Nicky McFadden (Fine Gael)
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I welcome the Minister of State and I appreciate that he is taking this matter. This issue is important from the point of view of the current economic climate. The concept of microcredit and micro-finance may not be too familiar to people in this country, but it was widely used during the 19th century in pre-Famine Ireland. In the extraordinary economic times we now face, we must open our current economic model to scrutiny. We must also suggest innovative ways of helping impoverished people to make a sustainable living.

The idea of micro-credit took hold in 1976, when Muhammad Yunus loaned $27 of his own money to a group of poor craftspeople in Bangladesh - mostly women who were trying to make bamboo furniture. They organised their own business and some 97% of the loans were provided to those women. All the loans were paid back. The idea is that small loans are given to poor people who would not usually be considered for this or any type of loan. The money is used to set up businesses and provide capital. Although no collateral is provided for these loans, the potential borrowers group together and become co-guarantors for each other. Effectively, they rely on each other to pay back the loan. It has been proven that these people are extremely trustworthy and do repay the loans in Bangladesh. The loan is paid back and banks make a small profit on the interest. This is how craftspeople in Bangladesh have proven that this is a successful way of sustaining a small business. The underlying philosophy is that these loans allow people to depend on themselves and their families, rather than on the state and international investment.

For far too long we have depended on foreign direct investment, but we now need to start depending on ourselves as we are a resourceful people. The relevant labour market is made up mostly of self-employed and poor people in the developing world. If it has worked in Bangladesh, surely it can work for small businesses and poor people here. It is a business model that gained international recognition when the founder of the Grameen Microbank, Muhammad Yunus, won the Nobel Peace Prize in 2006. While the Yunus model has been most successful in the developing world, there is no reason why we cannot attempt to provide such a facility here. This economic model is worthy of our attention. The Minister of State has introduced innovative ideas and is one of the most resourceful Ministers we have, so I believe he would give this idea impetus if he were to back it.

There are many families on the breadline because their businesses have had to close for the want of a small amount of money. We are bailing out banks by investing huge amounts of money in them, yet they are refusing to give credit to small businesses. This is a problem in every town and village, and unless we find a credit solution to help small and medium enterprises, they will become unsustainable and unemployment will increase further.

The Yunus microcredit loans started as a small idea which has now harnessed widespread appeal. The closest we have in this country is the credit union movement. While credit unions are wonderful, they do not provide interest free loans. We could introduce the Yunus model in conjunction with the Society of St. Vincent de Paul which is willing to endorse the idea. The Yunus model has proven its worth in the developing world. Commercial banks have not engaged in this sort of business, as they only provide loans over €25,000 for small and medium enterprises. It seems that such banks do not consider small loans worthwhile.

Over the years, hundreds of thousands of people used the old loan funds system, which was lending to as many as 20% of Irish households. These were monitored by a central regulatory authority. Funds in the system were successful in mitigating informational, moral hazard and enforcement problems. The funds thus operated at a surplus in a market where intermediation by the banks seems not to have been possible. Special legislation provided that their goal was to relieve poverty by providing credit to the industrious poor on a large scale and at competitive interest rates without public funding.

Evidence from the loan funds offers new insights into capital formation in the Irish economy of the 19th century. It suggests that traditional notions regarding the economic activities of the Irish poor may need to be rethought. I urge the Minister of State to examine the microcredit model. While I had read about this idea before, it was brought to my attention again by a Franciscan priest from my home area of Athlone. He compared it to St. Francis in that it aims to help the poor to help themselves. It is a good idea which concerns decent values, getting back in touch with our culture, and relying on one another. I ask the Minister of State to consider it.

Martin Mansergh (Tipperary South, Fianna Fail)
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I must apologise for a glitch in the system which means that copies of my reply are not available. However, I will furnish my copy to Senator McFadden when I have finished speaking.

Nicky McFadden (Fine Gael)
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I thank the Minister of State for the courtesy of his reply.

Martin Mansergh (Tipperary South, Fianna Fail)
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I thank Senator McFadden for raising this subject, which I must admit I was not familiar with up to now. One always lives and learns, especially in the Seanad.

Credit has been likened to the life-blood of the economy. Since the severe deterioration in financial markets last September, all the Government's actions have been aimed at returning the flow of credit to the economy to ensure the financial needs of all in our society are being met.

The background to micro-credit banks has been well explained by the Senator. They have proved successful in other jurisdictions, providing start-up capital for small business to those who would not be able to access such capital from mainstream banks. The Government's social finance initiative plays a similar role in Ireland. 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 Social Finance Foundation was established in 2007 on a not-for-profit basis with €25 million of seed capital provided by the banking sector. It acts 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 primary objective of the foundation is to use social finance to support social and developmental projects in communities and social enterprises. A number of voluntary organisations have been active for some years in the area of social and micro finance. For example, Crann Credo and First Step have supported a wide range of projects with social finance. First Step has specialised in providing micro finance for projects that cannot access funding from other sources.

The credit union movement is integral to the provision of credit to all in the economy. There are about 418 credit unions in the Republic of Ireland with approximately 2.9 million members and assets of about €14.2 billion. The assets are almost equally split between loans and investments. The unique model and diversity that credit unions bring to financial service provision in Ireland is critical to ensuring that the financial needs of all in our community are met. Community based financial services provided through credit unions are integral to meeting the credit needs of society. While the movement could not be expected to remain immune to the market difficulties, it has proved quite resilient to the forces that have caused such substantial disruption to the financial sector.

In the context of the bank guarantee scheme and recapitalisation, the mainstream banks have made important commitments to support business lending. An independent review of credit availability to ascertain the position on credit availability to SMEs in Ireland formed part of the recapitalisation programme. The final report of the review of lending to SMEs has just been received and once the Government has had an opportunity to review the report, it is committed to taking the appropriate actions based on its findings.

The Tánaiste and Minister for Enterprise, Trade and Employment has set up a clearing group 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. The Minister of State with responsibility for trade and commerce has begun a series of regional meetings to discuss access to bank credit with key local stakeholders. A further measure of the recapitalisation programme was the reconfirmation by Allied Irish Bank and Bank of Ireland of their December 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. Compliance with this commitment is being monitored by the Financial Regulator.

The Financial Regulator has introduced a new code of conduct for business lending to small and medium enterprise. The code took effect on 13 March 2009. This code applies to all banks and building societies regulated by the Financial Regulator. One of the three objectives of this SME code is to facilitate access to credit for sustainable and productive business propositions. The business lending code includes a requirement for banks to offer their business customers annual review meetings and to inform customers of the basis for decisions made. Where a customer gets into difficulty, the banks will give the customer reasonable time and seek to agree an approach to resolve problems.

The Financial Regulator has also introduced a consumer protection code for licensed moneylenders. Its general principles came into effect on 1 January 2009 and the remaining provisions come into effect from 30 September 2009. It applies to moneylenders licensed under the Consumer Credit Act 1995 and should result in greater consumer protection for customers, as moneylenders will be subject to many of the same provisions that pertain to other credit providers under the Financial Regulator's August 2006 consumer protection code. These include requirements for the entity to know important financial details regarding the consumer and to offer a product suitable to that consumer.

There are a number of initiatives in Ireland to meet all members of society's financial needs. We can certainly take inspiration from the micro-credit bank experience elsewhere and from earlier times in Ireland, as outlined by the Senator.