Thursday, 12 July 2012
Microenterprise Loan Fund Bill 2012: Second Stage
I welcome the opportunity to present the Microenterprise Loan Fund Bill 2012 to the House. The Bill is one of the key targeted actions in the Government's action plan for jobs 2012 to address the issue of access to credit and support lending for the most vulnerable cohort of the SME sector, namely, microenterprises. It will prove to be a practical way of facilitating additional lending to microenterprises across all industry sectors in both the locally traded and the exporting sectors. A large number of microenterprises are locally-owned businesses that give the owner enough income to support his or her family and contribute to his or her locality. No glamour or particular riches are attached, but this is the true heart and soul of Irish business and it is the Government's firm intention to support such enterprises. The microenterprise sector encompasses everyone from the corner shop newsagent, the mechanic, the solicitor, the accountant and the window cleaner to the coffee shop owner, the hairdresser and small-scale ICT players.
The aim of the Bill is to facilitate lending to microenterprises and in so doing help generate sustainable small businesses to generate jobs and return the economy to the long-term growth path destroyed by irresponsible economic policies in the recent past. Microfinance Ireland is being established to provide loans for sustainable microenterprises in these difficult times. It is being targeted at newly established or growing enterprises across all industry sectors for commercially viable proposals that do not meet the conventional risk criteria applied by commercial banks. It is part of a suite of initiatives being implemented by the Government to get the economy moving again and address the transformation of the country, thereby making it the best small country in the world in which to do business by 2016. It is through such initiatives that the Government will achieve this goal and in so doing address the need to provide sustainable employment for citizens into the future.
First, I will present some background information on the rationale for introducing a microenterprise loan fund. In February the Government launched a range of measures under the action plan for jobs 2012 to improve the competitiveness of the economy, improve supports for job creating businesses and remove barriers to employment creation across the economy. All Departments and more than 35 agencies and offices of the State are engaged in this regard, with actions to support jobs that will be delivered in this calendar year. The plan is an active engine for change that will be reviewed and revitalised every year. The introduction of the microenterprise loan fund this year is one of the key commitments the Government made that will deliver positive and speedy results for this sector. The objective of the fund is to facilitate additional lending into the economy and create jobs in the microenterprise sector. Action in this area is one of the key demands of the advisory group on small businesses which I chair at the request of the Taoiseach and the Minister for Jobs, Enterprise and Innovation, Deputy Richard Bruton. The progression of this legislation to finalisation clearly demonstrates that the Government is listening to the real needs of businesses and delivering on its promises.
The formation and growth of microenterprises depend critically on access to credit. Access to credit and finance in the current risk averse lending environment is restricted for all businesses and particularly acute in the microenterprise sector. Even in good economic circumstances, banks decline applications from this sector which do not meet their criteria but which could have proved to be credit worthy had the loan been granted. Some of the factors that have discouraged banks from lending to microenterprises include poorly compiled records and accounts, especially audited accounts; low levels of technical and management skills; high bad debt levels; lack of collateral; the degree of administrative overhead and time investment required in terms of loan assessment, often with high refusal rates; and the relatively small size of lending propositions, with loan sizes averaging €16,000. However, in order to support recovery, we need to find ways to ensure credit worthy borrowers have access to lending.
I must make it patently clear at this early point that Microfinance Ireland is not intended to replace current bank lending. The banks constitute the first port of call and lender of first choice for loan applicants. Applicants will be required to confirm that they have been refused finance by a bank before their application to the fund will be considered. Microenterprises applying for loans under the fund can be in the form of a sole trader, partnership or private limited company with up to ten employees. Loans will be for amounts less than €25,000 and can be used for any business purpose. Loan applications will be made on the standard loan application form, as agreed with the Irish Banking Federation, and must be supported by a viable business plan indicating repayment capacity. Support in developing business plans will be made available through the county enterprise boards and the newly formed local enterprise offices which will further aid small companies to professionalise their engagement with institutions and help them to access much needed finance. This one-stop-shop will be a recognised centre for business in every county.
The fund is targeted at start-up, newly established or growing microenterprises across all industry sectors employing not more than ten people. It will provide loans of up to €25,000, averaging about €16,000, for commercially viable proposals that do not meet conventional risk criteria applied by commercial banks. It will afford entrepreneurs a real opportunity to get started and support the creation of new jobs linked with new fledgling businesses and the expansion of established businesses. It is intended that the fund will provide loans for some 5,500 microenterprises over time and will over a ten year period generate close to 8,000 jobs at a cost of approximately €2,500 per job. This is extremely good value in any man's language, particularly when we factor in the gains to the Exchequer. The backbone of the economy consists of the 200,000 companies employing 700,000 people. The Government respects and will service this critical engine of growth. The mobilisation of small businesses is so important to the future of Ireland.
The Government has chosen the Social Finance Foundation to manage and control the fund on its behalf. For transparency purposes, it shall establish a dedicated subsidiary called Microfinance Ireland to run the loan book attached to the fund. This will minimise overall management costs which have traditionally been high with microfinance. It will also ensure clear financial and accounting structures, enhance the possibility of European Investment Fund guarantee assistance and allow for clear accountability on the costs of running the scheme. Microfinance Ireland will work with other key stakeholders such as the county enterprise boards and the local enterprise offices to deliver a comprehensive microenterprise service to potential clients. The Social Finance Foundation has a track record in the area of microfinance which it will leverage to deliver optimal outcomes for the State in this very important area.
Governance of the new body is critically important to the Department, the Minister and the Government. Many controls, from approving the chairman, the board and the CEO to the application of the Freedom of Information and Ethics in Public Office Acts and an audit by the Comptroller and Auditor General, are being put in place to ensure best practice governance procedures will be implemented from the first day of the new body.
To underline the importance the Government attaches to this initiative, an allocation of €10 million will be made available as seed capital for the fund. In the current climate this is a clear indication of the importance the Government places on this very dynamic sector. When viewed in a macroeconomic context, microfinance is a very cost effective job creation and job protection mechanism, generating a high rate of return. In many cases the potential entrepreneurs come from the ranks of the unemployed and are, therefore, drawing State benefits. Existing employees who choose the entrepreneurial route and set up their own businesses are also likely to create a residual employment opportunity in their previous organisation. The vast majority of microfinance applicants are engaged in locally tradeable services. While many may not have the potential for growth in terms of internationally tradeable businesses, there are significant benefits to be gained from the development of a successful microenterprise sector. They provide a solid enterprise base on which the SMEs and high potential start-ups of the future can develop. There are clear societal and community benefits, in addition to the economic and job creation objectives, as individuals grow in confidence and generate positive internal benefits throughout the community and they can provide much needed competition in the locally traded sector.
In addition to contributing to the economic and social agenda, this initiative will also yield Exchequer gains in terms of employment, sustained and created, savings on welfare payments and increased direct and indirect tax payments, calculated at €23,000 per job per annum. The €10 million allocation, supplemented by €15 million borrowing from other sources in tranches of €5 million in the second, third and fourth year of the life of the fund, will generate €40 million in loan expenditure and create 3,800 jobs over a five year period. This is based on €8.8 million of loan demand and 20% bad debts. The return to the Exchequer over five years is estimated at €46.2 million.
I would now like to turn to the specifics of the Bill. Section 1 provides for the Short Title, the Microenterprise Loan Fund Act 2012, and commencement. Section 2 defines certain commonly used terms in the Bill. Section 3 provides that costs associated with administering the Bill will be subject to sanction from the Minister for Finance, with the consent of the Minister for Public Expenditure and Reform, and met from moneys provided by the Oireachtas. Section 4 provides for the establishment of the microenterprise loan fund. The fund shall consist of all grants made to the subsidiary under section 5 and all gifts and other income. Section 5 confers on the Minister the power to pay to the subsidiary €10 million and provides scope for additional Exchequer funding, if deemed necessary, subject to an absolute cap of €25 million before further Oireachtas approval is required.
Section 6 provides for the subsidiary to invest money from the fund and to vary or sell investments made. Section 7 enables the subsidiary to lend money to microenterprises using existing moneys and money borrowed from the Social Finance Foundation. Section 8 provides for the Social Finance Foundation to be able to borrow money for the purposes of the Bill. The aggregate at any one time of borrowings under the section shall not exceed €25 million.
Section 9 allows for the Minister, the Social Finance Foundation, SFF, or the subsidiary, with the consent of the Minister for Finance and the Minister for Public Expenditure and Reform, to accept a gift of moneys, the purpose of which is to benefit the fund, upon such trusts or conditions, if any, as may be specified by the donor.
Section 10 provides for the Minister to make a scheme. The scheme may make provision for various terms and conditions such as purposes for which the loan may be given, terms of the loan agreements, reports and information by the subsidiary to the Minister, audit and examination of accounts of the subsidiary and other matters.
Section 11 enables the SFF to form a subsidiary to be registered under the Companies Acts. Section 12 provides for the name and share capital of the subsidiary of €1 and that share shall be issued by the subsidiary to the SFF. Section 13 provides for the memorandum and articles of association to be consistent with the Act and to be approved by the Minister with the consent of the Minister for Public Expenditure and Reform.
Section 14 provides for a director of the subsidiary to be disqualified for various issues such as bankruptcy, conviction of an offence, and other matters. Section 15 provides for directors to cease to be a director if they are nominated as a Member of Seanad Éireann or elected as a Member of either House of the Oireachtas or the European Parliament. Section 16 provides for the disclosure of interests by directors of the subsidiary. Section 17 provides for the disclosure of interests by members of staff of the subsidiary. Section 18 provides for the non-disclosure of confidential information by any person serving as a director or staff member, adviser or consultant to the subsidiary.
Section 19 provides for the funding of the subsidiary out of moneys in the SFF and allows the Minister to make an arrangement related to the expenditure generally incurred by the subsidiary in the performance of its functions under this Act. Section 20 sets out requirements for accounts to be kept by the subsidiary and provides for auditing by the Comptroller and Auditor General. Section 21 provides for an annual report to be prepared by the subsidiary and to lay the report before both Houses of the Oireachtas.
Section 22 provides for the Minister to conduct a review of the operation of the Act not later than two years after the date of its passing. This is designed to ensure we have introduced a programme of relevance to this business sector that will achieve results and deliver on our key outcome area, namely, jobs.
Backing microenterprise by providing finance to those which struggle to get credit from mainstream lenders is designed to meet a vital need. The development of our microenterprise sector cannot be left to chance. As can be seen from this and other initiatives, it will not be left to chance. We want to reach out to more people who have the ambition and drive to set up their own small business. This initiative has a significant entrepreneurship focus. Entrepreneurship and self-employment is an important opportunity for individuals. It is about turning small acorns into large oaks. It is important for rewards such as self-worth, self-sufficiency, independence, job satisfaction and, of course, for increased income.
Entrepreneurship is also important for the economy as a whole as it leads to new jobs and is a catalyst for new innovations and wealth creation. Entrepreneurship keeps the economy fresh and moving forward. As the Taoiseach has said many times, if 50,000 small companies could create one job each, at little cost to the State, it would lead to a significant change in the economy. The SFF will help turn good ideas into great jobs. Across the country, we have a fantastically talented people with many business ideas. We must encourage entrepreneurs, especially young people, to develop these ideas into business opportunities.
The commercialisation of knowledge is very important. Entrepreneurs are attracted by the prospect of success. They need to be encouraged and supported to make their mark and build a better future for themselves and this country. Entrepreneurs who utilise this fund will also have to make the best possible use of professional advice provided through bodies such as county enterprise boards and the local enterprise offices, which will be a fantastic one-stop shop for business as well as facilitating mentoring supports. Once entrepreneurs develop a track record after borrowing moneys from this fund, they will be able to secure borrowing independently. They will have to build on their skills and this can only heighten the professionalism of the sector. In turn, this will lead to greater demand for professional services, further increasing the benefits to the economy of this fund.
The day of a bank giving money to a business and just standing back is gone. It is about working with the client, going through the monthly management accounts, due diligence, operation of the business and mentoring. I saw Senator Quinn's programme on television last night about assisting small businesses setting up. It is important to encourage start-up companies. Mentoring, support and encouragement is worth more than any money as it gives people confidence. It gives a significant sense of encouragement to a small business to have a mentor with an outside look. I congratulate Senator Quinn on his fantastic television programme.
Ultimately, it will be profitable and competitive businesses which will underpin job creation, prosperity and the broader success of the economy. This fund is another example of how the Government is taking action to ensure the business environment supports this agenda. The needs of small business, identified by the advisory group on small business, are being met. It may not be by means of a big bang but it is in a positive and methodical manner which will deliver real change to the way business is done.
This initiative is another step towards a more sophisticated and accessible financing environment for small and medium-sized enterprises, SMEs. It is just one component in the suite of initiatives aimed at ensuring the flow of credit. It will add value to the measures already taken to address the SME credit supply issue, such as the temporary partial loan guarantee scheme, and represents real value for money to the State. I must commend the civil servants involved in drafting this Bill. They have shown significant commitment and extraordinary dedication to get it drafted, sometimes working 14 hours a day with limited staffing resources.
I am glad the Bill has been introduced to the Seanad before the recess. I hope the scheme will be up and running as soon as possible as I know it will be a success. I commend this Bill to the House.
Before I discuss the Bill, I welcome the announcement on Tuesday of the establishment by Enterprise Ireland of a €250,000 competitive feasibility fund aimed at stimulating high potential business start-ups by female entrepreneurs. The fund will be open for applications from Tuesday, 17 July 2012 until 4 September 2012. This initiative is part of a drive by Enterprise Ireland to boost the number of innovative, export-oriented businesses being led and set up by female entrepreneurs. I hope there will be many applications. If Ireland had a similar ratio of female entrepreneurs as Australia does, then it would have an additional 34,000 businesses, an increase of over 15%.
As long as I am in this House, I will never oppose any measure that seeks to relieve the unemployment crisis. Accordingly, I welcome this Bill in principle. That said, I am not sure this measure will have significant impact. I am not saying the measure will not achieve what the Government is setting out. Rather, I am not sure the Government's target is significant. According to the Government, this measure will deliver 7,700 jobs in 5,000 companies over ten years. Some 5,500 of these jobs will be created directly, with the balance of 2,200 being created as an indirect consequence of the scheme. In other words, the fund will deliver one seventh of one job per company per year. What the Minister of States describes as a key part of the action plan for jobs 2012 will deliver one job per company covered by 2019. Does he consider this a satisfactory outcome? Is it not the case that the Microenterprise Loan Fund Bill 2012 is a little too micro in its ambitions?
In the Dáil the Minister stated, "The introduction of the microenterprise loan fund is one of the key commitments that my Department made in order to deliver positive and speedy results for this sector." He actually used the word "speedy". The creation of one job per company in the seven year period to 2019 is his version of speedy. Is he being serious in respect of his estimates in this regard? I would certainly like to be informed of the criteria on which these estimates were based. Was one of them that only a single job would be directly created per company funded? One can only wonder as to whether the Minister is deliberately setting the bar low in order to deflate expectations. In the event that the scheme delivers 1,500 jobs in its first year, will he be claiming that it had succeeded beyond all expectations?
Despite what I have said, the Fianna Fáil Party welcomes the Bill which is long overdue. The document issued when the Government launched it in May 2011 proclaimed:
In line with the commitment in the Programme for Government, a Microfinance Start-Up Fund to provide loans to small businesses is being developed. A workable scheme and optimum delivery mechanisms are now being considered and this work will be brought to fruition for the December Budget.
Six months later the Government announced details of a €100 million microfinance loan fund. It stated the fund would have an impact for 5,000 businesses and be in place in the first quarter of 2012. The scheme should, therefore, have been in operation by the end of March. When the action plan for jobs was launched in February, we were informed that a €100 million microfinance loan scheme would be going live in the immediate future. The summer recess is fast approaching and it is only now that the relevant legislation is being rushed through the Houses.
According to the Small Firms Association, 90% of small businesses are microenterprises. This means that they employ fewer than ten people and implies that there are in the region of 180,000 microenterprises in the country. The Minister and the Government intend, by means of the scheme outlined in the Bill, to assist 5,500, or approximately 3%, of these.
The Bill is rooted in the credit crisis faced by Irish businesses. In order for a company to be eligible for the scheme for which the Bill makes provision, it must, first, have had a request for credit declined by the banks. The Government informs us that, "The Scheme will provide loans ... for commercially viable proposals that do not meet the conventional risk criteria applied by the banks for various reasons, including the absence of collateral." The House recently dealt with the Credit Guarantee Bill and many of the contributions to the debate on it focused on the need for businesses to obtain credit. It is worth restating just how difficult it is for businesses to do this. The most recent report from Mr. John Trethowan of the Credit Review Office outlines the position in clear terms. He stated:
I am ... disappointed that there is not more evidence of support for "enterprise risk taking" on new and increased lending in the banks' current lending policies. This would suggest that their current risk appetite needs to be reassessed in order to support economic and employment recovery.
It should be borne in mind that many companies will not go to the Credit Review Office for fear that they will be punished by the banks if they dare complain that they are not receiving fair treatment.
The assessment of the position on credit issued in June is even more forthright and makes for worrying reading. ISME claims that the banks are hindering recovery, with 54% of credit applications refused by bailed out banks in the past three months. Its survey indicates that 82% of businesses which applied for funding have outlined that the banks are making it more difficult for them to access finance. The survey also claims that 96% of business owners are of the view that the Government had either a negative or no impact on SME lending. It confirms what so many of us know from our dealings with the SME sector, namely, that the banks are not lending. Two days ago ISME published another survey which shows the level of dissatisfaction among over 700 SMEs at the Government's performance in the areas of jobs, banking, costs and dealing with the troika. Commenting on the contents of the survey, Mr. Mark Fielding, CEO of ISME, stated:
[W]hile the electorate was willing to allow the government some time to come to grips with the economic situation, after sixteen months more was expected. The time of promises and announcements about announcements without any concrete action was long gone. The disappointing satisfaction ratings from SME business people was a clear reflection of the mood of the sector and a warning to government that much more needs to be done in the struggle to come out of the crisis. The difficult decisions necessary to restore our competitiveness and recovery must be taken.
At a press conference earlier today the representatives from the troika stated "Ireland's recovery programme remains strong in a challenging environment." That is good news. However, the country's budget deficit remains the largest in the European Union.
The representatives from the troika also stated, "Ireland's unemployment remains very high, and generating growth and jobs on a sustainable basis remains a critical priority." The Minister of State cannot deny the findings of the ISME survey to which I refer which shows the level of dissatisfaction among over 700 SMEs and indicates that "Business costs, jobs and banking issues still evoke greatest negative sentiment." ISME's members work at the coalface and it is the they who are creating employment.
The scheme that will be established under the Bill is the first fund for microenterprises to date. Whatever I may feel about the ambitions for the scheme, I compliment the Minister on bringing it forward. I would just like to point out to the Minister of State that I am complimenting the Minister for Jobs, Enterprise and Innovation on bringing forward the scheme.
That is fine. The Minister of State is a true gentleman. The Minister, Deputy Richard Bruton, has indicated that in the initial five year phase of the scheme some €10 million in Exchequer funding will be leveraged in order to achieve a total of €40 million in additional lending. I understand this money will come from savings made within the Department of Jobs, Enterprise and Innovation.
Under the Bill a new company, Microfinance Ireland, will be established and granted €10 million to lend to microenterprises. For the purposes of its remit, Microfinance Ireland will classify microenterprises as firms with fewer than ten employees and a turnover or balance sheet total of less than €2 million per annum. It will supplement its initial funding with borrowings and the aim is for it to lend an average of €16,000 per enterprise to 550 enterprises a year.
My party will be supporting the Bill. All new credit is welcome and anything that can boost the SME sector has our support. It is vital that we cultivate a strong indigenous enterprise sector. The success of Enterprise Ireland under the direction of its chief executive, Mr. Frank Ryan, and its client firms shows that we can do it in this country. As the Minister of State indicated, he was very impressed by the operations of some of the very successful companies he visited on his tour around the country in the company of Mr. John Moran. The big increase in exports from the indigenous sector is enormously encouraging. While foreign direct investment will always have a role to play, it is vital that we continue to make progress in providing for a better balance in exports between home grown companies and multinationals.
Ireland imports €5 billion worth of fossil fuels per annum and €5 billion worth of food. Just consider what we might do with that €10 billion if it were not being spent abroad. There is a need to engage in a discussion on that matter.
I welcome the Minister of State. I also welcome the Bill which paves the way for the introduction of the microfinance loan scheme. The legislation is an important plank in Government policy and I know it is close to the Minister of State's heart. I am delighted that he has been given the opportunity to introduce the Bill in this House. As he indicated, the legislation will, I hope, be enacted before the recess and the Department will then have the opportunity to implement the scheme.
The new microfinance loan scheme is aimed at small and medium enterprises that employ fewer than ten people. This is a very important sector of the economy and the enterprises within it are the backbone of small and large towns. If one drives from Dublin to Sligo, one will pass through many towns and villages in which one will find a host of small and medium enterprises run by individuals, families, etc. They are not creating substantial wealth for themselves but are providing employment and services in their community. They are trading in the community. As the Minister stated, they are the bedrock of our economy.
It has been identified that in a number of cases these individuals cannot access finance. I know it is important that before they look for a loan from this fund, they will have approached the banks and have been refused. We all know of such cases. We know of people with small businesses who cannot get funds from the banks to buy stock coming up to Christmas. That makes zero sense in terms of doing business. I hope the provisions of this Bill, when enacted, will enable them to access funds. This is one of a suite of measures being introduced by the Government in the jobs action plan. The introduction of the credit guarantee scheme is another important measure that acknowledges that banks are not facilitating all businesses. These Government supports will educate the banks by providing information as to how businesses operate. We know the banks were reliant on property, a sector they could understand, but now they need to come to grips with other types of business and understand the business environment.
The microenterprise loan fund will provide low levels of funding which will be important to many individuals. The Credit Review Office produced its eighth quarterly report in April. It was heartening for many enterprise operators that Mr. Trethowan observed that banks are largely supportive of medium- and low-risk new lending proposals from well-established SMEs - I stress the term "well-established" - that already bank with them. However, he expressed his extreme disappointment that there was no evidence of support for enterprise risk-taking on new and increased lending in the banks. His statement was stronger than his previous statements and gives support to what we are now discussing. It also gives support to the concerns of SMEs and many of us who are concerned about the operation of the banks. Mr. Trethowan acknowledged that the challenge for the banks is to develop approaches that can provide credit for small and medium-sized enterprises. He stated that over the past three months the Credit Review Office had received 44 applications from SMEs that had been refused credit by AIB or Bank of Ireland. Work is ongoing on 31 cases but of the cases completed in the first quarter, 17 refusals were overturned, resulting in the two banks' releasing €2 million of credit, supporting 140 jobs in the SME sector. That is significant. He said also that since April 2010, which is just over two years ago, 197 appeals had been received. Of the cases completed, 69 of these refusals were overturned, resulting in the banks' supplying €6.9 million of credit, which supported 683 jobs. The other side of bank lending is that when individual SMEs are refused credit, it diminishes the potential for job creation, which is a very important factor.
Mr. Trethowan issues a quarterly report, which is very welcome and gives us an insight into the difficulties that individuals experience when seeking funding from the banks. I very much appreciate the work he is doing, which offers support to businesses. There is a constant appeal to businesses to prepare themselves. In his speech the Minister stated that those applying for microenterprise funding will be supported in making their loan applications by the local country enterprise boards, soon to become part of the local enterprise office. That is important. We hear that many small businesses are refused credit because they do not have a proper business plan in place and their scrappy applications do not stand up. With a little support, that obstacle can be overcome. The Governor of the Central Bank supported the finding of Mr. Trethowan. It was found that in the Twenty-six Counties, compared to other countries in the eurozone, businesses were between 15% and 18% more likely to have a request for credit rejected by the banks. There is a difficulty in obtaining credit, which must be overcome. We need to work with the banks rather than take a stand-off approach. This is an important Bill because it focuses on individuals who employ fewer than ten people. These small enterprises were left at the wayside during the Celtic tiger era, but they are the bedrock of the community.
I welcome the announcement of the arrival in Ireland of the Silicon Valley Bank, which will support businesses in the fields of technology, life science, clean technology and private equity. SMEs in these fields have had difficulty in getting funding from our traditional banks. Silicon Valley Bank understands such businesses. This is a very welcome development. The Minister has encouraged the arrival of a bank that focuses on a particular type of industry. This is another plank that will help small businesses in this area to move forward. This Bill is a very important step and I welcome it.
I thank the Minister for his kind words during his contribution. I have found that "Feargal Quinn's Retail Therapy" has been a real education for me, whatever about educating and helping some of the others who were involved. Some of the businesses that were involved in that television show - we are doing our third series at present - are generations old, while others are just start-ups. The programme to which the Minister referred was about a young woman in Ennis, County Clare, who had started her business only six months earlier and was facing challenges which to a very large extent were the result of her way of life. She had a ten-year-old daughter, yet she was having to get up outrageously early to turn on the ovens to bake cakes and bread. What she needed was to realise that if anything went wrong with her life she would lose the business, as she did not have any backup. She had not gone to the banks because she felt she had no chance of getting money. One of the messages I have sent out is that a number of banks will lend money and are able to lend money, but we must show people how to make the case for a loan. That young woman, Carrie, went to the bank and explained what she wanted, showed them the figures and told them what she was going to do, and she got the money she needed. She is doing very well now. I should not speak of one individual in particular, but the same things apply in other cases. In another case, a husband and wife team needed about €10,000 to do what I thought needed to be done. Her response to me was that if she had €10,000 she would not spend it on my suggestion but buy new stock to sell. However, she did spend it on building a window and suddenly discovered that people walking past could see the product she had and the change in the way of life she had. I mention these examples because some of the changes do not just depend on money. Enthusiasm, which practically all entrepreneurs have, plays a large part in business.
The other thing to understand is that one is going along to a funder, somebody who is going to fund an entrepreneur. It does not have to be a bank or credit union. One must put oneself in the lender's shoes and realise that they are not likely to give money unless a strong case is made and their mind is put at rest because they know that they will get paid back.
I welcome and congratulate the Government on the initiative. It is exactly what is needed. We should do more to encourage entrepreneurs. One way we could let them know is to introduce a safety net for self-employed people to allow them to contribute PRSI and enjoy the same entitlements as employees.
In terms of funding for SMEs and set the conditions for start-ups to flourish, the Government should also focus on developing crowd funding, an issue I have raised previously. Crowd funding, which is an American term, is now worth $2 billion a year to the United States. We could establish a national website to harness the power of online investors who pledge investments in new businesses. The scheme has been successful in the United States. Think of the potential. The Irish diaspora could sign up to a national website to pledge funds for promising home-grown ideas. I would love to hear the Minister of State's view on it and to see if we can do something like it. We need a regulatory framework for crowd funding because the sector is a grey area. Who governs such online pledges? What are the legalities for non-residents? What about online impostors or the disclosure of certain information to investors? We need legislation in order for the market to grow, to control it and to make it safer for investors to crowd fund Irish businesses, including microenterprises.
Let me explain crowd funding. The United States has made moves to plug gaps by introducing legislation called the Entrepreneur Access to Capital Act. It will create a regulatory framework to allow private business use crowd funding to access hundreds of millions of dollars. In simple terms it allows small commercial enterprises, such as individuals with ideas or small businesses, to utilise crowd funding over the Internet by selling non-public securities to the public through social media. It asks for money over the Internet in exchange for some promise or return at a later date. It will allow small enterprises to raise up to $2 million annually from investors pledging no more than $10,000 or 10% of their annual income. Online microfinance was previously limited to charities and non-profit organisations. Now that the Bill has been passed in the United States, SMEs will soon be able to secure investment. Will the Minister of State be able to do anything in the sector? One can invest as little as $250, which is about €200, and as much as $10,000 in a small start-up business that has managed to sell its wares on the Internet. This is worthwhile and, on that basis, it can help.
The Irish Credit Bureau gives information to lenders in help them decide whether to give credit to a business or an individual. The bureau also compiles positive information, for instance if loan repayments have been made on time. It does not compile information from retailers, trade creditors, utility companies or financial institutions. Others, including the World Bank, have highlighted the fact as a deficiency in the Irish system. A fuller picture must be provided when a business or individual applies for credit, and the ICB must take account of all of the information to allow businesses to access vital credit. For instance, if a supplier or trade creditor has paid off his or her bills on time for the past five years but has missed some mortgage repayments due to recent difficulties in recent months, they may not be able to access credit. That is unfair. All of the information must be taken into account. Some countries have introduced suitable legislation in the past year, including Lithuania and Spain. We could do the same here and it would benefit SMEs.
I know that the Minister of State is anxious to cut red tape, and we can. Part of the solution would be to get rid of systems we needed some years ago. A few years ago when I purchased my airline ticket, I was told I no longer needed a ticket, and I could not believe it. Air travel is now ticketless, one can imagine the savings that have been made. Ryanair was the first airline I discovered operated a ticketless system, but now no one needs tickets anywhere. Who thought of it? The concept cut red tape.
There are new ways to give credit to microenterprise. The Shawbrook Bank specialises in lending to small firms in the United Kingdom, and it will lend £250 million to SMEs this year. It is just one bank, but there are many others. It would be worthwhile for the Minister of State to examine the scheme.
The Minister of State deserves great credit. I am delighted he gave credit to the people accompanying him who worked on the legislation because I know such work does not happen by accident. The Bill is worthy of support and I am sure it will be as enthusiastically supported in this House as it was in the other House.
I thank the Minister of State for outlining the Bill and I thank him and his officials for putting it together. It is important legislation and has the potential to create many jobs. I come from a small business background and know how difficult it is to start and maintain a business. The fact the Bill focuses on the employment of fewer than ten people is important. We in this country have always been traders and the ability stems from cattle dealing and trading various goods in times past. We still have the ability to make money locally through trading locally and that is where our future lies. Many families have traded for years but they find it difficult to borrow even small amounts of money in the current economic climate.
I would like to Minister of State to clarify a few points for me. People want to access the new scheme but are there exclusions? Can they use it to clear off debt that is holding back their company? A company may be owed money by a supplier or someone who has gone out of business. If the debt was cleared, a company could move on and progress, and I am sure there are many people in the position through no fault of their own. Businesses can be viable but they may need an injection of cash to clear their name with suppliers and get their heads above water. Can the fund be used for renting? Are there exclusions? Is it only for capital or training purposes? I have not read anything it disallows. Perhaps the legislation is broad enough to allow more uses.
I shall make a suggestion that could help small businesses in the future. A lot of small businesses start with good ideas but as many as 50% of them will fail in the first year, and some of that is due to inexperience. When I set up my business, I never encountered the Revenue Commissioners or the social welfare until I needed them or either organisation had a reason to call. Perhaps a visit from officials from the Revenue office and the Department of Social Protection in the first year of business would help small businesses by contacting them directly. Many people meet Revenue officials for the first time when they are in bother and there may be a difficulty by that stage. Any time I dealt with Revenue, I found its officials to be very efficient and good communicators. Many small start-up businesses do not have that knowledge but they do not generally go to enterprise boards. They may wish to set up a clothes shop, a hairdresser or supply goods or services and they do not feel the need to go to the enterprise board. In many cases people start off with a great idea and premises and go straight into business because the knowledge has been passed down through the family. It would be of great advantage if someone from Revenue called by, introduced themselves, outlined what a new business needs to do and gave a direct contact number in case of any difficulties. Sometimes accountants do that, but in many cases they are more concerned about getting the books prepared at the end of the year and getting the returns in. That could be an issue for consideration in the future.
Many small companies do not have large borrowings, but the loan fund could give a company an opportunity to take on another employee or make a purchase as it cannot dip into its cashflow to do it. This reminds me of a local man, Mr. Hugh Green from Raphoe, who is now in New Zealand, who was named a Donegal person of the year and on whom a documentary was done recently. He left Raphoe more than 60 years ago and is one of the richest people in New Zealand. He started off selling cattle as a 12 year old. He knew who would buy from him and who would pay him. He had no formal education but is one of the biggest contractors and farmers in New Zealand. He said that because he ran his business by his own intuition, he never had to borrow money and has given money to local charities in Donegal and throughout the country. He is more than 80 years of age and returns to Donegal each year. He is an example of the Irish spirit, how we can trade and do things well, but many businesses need start-up capital to get off the ground.
I hope the loan fund will be successful. The small and medium-sized businesses will bring the country through the recession. All towns are experiencing a downturn. The European, Chinese and world economies are experiencing difficulties, but we in Ireland can trade through those difficulties. The Microenterprise Loan Fund Bill is an example of a hands-on approach to it, but I hope it does not get bogged down in red tape. The experience with banks has been that they will say something is a great idea, but there is always a "however" after that. That is the bottom line. With the Bill I hope there will be more leniency. Banks are discouraged from lending because of poor records and low technical management skills. Perhaps the Department could arrange for the local enterprise boards, when set up, to have a person from Revenue with them to provide a contact. In the event of an issue with Revenue, it would be much easier if people knew the name of a person rather than Revenue and the sheriffs calling when people are in arrears.
I congratulate the Minister of State on the work he has done in this area and look forward to the results in 2016.
Like previous Members, I welcome the Minister of State. Sinn Féin broadly welcomes the Bill and its goals and will support it. The banks, even those owned by the people, unfortunately, are not lending as they should and are not being compelled to do so. As stated, microenterprises and SMEs account for the majority of employment in the State but are the least likely to get the loans necessary to continue to expand and get through the difficult period or to get a start. This is at a time when the Government can find up to €1 billion to pump into the ESM which in all likelihood will be used to prop up failed banks, but it can only struggle to cough up €10 million for the microenterprise sector. This is the context in which the Bill is coming to us and that must be acknowledged in the debate.
There are some flaws in the legislation that have to be addressed if the microenterprises are to benefit from the legislation and the fund in the way they should. The programme for Government provided that the Government would construct a €100 million microfinance start-up fund that would provide start-up loans and equity and would draw its funding from the National Pensions Reserve Fund and private institutional funds. Despite this, more than a year later we are presented with a Bill that puts only €10 million on the table. That is major betrayal of microenterprises by the Government. I will table amendments to provide for an increase in the amount of the fund, but whether they are accepted or ruled out of order is another issue.
A matter of great importance is the governance of the fund and the issue of democratic control and effective administration of the fund. Another injustice inherent in these economic times is encapsulated in the fact that these same banks which are refusing to lend to the real economy can access finance from the ECB at a rate of only 1%, yet microenterprises are expected to pay full market prices. The Oireachtas should be empowered to ratify each scheme rather than for us simply to give a carte blanche to the fund and for it never to be democratically scrutinised again. How related to this is the role of the Social Finance Foundation in the running of the fund? The legislation as framed effectively makes the Social Finance Foundation a direct deliverer of credit rather than its current role as a wholesaler of credit. What qualifies the Social Finance Foundation to take on this role? I will consider tabling amendments to clarify the division of duties in this regard and put in place a more efficient, speedy and accessible system in order that the Bill will be worthwhile.
The entire process, from the beginning to completion, of applying for funding should be straightforward and as simple as possible. Enterprise Ireland should have a clear role as a single point of contact providing feedback to the applicant and agreeing a development map and appropriate supports.
Sinn Féin will support the Bill as a step forward. While it should have been better, I hope the Government will approach my amendments with an open mind. The Bill attempts to plug a hole in the market caused by the unwillingness of banks to do their job and the Government to make them do it. It must be got right and it must have financial muscle behind it. I hope the Minister will take on board our amendments on Committee Stage. I look forward to debating them.
I welcome the Minister of State. In the past year he has travelled the country visiting small businesses, and his determination and hard work is a great help to those businesses. Time and again, when the economy is in trouble, small and medium-sized businesses suffer but, against all the odds, they come back and provide employment and stimulate cashflow. We need to give them all possible help. Cashflow is the lifeblood of businesses and every business needs credit or loans. It is clear that businesses have significant difficulties in getting loans or credit from the bank. Many business people say that even with a good credit rating and substantial collateral, they have trouble getting credit. We are always delighted to hear about foreign investment in Ireland and multinationals creating jobs, but I heard recently Patricia Callan of the Small Firms Association say that at a time when jobs are in short supply, every citizen should be actively encouraged to create a job for themselves. The Bill will help them to do that.
The Government has made a commitment in the programme for Government to ease the problem for SMEs, and the Bill should greatly help the position. When the Minster, Deputy Richard Bruton, introduced the Bill, he said a large number of microenterprises are locally owned businesses that give their owners enough income to support their families and contribute to their locality. No glamour or particular riches are attached but they are the true heart and soul of Irish businesses and the Government firmly intends to support them. I wholeheartedly agree and welcome the Minister's sentiments and his commitment to do all he can to help the sector survive and thrive. We have many bright and intelligent young people with ideas and initiative. We have older people with skills, experience and determination. Microfinance Ireland will be a welcome addition to the supports and grants already available. Each of us has an important part to play. We must try to spend locally and buy Irish whenever possible.
I welcome the Minister of State. The debate on the Bill is taking place in the context of CSO figures which show a continuing decline in the domestic economy and, thus far, the economy has contracted by 1.1% in the first three month of the year. The CSO has attributed the contraction to a drop in exports and personal consumption for the first quarter. This ongoing negative outlook with declining or flatline growth pushes down spending and consumer activity with the knock-on difficulties this presents for the small and medium enterprise sector.
The idea behind the scheme is not; microfinance provision has proved useful in various developing countries, where the poor cannot access credit from banks owing to the lack of collateral. The modern use of the expression "microfinancing" has roots in organisations such as Grameen Bank of Bangladesh in which the microfinance pioneer and Nobel Peace Prize winner Muhammad Yunus reintroduced the concept with much success. In Bangladesh one of the difficulties for small rural farmers and business co-operatives was that there was no banking infrastructure to serve their needs. We have a banking industry, one on which we have lavished large amounts of cash to keep it afloat. Despite the work of the Credit Review Office, it seems, however, that banks are not lending to businesses. Up and down the country I am sure the Minister of State has heard from struggling businesses that have been totally starved of access to credit. I have heard from business people who are completely exasperated as they meet a stone wall every time they try to deal with their bank. However, the problem is deeper than an inability to lend on the part of the banks; the real issue is that the banks have forgotten the business acumen to lend to enterprise. During the Celtic tiger era all they did was pump money in during a property boom, which was nice and simple. My fear is that they are now in uncharted territory when it comes to evaluating and lending to businesses, which is a skill they must relearn. In the absence of a functioning banking system which is scandalous considering the recapitalisation undertaken by the taxpayer, the State must step in with initiatives such as the microenterprise loan fund.
While I welcome the scheme, it ignores the underlying difficulties facing the SME sector, for which access to credit is a major issue. There are other issues which are equally pressing such as the cost of doing business and local authority rates, an issue I will discuss. Without a co-ordinated strategy to address all factors impacting on the SME sector, we will continue to have a moribund domestic economy. I do not want to be pessimistic or overly critical, however, as I welcome much of the good work the Department is doing. At €650 million, Enterprise Ireland's seed capital fund is the biggest managed seed fund anywhere in Europe. The Silicon Valley alliance, announced by the Minister for Finance during the week, is another fund of €100 million. I appreciate, therefore, that the Government is stepping forward to allow access to finance. The Minister, Deputy Richard Bruton, has pointed out that it is not standing back and allowing the problems of access to finance to fester. I also welcome his commitment in the Dáil that in every one of the schemes the Government will seek to have private sector money to complement what the State is able to provide, in addition to exploiting the European Investment Fund. I trust that this latest scheme will be advertised to the business people who actually need it. In many cases we hear about initiatives such as the Credit Review Office and then some time later learn that there has been a disappointing take-up by the sector targeted owing to lack of knowledge.
Having welcomed the scheme, I temper my remarks by adverting to the difficulties confronting businesses that are not addressed. The overall issue is that in an era of declining domestic demand we are pushing many SME businesses to export, which is obviously not an option for every business. We know that 55% of jobs in Ireland are created in the SME sector; we can contrast this figure with that in the United Kingdom where it is approximately 60% and Germany where it is approximately 70%. The focus of the Government is often on foreign direct investment. On that front IDA Ireland is a world leader, but we cannot have a functioning economy based on exports alone, in particular where most SME companies are geared towards supplying the domestic economy.
The famous Mittelstand companies in Germany were referred to by the Minister in the Dáil. It was an interesting reference, as German SME companies have traditionally enjoyed a strong banking sector and pro-business policies from the government. The backbone of German industry which has been such a success in recent years has been built with the assistance of a banking model that has been well suited to the smaller scale companies on which we need to focus. It allows companies to grow and export. We have not had such a system and lack the right policies in other areas.
Local authority rates for retailers continue to be a major issue. While there is a need to have a well funded local government system, as the Government pulls away central funding and councils still need to provide services, the burden will fall on ratepayers. We need to examine the rationalisation of local authorities in that context, with energy prices, transport and waste disposal. A debate on another day could focus on taxes and debt forgiveness where debt is unsustainable, as recommended by Moody's ratings agency earlier this week. Unless we see a more co-ordinated approach embracing reductions in costs for businesses, in addition to certainty on personal taxes and the issue of debt forgiveness, we will not see Irish people spending again any time soon. That is a critical issue.
I thank Senators Mary White, Deirdre Clune, Feargal Quinn, Jimmy Harte, Kathryn Reilly, Imelda Henry and Rónán Mullen for their contributions to the debate. The issue under discussion is one of the most important for small business in Ireland and has been identified as mission-critical by the advisory group on small business. The Bill reflects the fact that the Government is listening to businesses and willing to act in a positive and supportive way, even in difficult and restrictive economic and financial conditions.
On Senator Mary White's point, this is a start-up fund which will be reviewed. The Senator welcomes the establishment of the fund for entrepreneurial women involved in business. It is not just about giving money but also about mentoring, skills development and management. It will be closely evaluated by officials in the Department.
The Bill has taken time to reach the floor of the House and as such, I acknowledge the frustration of many at the delay in processing it. However, this is a completely new policy area for my Department and it has taken time to overcome the issue.
On the administrative structures to be used, the legal concerns and the point made by Senator Deirdre Clune about the role of the Credit Review Office and Mr. John Trethowan, the banks have ring-fenced a sum of up to €7 billion for businesses. Senator Feargal Quinn has made the point that people should make applications because there is a new, simplified bank application form that will be common to Bank of Ireland, Ulster Bank and AIB. People can also appeal credit decisions, even though many do not, within their bank and to the Credit Review Office. We should engage with Mr. Trethowan who has overturned one in two decisions. Senator Deirdre Clune welcomed the Silicon Valley alliance and made the point that the Credit Review Office should be used effectively.
The Bill is targeted legislation to address the needs of the most vulnerable elements of the SME sector, microenterprises. It will ensure additional lending to businesses in the locally traded and export sectors and deliver real outcomes in terms of job creation. The fund will help firms with the potential to generate growth to realise it and meet some of the unmet demand for microfinance. It will have a greater risk appetite than banks could possibly ever have, which is important. It will also be able to fund microenterprises that cannot satisfy conventional bank criteria.
On Senator Jimmy Harte's point, loans will not be bounded to any degree. The applications must be backed up by a business plan showing the purpose and sustainability of the enterprise. I listened actively to what the Senator said and a one-stop-shop will ensure it is about more than just providing money; it involves staying and working with applicants and mentoring. Previously, the banks just gave out money and when there was a problem, they came looking for it.
Many successful business people whom I know would love to give something back to Ireland. This is a real opportunity, when the local enterprise offices are established, to make a call on people who are semi-retired and have business experience. We can tap into their expertise. We are eager to work with applicants who have viable proposals. There will be huge merit in a system of independent evaluations. As I said, there are successful professionals, including legal professionals, who are very well off and want to give something back. I am very much aware of the generosity of Irish business people.
Senator Feargal Quinn made reference to crowd financing. That is a fantastic idea and I would be keen to obtain more information from the Senator in this regard. I understand it has proved very successful in the United States in terms of facilitating credit flow to small companies. The Department is examining how it can improve access to finance for all businesses, including a review of all aspects of seed and venture capital schemes. The United States experience in regard to crowd financing offers a useful model in terms of encouraging people to invest and take a risk in new businesses. It is a very interesting concept.
In regard to the PRSI contribution, the Minister, Deputy Burton, is examining proposals whereby self-employed persons whose businesses fail would have some entitlement to benefit. That is under active consideration by the Department.
The loan fund is not designed to replace current bank lending but to aid economic recovery by facilitating creditworthy borrowers to deliver jobs across the economy. The aim is to assist enterprises in their endeavours with a view to generating approximately 8,000 jobs. Many small business owners are telling us that they have no confidence in approaching the banks for finance. Some feel their application will be refused even before it is made. The measures contained in the Bill will encourage greater confidence in the banking network. The banks have committed to lend €7 billion this year and €8 billion next year. If these measures help to generate 8,000 jobs per year in the coming decade, that will be a huge achievement. We intend to monitor progress closely and to ensure the targets are kept clearly in focus. What is proposed in this legislation represents an effective use of State funding, with the cost per job working out at the lowest end of the scale.
The Bill provides for the establishment of the microenterprise fund and the formation of a private company to lend to businesses and manage the fund. We are confident this will stimulate activity in the economy by providing the necessary support to sustainable microenterprises. The targeted nature of the initiative will see loans of up to €25,000 provided for commercially viable enterprises which do not meet the commercial banks' conventional credit criteria. We expect the average loan to be sizeable, probably in the region of €16,000. That will have an immediate impact. The main aim of the fund is to ensure the microenterprise sector remains vibrant by helping to nurture the entrepreneurs of the future who will go on to create jobs in the economy. Senator Imelda Henry, who has a great deal of business experience, emphasised the importance of recognition, support and encouragement for small businesses. That is what we are about. This Bill is one of a suite of initiatives to encourage and support people who are willing to take the risks necessary to build and grow something worthwhile for themselves and others.
I agree with Senator Rónán Mullen that it is very much about confidence and credit. We must create confidence in the domestic economy so that people are willing to spend locally. We are doing fantastically well in terms of foreign direct investment and exports are thriving. The recent report by IDA Ireland shows the extraordinary results in this area. Indigenous companies are also doing exceptionally well but we recognise the need to support them. In a €90 billion economy, €11 billion is being saved. It is about restoring confidence in the future so that people will begin spending once again in the domestic economy. This Bill will certainly help to restore confidence and credit. I agree that both are equally important.
Some have expressed the view that this initiative is too little and too late for the SME sector. On the contrary, the measures contained in the Bill represent a timely response to the real needs of businesses. We could all sit back and list ten reasons that something cannot be done. We are interested in taking effective action. There is a well known saying that if there is no problem, there is no business. This initiative will not solve all the problems facing the indigenous business sector or create all the jobs we need, but it will create an environment in which small enterprises are supported to grow and create employment. As I said, the Bill represents one component in a suite of measures introduced by Government to facilitate the flow of credit to small business. It is one of several steps that will help us out of the morass into which the actions of others have condemned us. It should be considered in combination with the temporary partial loan guarantee scheme and all of the measures contained in the action plans for jobs. All of these initiatives are a clear indication of the Government's desire to address our problems in a manner which represents real value for taxpayers' hard-earned money. Moreover, we will listen to any proposals that might meet that objective, and my door is very much open to any Senator who wishes to make a submission. We are seeking ideas that will make a real difference. Business people want straight talk, effective action and tangible results. This Bill represents an important step in helping people to secure the necessary financing to build and expand their businesses.
I thank Senators Mary White, Deirdre Clune, Feargal Quinn, Jimmy Harte, Kathryn Reilly, Imelda Henry and Rónán Mullen for their contributions. I have listened carefully to their proposals and am more than willing to consider any feasible suggestions. I look forward to the debate on Committee Stage next week. Enacting this Bill will allow us to get on with the business of lending to this critical sector of the economy.