitchelstown. Will the Minister explain that? I accept there is a State guarantee of €100,000 in place for depositors but what would be the regulator's contingency plan if a credit union were to go out of business?

I support Senator O'Toole's and my party's amendment relating to liquidity. How can the credit union operate if there is no liquidity or capital to lend? Last year there was a run on a credit union, where moneys were taken out in a hasty manner. I am concerned that would happen again. As in the case of the banks, the Government needs to give leadership and reassurance to people that this will not happen. I strongly support the essence of the motion, that is, to provide microfinance for small and medium size enterprises. Credit unions are a good means of achieving this objective.

Senator Hanafin referred to small community groups. The Athlone community task force, with which I was involved, was one such organisation that offered small revolving loans. These were highly beneficial and the group received funding from the Department of Social and Family Affairs and Pobal. These types of initiatives, most of which were established in the 1980s but became virtually defunct in the past decade, are badly needed again. Capital needs to be provided to small businesses, those who wish to establish a small company and business start-up courses. I support the amendment.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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I thank Senator McFadden for sharing time. I welcome the Minister of State to the House. I also welcome the opportunity to say a few words on the motion.

I find myself in a similar position to Senators McFadden and Norris in that I do not have a problem with the Green Party motion, as worded. However, it has been overtaken by events and what we have learned in recent days. Credit unions, including in Thomastown, New Ross and St. Canice's in Kilkenny, are successful and important institutions in the community I represent. They have done a great deal by providing finance to people who are not in a position to secure a loan from a bank. The credit union movement deserves great credit for providing funding to meet social requirements, as noted by Senator Norris, and cover the costs of home extensions or new cars.

There is a danger that the infection which has entered the banking system in recent years will spread to the credit union movement. The revelations from Mitchelstown resulted in a mini-run on the town's credit union. We must ensure this is not replicated across the country because credit unions are found in virtually every village in Ireland. In many cases, they are the only financial institution in the locality. If disaster befalls credit unions, many people with small savings will be badly affected. We must ensure the necessary legislation is in place to protect the small savings of ordinary people who have worked hard throughout their lives to build up the credit union movement across the country.

Senator Hanafin listed a number of companies which started from a small base. Virtually every company started small. Nearly every Irish brand started in someone's house or when a small group of people came together. Microfinance is a laudable idea and the Government has taken some welcome steps in this area in recent years. The launch in 2007 of the foundation to which the Minister of State referred, which had funding of €25 million from the banking sector to distribute, was one such initiative. I note that only €5.4 million of this funding has been drawn down in a number of micro-credit loans in the two years since the fund was established. While there may be a perfectly legitimate reason for this, I am not aware of it. Perhaps Senator Boyle will explain.

The notion, as expressed by Senator Hanafin, that banks will not renegotiate contracts with people who find themselves unable to meet their mortgage repayments is wrong. Contracts are renegotiated every day of the week and the reality for the 355,000 people who are on the dole, many of whom were made unemployed in the past couple of months, is that they will have to renegotiate with banks and the banks will have to renegotiate with them. It will not be much good for a bank to reclaim a property which may be worth half the original loan it provided to the mortgage holder. If that were to happen wholesale across the country, banks would be forced to renegotiate the contracts. However, given that other types of contract are renegotiated daily, I do not see the reason mortgage contracts could not be renegotiated.

The Government motion and the amendment tabled by Senator O'Toole do not clash. In light of the events of recent days, we should move to reassure people that their savings, specifically those held by credit unions, are safe. I hope we will soon have a further opportunity to introduce the necessary legislation and regulation.

The public has little confidence in the Financial Regulator. The Government is considering the possibility of amalgamating the Central Bank and the Financial Regulator and discussions on the issue are ongoing. Legislation to give effect to this proposal should be introduced in the immediate future. I join those from outside the House who have called on the Government to seek expertise from outside the country. For anyone looking in, it is clear that finance in Ireland is a small club. Developments in the past ten years have shown the incestuous side of the industry. I would welcome a fresh view from outside the Republic of Ireland on the regulation of the financial sector.

We must learn lessons from the past. I have just finished reading a book on the collapse of the Stock Market in 1929. At that time, financial institutions were not offered protection and small banks across the United States were put out of business. The credit unions are in a similar position today. I hope they will not be put out of business. We still have time to make legislative provision to help secure these institutions and the savings they hold.

Photo of Larry ButlerLarry Butler (Fianna Fail)
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I welcome the Minister of State to the House and thank Senator Boyle and the Green Party for tabling the motion.

This debate gives Senators an opportunity to discuss the important role micro-lending has played in the past 50 years. It also affords an opportunity to pay tribute to the credit union movement and individuals such as Nora Herlihy, Sean Forde and Séamus P. MacEoin who founded it 50 years ago. Credit unions have stood the test of time. They often made the difference for young fellows in villages who were to serve their time and needed to borrow money to buy the tools they required to do their job, whether as a plumber, carpenter or electrician. The credit unions provided micro-loans to enable them to do this. We should maintain and expand this form of lending.

I expect the credit unions to play a much greater role in our banking system in future. Many individuals with considerable experience in the financial services sector have lost their jobs and I hope the credit unions will recruit some of them. While the credit union movement has played an important role in the past 50 years, it must also move ahead. The Government has a major part to play in this regard.

Some €13.5 billion is held in credit union funds. We need to find new ways of using this money, including by way of bond. I sound a note of caution, however, because some credit unions became involved in unwise commercial investments. They did not understand what they were getting into. I do not like to name names, but Davy was one company that advised a number of credit unions on investment issues, and €30 million was paid back to the credit unions because they did not understand the products in question. They need greater expertise if they are investing. I would like to see the Government providing a bond in which they could invest, through which a dividend could be paid back to them every year. This would play a great role in expanding the credit union banking system and putting a stronger emphasis on credit unions. The Government is guaranteeing savings of up to €100,000 in the credit union so there could be a collaborative role, especially at a time when we need finance. Credit unions represent finance that is available to us within the country, ensuring that we do not have to go outside the country to obtain credit.

I also suggest we consider a national bond. There are people who are still patriotic enough to invest in such a bond to help the country out in a time of need. We could have bonds as low as €10, which would mean that the ordinary person in the street — the small person or the old age pensioner — could invest in the country. That is what we are talking about tonight.

It is good that Senator Boyle and the Green Party have tabled this motion as it makes us think outside the box. Not everybody is looking for €200,000 or €300,000 to expand a business. Most businesses are expanded on very small money. In many cases the ordinary person does not have a track record with banking, and the only way he or she can acquire finance is through the local credit union, to which he or she is known. That is a problem with banking. There was a time when one went to a bank for a loan and the manager knew one and would come down to see what one was doing. That does not happen anymore; one is just a name that goes up to headquarters and if the name does not fit, even with a very good idea for a new business, the banks will not look at one. That is why they got into trouble. They did not look at the projects. They said Joe Bloggs down the road was making money every year and never thought the day would come when he would not make money to pay them back. That is the great thing about small businesses; they will always pay their money back. I was in business for 35 years and the first person to pay one was the small person for whom one did a job.

When considering a bigger role for credit unions, we should look at how the €13.5 billion in credit unions could best be used for innovative development and small businesses. I thank the Green Party again for tabling this extremely good motion. The Seanad is an excellent place to discuss such issues. We should be putting forward motions such as this in the House. We have ideas here and we want them heard. If a good idea comes from across the floor, so be it. We are here to discuss all aspects of an issue. I support the motion.

Photo of Paddy BurkePaddy Burke (Fine Gael)
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I welcome the Minister of State and the opportunity to say a few words on this debate. Like Senator Phelan, I see merit in both the motion and the amendment. I do not have any great problem with either because I support aspects of both. On the issue of credit unions, the credit union in my area, in Castlebar, is very well run and I compliment it on the work it is doing in the Castlebar area and the service it is providing to the community. All I hear about it is good.

The Minister of State said in his speech:

The recapitalised banks have also agreed to engage in a clearing group chaired by a Government representative and including representation from business interests and State agencies. The purpose of this group will be to identify specific patterns of events or cases where the flow of credit to viable businesses appears to be blocked and to seek to identify credit supply solutions.

I have raised this issue before. I find it hard to believe what the Minister said because if it is a good business there should not be any great problem with the financial institutions. The one thing the banks will be looking for from now on is viable businesses and there will be no great need for a clearing group. How will the clearing group work? If finance is refused, the issue goes back to the clearing group, but where does it go from there? Does it make a recommendation to the bank or another financial institution, or will the Government give funding to viable businesses? It is the bank's business to lend money and it must have a certain amount of discretion with regard to giving and refusing loans. Thus, I question the concept of the clearing group.

Credit unions have provided a great service over the years. I know from small shopkeepers and business people that were it not for credit unions in particular, they would never have got off the ground. In many cases they raised money from the credit union so they could go to the banks and show they had funds in place for their business plans. However, I urge the Minister to ensure that county enterprise boards are also properly funded, because they are not currently. As we have seen, many county enterprise boards are doing great work and in every county the enterprise board is producing 50, 60, 70 or 80 jobs year-on-year. In my county, the enterprise board created 60 or 70 jobs last year with a budget of €500,000. Does this mean if it had another €500,000 it could have created another 50 to 60 jobs? We are creating many jobs with little money. This is an area that should be properly financed. It is one of the most important areas for small businesses. We are talking this evening about small businesses, many of which cannot get funding and must start with credit unions. In some cases they are refused by banks and must go back to clearing groups.

In the area of small business, the county enterprise board and the credit union are essential. They can work hand-in-hand with the banks, which are to make available a package of €100 million in seed and venture capital for small and medium-sized businesses. This is an issue that should be considered in more detail. I have great respect for the county enterprise board in Mayo, which is doing a wonderful job. If it was better funded it would create more jobs. In the past ten years, which were the best in the history of the State, a mere ten jobs were created in County Mayo by Enterprise Ireland, whereas the county enterprise board is generating 60 or 70 jobs annually with little funding. That is an area that should be examined.

I am saddened by what has happened in some credit unions which attempted to enter the commercial lending market despite having no experience of this area. The local credit union in Castlebar does a great job and has developed a solid base in the community.

Photo of Ivor CallelyIvor Callely (Fianna Fail)
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I welcome the motion on the development of microfinance. It is important, particularly at this point in our history, that we focus on all areas of finance that might assist the development of enterprise and new initiatives. Small businesses suffer from many disadvantages but they also have a lot going for them. One of the greatest challenges facing small and medium enterprises is the availability of finance.

My colleague, Senator Hanafin, mentioned a figure of €25,000 in regard to microfinance. That amount of money is undoubtedly a help but I would not like to see it become the maximum available under microfinancing rules.

Small and medium enterprises play a significant role in our communities. They are usually more flexible and responsive to economic challenges and their size allows them to make a major contribution in terms of providing job opportunities, particularly in the context of rising unemployment. If we can support businesses through new initiatives which address the disadvantages they face, we should not hesitate in doing so.

The motion and its amendment focus on one sector, namely, the credit union movement. I support the development of the credit union movement, as I do all other forms of financial institutions. If microfinance is to function properly, competition will be required among financial institutions. Limiting the number of institutions might limit the potential for developing microfinance. Equally, it might result in a singular approach to microfinance projects. These two issues jump out at me in terms of developing in one area. I acknowledge that credit unions operate in a competitive manner but there would be more competition if other players were involved.

We have come through a traumatic chapter in the history of our financial institutions. I will not join the chorus of bashing everyone in the financial sector because many fine people work in banks and other institutions. Others have retired from institutions after serving their employers and the country to the best of their abilities. I hope the thousands who still work in the sector will honour our expectations of them by promoting their companies while also supporting communities and small and medium enterprises. The transactions carried out by a small number of people will probably be addressed with a sledgehammer because of the anxiety and upset they have caused. I have every confidence that the Financial Regulator and others in authority are addressing the issues that have been brought to their attention.

In regard to microfinance, the challenges we face in economic recovery and development and support for employment opportunities, I welcome the Government's focus on the smart economy. This comprises everything from the needle to the haystack. Microfinance will be important in terms of creating opportunities in the smart economy.

I also welcome the €100 million fund for enterprise stabilisation and the new central bank commission, which will address many of the issues raised by previous speakers. However, in addition to the enterprise stabilisation fund's focus on vulnerable exporters, we need to support enterprises by developing an accident and emergency department that can assist them with all the challenges they face. Unfortunately, they are faced at present with an array of telephone numbers and people who can offer varying levels of support. While I wholeheartedly support the enterprise stabilisation fund, we must also support new initiatives and small and medium enterprises. In this challenging international economy, many businesses are encountering difficulties.

The code of conduct introduced in a mandatory fashion on small and medium enterprises is to be welcomed. I would encourage all financial institutions dealing with business people on a daily basis to display it in lights in their premises. Some of our financial institutions have a great deal to answer for in respect of the pressures they are putting on people who have helped fuel this economy and whom they assisted in getting into the positions they are in. I attended a tragic and sad occasion last weekend. The pressures which some entrepreneurs are being put under by financial institutions for relatively small amounts of money is an absolute disgrace.

I take this opportunity to state on the record of this House that when focusing on finance, mechanisms, new initiatives and various codes of conduct, we must ensure everybody is aware of the fashion in which they should be applied.

Photo of Paddy BurkePaddy Burke (Fine Gael)
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Senator Callely must conclude.

Photo of Ivor CallelyIvor Callely (Fianna Fail)
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I regret I have run out of time as there is a great deal more to be said on this issue. However, perhaps I will get an opportunity to do so on another occasion.

7:00 pm

Photo of Pearse DohertyPearse Doherty (Sinn Fein)
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Cuirim fáilte roimh an Aire Stáit go dtí an Teach. I dtús báire, ba mhaith liom buíochas a ghabháil leis an Chomhaontas Ghlas as ucht an rún seo a chur roimh an Seanad anocht.

I welcome the motion which was tabled by the Green Party and which has drawn focus on the need to support microfinance. Equally, I welcome the amendment to the motion, put forward by Senator O'Toole, other Independent Senators and Fine Gael, which broadens the original motion in terms of what needs to be done to support credit unions in particular. We need to discuss not alone credit unions but microfinance.

There is no doubt but that the growth of the credit union movement throughout Ireland during the past 30 to 40 years has been great, with people living in economically deprived communities and areas of social disadvantage enabled, for the first time, through the establishment of credit unions, to access financial services which until then were unattainable to them. We all know the reasons we support the credit union, namely, it is community based, is open to anyone irrespective of economic circumstances or whether they have assets and is widely referred to as the people's bank which offers a life-line to those not eligible for a bank loan. As it becomes more difficult to make day-to-day financial transactions without a bank account, all restrictions on credit unions in offering a wider range of financial services to meet customer needs should be removed.

It is essential that people have access to the most competitive rates for savings and borrowings given the recent downturn in the financial climate. The credit union is a community based institution and its funds are an additional income from expanded services and should be available to be invested in the social economy for the benefits of the community to which the credit union belongs. Last week, we debated a report produced by me as rapporteur of the Oireachtas Joint Committee on Arts, Sport, Tourism, Community, Rural and Gaeltacht Affairs. The issue of microfinance is one on which we focused as it is an alternative initiative to the credit unions, which can and should encourage enterprise development.

Every year, there are 2 million business start-ups in Europe, of which 90% employ fewer than five people. Micro-firms play a significant role in the development of rural economies. Given that they are flexible in responding to the changes in the global economy, greater focus should be placed on supporting microfinance institutions. For this reason, I welcome the motion tabled by the Green Party.

As stated, microfinance is the provision of finance of less than €25,000 to individuals wishing to start up and develop their own business. It is evident from studies that businesses which start up with less than €25,000 are often very successful. First Step is Ireland's only microfinance institution. To date, it has assisted more than 1,500 projects which have created 3,000 job opportunities, and that is to be welcomed. The report which I produced on the west of Ireland examined the success of First Step, the majority of whose customers are located in the greater Dublin area. There is a need to support microfinance on a larger scale than heretofore. Consideration should be given to enabling this type of support in the western seaboard areas, the north west and other areas which could benefit directly from the availability of such institutions to those communities suffering as a result of the economic downturn in terms of inaccessibility to funding.

I would have preferred that a compromise motion had been tabled. While what is contained in the amendment is warranted, unfortunately it deals only with credit unions, not microfinance. What Ireland needs now is a job creation strategy to stem the financial crisis. While public sector savings and public finances must be examined, what is glaringly absent from Government is a job creation strategy, as highlighted by the live register figures released today by the Central Statistics Office. The Government needs to cop on that Ireland urgently needs this type of strategy. It needs a job creation strategy as this financial crisis grows day by day. The failure of Government to bring forth such a strategy in last October's budget has propelled this State into its worst unemployment crisis in history, as evidenced by the figures released today by the Central Statistics Office.

While we need to examine public sector savings and reform of taxation and to address wastage and the gap in our public finances, the number one priority for all of us and of Government at this time must be to get Ireland back to work. We must introduce a strategy to recreate the 1,000 jobs a day currently being lost. We need to fast-track business start-ups and to create a sales Ireland strategy that maximises our existing indigenous export market and develops growth prospects in the medium to longer term. We need to foster and develop a real innovation culture. While success is possible, it will not happen until such plan is developed and delivered by Government. If the Government fails to deliver this plan, perhaps it is time for it to go and to allow someone else to deliver it.

I welcome the motion although I would have liked to see a compromise motion. While more needs to be done to support credit unions, more also needs to be done to support microfinance which could assist in our job creation strategy. However, this of itself will not put people back to work. We need an overall strategy. I welcome the motion but will be voting for the amendment. I reiterate I would rather have seen a more comprehensive amendment that includes support for microfinance as indicated in the original motion.

Photo of Dan BoyleDan Boyle (Green Party)
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I thank the Senators who contributed to this evening's debate. The motion was structured in such a way as to provoke a debate and I am glad it did so. It was particularly notable that Senators focused on the wider issue of microfinance and how it might be progressed and concentrated on the role of the credit union movement, which I will address as I conclude the debate this evening.

The script for the Minister of State's contribution was supplied by the Department of Finance in its indomitable and inscrutable style and included a couple of important points that will help to progress the debate. First was the admission that the Credit Union Act 1997 will require to be amended — a review of the Act is necessary — and second was the announcement by the Minister of State that legislative proposals are being developed to bring about a legislative vehicle to extend the financial services deposit guarantee scheme Bill to credit unions. The Bill will be published during the forthcoming session. When that debate takes place it will address many of the points in the amendment. There are difficulties and the credit union movement is experiencing the problems being felt by financial institutions and the credit market in general. There are structural problems that need to be overcome.

Some of the comments about the level of regulation or the ability of the credit union movement to regulate itself were somewhat unfair. Legislation constrains the Registrar of Credit Unions but credit is due to the office and the sole officeholder——

Photo of Joe O'TooleJoe O'Toole (Independent)
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No one is arguing with that. He is held in the highest regard.

Photo of Dan BoyleDan Boyle (Green Party)
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I refer to contributions in general that referred to the level of regulation. Within those legislative constraints there is a marked contrast between the work done in that part of the financial services and the work in commercial financial institutions. As we look towards the setting up of a central banking commission we can learn lessons from that individual and the regulatory structure for the credit union movement as we try to improve regulation of financial institutions.

I am grateful to the Minister of State for pointing out an element of Government policy that is in place, the social finance initiative. When I was an Opposition spokesperson on finance——

Photo of Joe O'TooleJoe O'Toole (Independent)
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Those were the days.

Photo of Dan BoyleDan Boyle (Green Party)
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I have to admit that I had a degree of cynicism about the establishment of the initiative and the foundation which still, to an extent, holds true. The initiative was set up on the removal of the bank levy which was introduced in 2002 and operated for several years. In the general election that year the Green Party was the only one to suggest a bank levy which operated for a short time. On its replacement the sop to the idea of social finance was the social finance initiative to which the banks gave the very large sum of €25 million, whereas the levy generated only a small sum. The major banks at the time were earning profits of between €4 million and €6 million a day. That was profit, not turnover. We now know that some of those profits were wrongly calculated because of the way they dealt with bad debt provision.

The scale on which the commercial institutions can help in the wider area of social finance has been subsequently addressed by the creation in some recent legislation of identifiable funds for green lending, small businesses and social protection measures. I welcome that development. It is disappointing that of that small sum the social lending organisations have drawn down only €9 million and comment has been made on the work of Clann Credo and First Step. The money available is a drop in the ocean, only €5 million is available for microfinance loans. I hope that tonight's debate opens the wider aspect of this subject. Its intention was to acknowledge how microfinance operates through the credit union sector, to promote the wider idea of microfinance as it exists in other European countries and to strengthen the social finance initiative of recent years. They are all vehicles that we can and should use to a greater extent. I hope tonight's debate brings about greater awareness.

While I share many of Senator O'Toole's views in moving the amendment, it is prescriptive in terms of a general motion——

Photo of Joe O'TooleJoe O'Toole (Independent)
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Senator Boyle should carry on. He is in charge tonight.

Photo of Dan BoyleDan Boyle (Green Party)
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——that was intended only to provoke a debate, which has been useful. The contents of the amendment will be better addressed in a debate to be held in the very near future on specific legislation, as will the questions raised about extending a guarantee scheme to the credit union sector and the need for a proper SPS scheme. The Minister of State repeated the status quo and did not confirm what the Senator has been told in recent years in this House. That too can be examined in that debate. I hope that the House supports the original motion and I thank Members for their contributions to this debate.

Amendment put.

The Dail Divided:

For the motion: 20 (Ivana Bacik, Paul Bradford, Paddy Burke, Paul Coghlan, Maurice Cummins, Pearse Doherty, Paschal Donohoe, Frances Fitzgerald, Dominic Hannigan, Fidelma Healy Eames, Michael McCarthy, Nicky McFadden, David Norris, Joe O'Reilly, Joe O'Toole, John Paul Phelan, Eugene Regan, Shane Ross, Brendan Ryan, Liam Twomey)

Against the motion: 28 (Dan Boyle, Martin Brady, Larry Butler, Peter Callanan, Ivor Callely, Ciarán Cannon, John Carty, Maria Corrigan, Mark Daly, Déirdre de Búrca, John Ellis, Geraldine Feeney, Camillus Glynn, John Gerard Hanafin, Cecilia Keaveney, Terry Leyden, Marc MacSharry, Lisa McDonald, Brian Ó Domhnaill, Labhrás Ó Murchú, Francis O'Brien, Denis O'Donovan, Fiona O'Malley, Ned O'Sullivan, Ann Ormonde, Kieran Phelan, Mary White, Diarmuid Wilson)

Tellers: Tá, Senators Joe O'Toole and Maurice Cummins; Níl, Senators Diarmuid Wilson and Déirdre de Búrca.

Amendment declared lost.

Motion put and declared carried.

Photo of Pat MoylanPat Moylan (Fianna Fail)
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When is it proposed to sit again?

Photo of Dan BoyleDan Boyle (Green Party)
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Ag leathuair tar éis a deich maidin amárach.