Tuesday, 17 July 2012
Microenterprise Loan Fund Bill 2012: Committee and Remaining Stages
Amendments Nos. 1 and 2 are ruled out of order under Standing Order 41 as they involve a potential charge on the Exchequer. Currently the Bill imposes a limit on the amount in grants that the Minister for Jobs, Enterprise and Innovation may provide to the microenterprise loan fund. The effect of the amendments would be to remove the limit, thereby incurring a higher charge on the Exchequer.
I thank the Minister and his officials for their efficiency in dealing with the Bill. I also thank the Members for their contributions. We had a most interesting debate on it last week. The Bill is an important element in supporting small businesses, particularly those that employ fewer than ten people. It is a niche area. This Bill is an important step and it will help increase confidence, particularly among those involved in the small and medium-sized enterprise sector. I wish the Bill well and look forward to its enactment.
I welcome the Minister. I support what Senator Clune said. Ultimately, we need a banking system in this country that will take on the role the Minister has had to take on today. All the evidence shows that in the period of massive lending between 1998 and 2008 hardly any of money lent from our financial institutions went into the manufacturing industry or the agricultural sector. Rather there was a spending splurge based on property and financial intermediation. In the Minister for Finance's discussions with Governor of the Central Bank, Professor Honohan, it was stated that we need at some stage to reinvent the banking system so it will perform the normal functions which banks perform in promoting enterprise. The banks undoubtedly lost the plot over that ten-year period and we need an early warning system to make sure that there is no question of a recurrence of that.
I thought during that dreadful period that there was a rationale for having the Industrial Credit Corporation and the Agricultural Credit Corporation. They were both privatised but they performed from the 1930s when the banking system was similarly reluctant to invest in industry. We need serious reform of the banks. They had lost touch with important sectors of the Irish economy. We should try to entice them to have regard for that. There was evidence from Bloxhams that foreign banks in Ireland played a much bigger role in funding manufacturing industry than the home grown banks. The banks may have lost the skills to do that and may not know anything about manufacturing industry or technology, but part of their duty as institutions, into which we put €64 billion, is that they had better acquire those skills again, perhaps play less golf with builders and get involved in the sectors that the Minister has brought before us. I commend the Bill.
I thank the Minister for coming to the House. This is an important Bill. As alluded to by Senator Barrett, it would not have been necessary if the banks had done their business and stuck to what they were set up to do, namely, banking. Retail banking and investment banking became mixed up and these must be separate. I refer to the Northern Rock issue in the UK. When the head of Northern Rock resigned it transpired that he was a public relations person who did not have a banking background. The banking system needs to change and small businesses must be able to access credit.
On a sad note, I spoke last week about a Donegal man, Hugh Green, who is the current Donegal person of the year. He emigrated to New Zealand 60 years ago and made millions and never borrowed one dollar from a bank in New Zealand. He became a multimillionaire. He rang The Irish Times when he was listed on the rich list to say that he was worth twice as much as the newspaper had estimated. Sadly, he passed away on the night I spoke about him. May he rest in peace.
I thank Senators for their support for this Bill. Senator Barrett is correct that, sadly, we saw the banks take a wrong turning. A couple of years ago, Ireland was the easiest place in which to get a loan and the refusal rate was a mere 2%. This was a symptom of the problem. Banks had lost the run of themselves by issuing money but, sadly, they had demolished their capacity to lend other than on the basis of property. The Senator is correct that we now have to go about the painful reinvention of our banking system. Enterprise Ireland which is under the remit of my Department is working with the banks in this regard. To be fair to the banks, they are re-examining their model and seeking to rebuild it but they are doing so against a background of so much retrenchment in their balance sheets and risk aversion measures that credit is not getting through to small business. The current refusal rates for small businesses are now the highest in Europe. It is true that we need to move quickly to fill this gap but this is something the State cannot do. This Bill is a microfinance initiative which is only a tiny niche within the overall piece but it is a very important niche which is to help, for example, an unemployed person on the back to work allowance who needs a few bob to get a business off the ground. This is the sort of enterprise which the banks will not touch. We hope to rebuild that segment and it requires action across the whole spectrum.
The development capital fund is aimed at companies higher up the tree, so to speak. The loan guarantee scheme is aimed at another subsection. However, the main heavy lifting has to be done by the banks. The Government has demanded that each of the pillar banks would be accountable for lending €3.5 billion this year to the small and medium enterprise sector. The banks will also be accountable for the quality of the loans, for ensuring that these will be genuine new loans to new businesses. We need to relearn the banking and other skills necessary to underpin an export economy.
I thank the House for its support. The Government is anxious to enact this legislation as quickly as possible. The scheme has been developed. I thank my officials for their work on this Bill. It has not been easy because the system is not all that well disposed to financial innovation in this current climate. It took a lot of resilience on the part of my officials and co-operation across the system. This Bill will probably prove to be one of the most significant actions in this area. It is evident that this segment, even in a healthy banking system, will not attract a great deal of support. Small or micro-business is not of great interest to the banking system because of the cost of administration and the higher failure rate. However, from a community point of view it is very important that these small businesses which are not necessarily exporters, are given a chance to succeed. The Government is quite happy to cover a relatively high failure rate because the social advantages stretch well beyond the percentage of businesses which do not succeed. We will return to the House within two years with a report on how this scheme is faring. I hope we will return with a good news story at that point.