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Dáil Éireann debate -
Wednesday, 27 Jun 2012

Vol. 770 No. 2

Microenterprise Loan Fund Bill 2012: Second Stage

I move: "That the Bill be now read a Second Time."

I welcome this opportunity to present the Microenterprise Loan Fund Bill 2012 to the House. The Bill is one of the key targeted initiatives in the Government's action plan for jobs 2012 to address access to credit and support lending to microenterprises, which are the most vulnerable cohort of our SME sector. I believe it will prove to be a practical way of facilitating additional lending to microenterprises across all industry sectors in the locally traded and the exporting sectors. A large number of our microenterprises are locally owned businesses that give their owners enough income to support their families and contribute to their localities. No glamour or particular riches are attached but they are the true heart and soul of Irish business and the Government firmly intends to support them. The microenterprise sector encompasses everyone from the corner shop newsagents, the mechanic, the solicitor, the accountant and the window cleaner to the coffee shop owner, the hairdresser and the small scale ICT player. The aim of this Bill is to facilitate lending to microenterprises and thereby help sustainable small businesses to generate jobs and return the economy to the long term growth path which was destroyed by the poor economic policies of the recent past.

Microfinance Ireland is being established to provide loans to sustainable microenterprises in these difficult times. It is targeted at newly established or growing enterprises across all industry sectors with commercially viable proposals that do not meet the conventional risk criteria applied by commercial banks. It is part of the suite of initiatives being implemented by the Government to get the economy moving again and transform the country to meet the Taoiseach's objective of making Ireland the best small country in the world to do business in by 2016. It is through initiatives like microenterprise loan fund that we will achieve our goal and provide sustainable employment for our citizens.

I will now explain the rationale for introducing a microenterprise loan fund. In February the Government launched a range of measures under the action plan for jobs aimed at improving the competitiveness of the economy, improving supports for job creating businesses and removing barriers to employment creation across the economy. Every Department and over 35 agencies and offices of the State are engaged in developing actions to support jobs which will delivered in this calendar year. The plan is an active engine for change which be reviewed and revitalised every year. 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. The objective of the fund is to facilitate additional lending into the economy and create jobs in the microenterprise sector.

The formation and growth of microenterprises are critically dependent on access to credit. In the current risk averse lending environment access to credit is restricted for all businesses and this is particularly acute in the microenterprise sector. Even in good economic circumstances, banks decline applications from the sector if they do not meet their criteria even though the applicants may have proven creditworthy had the loan been granted. 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 administrative overheads and time investments required in terms of loan assessment, often with high refusal rates; and the relatively small size of lending proposition, with loans averaging €16,000.

To support the recovery we need to find ways to ensure that creditworthy borrowers have access to lending. It is important, however, that I make it patently clear that the microenterprise loan fund is not intended to replace current bank lending. The banks constitute the first port of call and lender of first choice for loan applicants. Indeed, applicants will be required to confirm that they have been refused finance by a bank before their applications to this fund are 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 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 local enterprise offices, which will also assist small companies to professionalise their engagement with institutions and access much needed finance.

The fund is targeted at start-up, newly established and growing microenterprises across all industry sectors which employ no more than ten people. It will provide loans of up to €25,000 for commercially viable proposals that do not meet the conventional risk criteria applied by commercial banks. This will afford entrepreneurs a real opportunity to get started and support the creation of new jobs linked to new fledgling businesses and expansion of established businesses. It is intended that the fund will provide loans to some 5,500 microenterprises and generate close to 8,000 jobs over ten years at a cost of approximately €2,500 per job. This is extremely good value in any man’s language, particularly when one factors in the gains to the Exchequer.

I have chosen the Social Finance Foundation to manage and control the fund on my behalf. For transparency purposes it shall establish a dedicated subsidiary, microfinance Ireland, MFI, and run the loan book attached to the fund. This will minimise overall management costs, which have traditionally been high for 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. MFI will work with other key stakeholders, including county enterprise boards and 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 and will leverage this to deliver optimal outcomes for the State in this important area.

To underline the importance that I attach to an initiative for this sector, 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 that the Government attaches to this dynamic sector. When viewed in a macroeconomic context, microfinance is a very cost effective job creation and protection mechanism which generates a high rate of return. In many cases the would be entrepreneurs come from the ranks of the unemployed and draw State benefits. Existing employees who choose the entrepreneurial route and set up their own business are also likely to create a residual employment opportunity in their previous organisation. The vast majority of microfinance applicants are engaged in locally traded services. While many may not have the potential for growth in terms of internationally traded businesses, there are significant benefits in the development of a successful microenterprise sector because it provides a solid enterprise base from 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, generate positive internalities throughout the community and 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 creation, savings on welfare payments and increased direct and indirect tax payments, which are calculated at €23,000 per job per annum. The €10 million allocation, supplemented by €15 million borrowed from other sources in tranches of €5 million over years two, three and four of the lifetime 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 in loan demand and 20% in bad debts. The return to the Exchequer over five years is estimated at €46.2 million.

I will now address the specific provisions 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 Act will be subject to sanction from the Minister for Finance, with the consent of the Minister for Public Expenditure and Reform, and will be 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 this Act. The aggregate of borrowings under this section at any one time shall not exceed €25 million. Section 9 allows for the Minister, the Social Finance Foundation 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 the making 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 Social Finance Foundation 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 Social Finance Foundation. 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 fund 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 that we have introduced a programme of relevance to this business sector that achieves results and delivers on our key outcome area of jobs.

Backing microenterprise by providing finance to those who struggle to get credit from mainstream lenders is deigned to meet a vital need. The development of the sector is not something that we can leave to chance. As can be seen from this and other initiatives, it is not being 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 important for rewards such as self-worth, self-sufficiency, independence, job satisfaction and 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 for wealth creation. Entrepreneurship keeps the economy fresh and moving forward. The fund will help turn good ideas into great jobs. Across the country we have ideas and fantastically talented people. We must encourage entrepreneurs, particularly young people, to develop ideas into business opportunities. Entrepreneurs are attracted by the prospect of success and 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, which are soon to become local enterprise offices. They will have to build on their skills and this can only heighten the professionalism of the sector. This, in turn, will lead to greater demand for professional services, further increasing the benefits to the economy of the fund.

Ultimately, profitable and competitive businesses will underpin job creation, prosperity and the broader success of the economy. This fund is an example of how we are taking action to ensure the business environment supports this agenda. The initiative is another step towards a more sophisticated and accessible financing environment for small business in Ireland, and 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.

Despite the difficulties in the economy, we continue to have a high-level of business start-ups. We are among the highest in Europe for business start-ups but the constraint is access to credit. Even if the banks were in the whole of their health, this would be a problem. Deputy Peadar Tóibín is not in the Chamber at present but he has often raised the question of why we are not availing of the European Investment Fund and its capacity to guarantee independent credit providing institutions. The reason we have not drawn down that funding sufficiently in the past is that we have not had a nationwide fund of this nature filling the gap.

I pay tribute to the officials who have worked tirelessly to develop this, and the co-operation received from other Departments. I also pay tribute to the co-operation received from the Social Finance Foundation and First Step, which has pioneering experience in this area. The initiative will be really worthwhile but it is not the solution to our jobs challenges. It recognises an important niche in job creation that is underserved by the facilities currently in place. It will provide a new weapon in the armoury of our county enterprise boards and local enterprise offices as they seek to create a stronger business environment in local communities. I commend the Bill to the House.

Jonathan Swift said "Blessed is he who expects nothing, for he shall never be disappointed." The Bill has been a long time in gestation. If I regale the House with the occasions on which the measure was promised, we would sit well into August and would have time for nothing else. I will provide a few brief examples. In May 2011 a statement emanating from the Department said, "a workable scheme and optimum delivery mechanisms are now being considered and this work will be brought to fruition for the December Budget". In November 2011, the Government press office stated that the"Government announced details of a €100 million Micro Finance Loan Fund which impact 5,000 businesses and will be in place in the first quarter of 2012". In budget 2012, the Minister for Finance stated that the loan fund was agreed and about to come into existence. In February 2012, accompanying the Government action plan on jobs, there was a statement to the effect that the €100 million microfinance loan scheme will go live shortly.

Like the Credit Guarantee Bill, the legislation is an enabling Bill and provides that the Minister, with the consent of the Minister for Finance and the Minister for Public Expenditure and Reform, has been given the right to devise a scheme. The scheme it is not incorporated into the Bill and we have no idea what is in the scheme. We are totally in the dark about such vital elements as the classes of enterprises covered, the activities covered by the loans and whether any restrictions apply, what accounts will be kept by the enterprises, the amount of bureaucracy involved in impeding the scheme, the rate of interest and where people apply. If we tell people the scheme will be in operation by the autumn, the first question they will ask is where they should go.

I will return to that point. We do know, however, from the terms of the Government's press release - it is not in the Bill but in the press briefing - that it will only apply to applicants who have first been refused by the banks. I take the Minister's point about not complementing or overlapping with the banks in terms of lending. Nevertheless, the requirement to establish that a refusal has issued from the bank could potentially make the scheme very restrictive. We will deal with that on Committee Stage.

The Minister mentioned in his speech and in the various press releases that the Government is allocating a particular sum under the scheme and that another amount will be leverage against that. Will he outline exactly how this will work? It is not immediately clear to me.

The scheme is being introduced against the backdrop of record unemployment. As we speak, a meeting I organised to discuss youth unemployment is taking place elsewhere in Leinster House. I hope to make an appearance before it is finished. Youth unemployment is currently running at 30%. According to the International Labour Organisation, ILO, report issued in October 2011, the real figure is probably more than 50%, with only Spain and Greece in a worse position. The ILO is of the view that the extent of youth unemployment in this country is significantly understated, with a huge cohort of young people "hiding out" in the education system and in training schemes. It is not just the level of youth unemployment or the overall unemployment figures that are a cause for concern - in fact, the pattern that is emerging is extremely disconcerting. Of the huge numbers of unemployed, more than half have been out of work for more than a year and more than one third for more than two years. That is a very serious situation.

We must also build into these statistics the figures in regard to emigration. The official data, in so far as they can gauge, indicate that 75,000 people have left the country in the past 12 months. Simple mathematics will show that this equates to more than 200 per day. While the initial wave of emigration consisted largely of foreigners who had come to the country in recent years either as asylum seekers or in possession of work permits, an increasing proportion is made up of well educated Irish nationals. EUROSTAT figures show that Ireland's emigration rate is by far the highest in the European Union and double that of our nearest competitor, Lithuania. The Minister for Finance expressed the view some time ago that people were leaving in order to see Ayers Rock, Niagara Falls and the other wonders of the world. I know many families who have been affected by emigration and, in every case, the reason for leaving was the person's inability to secure employment in this country.

The most significant difference between the emigration that is happening now and that of the early 1980s is the volume of skilled workers leaving our shores on a daily basis. In addition to the social upheaval emigration causes, the loss of so many skilled individuals has consequences for the long-term productive capacity of the economy and the dependency ratio. Social Justice Ireland has correctly noted that, "The emigration 'brain drain' which in some quarters is being heralded perversely as a 'safety valve' is in fact a serious problem for Ireland and may well lead to a skills deficit in the long term". That would have serious negative implications for this country, including in the matter of attracting foreign direct investment. We remain marooned in a crisis of unemployment and emigration. Everybody in this House, regardless of political ideology, knows the effects of unemployment. It corrodes social cohesion, shatters communities, destroys relationships, crushes hope and engenders despair. It has driven many people, both young and old, up to and beyond the limits of their endurance.

I concede that the Government has made some efforts to deal with the crisis, but there is a certain incoherence to its approach. I am reminded of the dog who, when he eventually caught up with the car he was chasing. did not know what to do with it. There is also a remarkable media phenomenon to contend with. Unemployment is the greatest scourge and social evil confronting this country, but there is a distinct lack of media coverage of that reality. Deputy Mick Wallace's tax affairs generated far more acres of media coverage than the unemployment crisis that is tearing away at the very heart of this country. The people who cut turf in the west and are represented by Deputy Luke 'Ming' Flanagan are very important people and undoubtedly an important part of their local economy. It beggars belief, however, that their plight has attracted more media coverage than that of the 500,000 unemployed and the 200 leaving every day. The entire agenda is tilted in favour of covering the travails of the turf cutters.

One of the most respected young economists writing in the media today is Stephen Kinsella, a lecturer at the University of Limerick. I am not being partisan in stating my great admiration for him. He summed up this phenomenon very well in a recent article in the Irish Independent:

Journalists respond to sharp changes in data series. A sharp tick up, a sharp tick down would get this story on the news. Or a major jobs announcement or the withdrawal of a large number of jobs. But that's it. The persistence of the problem is what is being lost.

Recent research collected for the European Parliament has shown [the] costs [of unemployment] include shame and stigma, increased social isolation, crime, erosion of confidence and of self-esteem, the atrophying of vital work skills, and potentially ill-health, financial hardship and poverty, increases in personal debt, homelessness and housing stress, family tensions and marital breakdown, boredom and alienation,

Most of these problems increase markedly with the duration of unemployment, and in Ireland there are an estimated 182,000 people [this figure is slightly out of date] unemployed for more than 12 months. Unemployed people report that being unemployed was one of the worst things that has happened to them in their lives. And yet this isn't news.

This is the backdrop to the legislation we are debating. Ours is not a centrally planned economy and we depend on business, large and small, to generate jobs. Vital to the proper working of that system is an adequate provision of credit. Credit is the lifeblood of business, without which it cannot operate. When he recapitalised the banks, the Minister for Finance observed that he had stuffed them with capital. That was done not because they are venerable institutions or national monuments or because they deserve to be preserved for themselves. They were stuffed with capital in order to ensure their survival and thus their capacity to lend into the productive economy and facilitate the creation of jobs for the people of this country. They have failed abysmally to keep their side of the bargain.

As a result, the Government is reduced to introducing fairly minor, minimalist and targeted gestures to relieve the situation. We have had a series of Orwellian announcements from the banks, including statements, reports, studies, dispatches and miscellaneous other propaganda, all seeking to compel us to ignore the evidence before us. They keep telling us that lending is normal and there is no credit flow problem. The net effect of all this propaganda is, as Orwell put it, to "give an appearance of solidity to pure wind". Apart from the anecdotal evidence, the official evidence is unusually compelling.

For example, on 5 June last, the head of the Credit Review Office, Mr. John Trethowan, eventually had to admit he was disappointed that there was not more support for enterprise and risk taking, as a result of new and increased lending by banks. William Butler Yeats used the phrase "peace comes dropping slow", but for some people in the public sector reality seems to come dropping even slower. I am glad, however, that the head of the Credit Review Office has at last recognised the daily reality before our eyes.

Professor Patrick Honohan, the Governor of the Central Bank was far less circumspect. On 1 March this year, he said Ireland was the most difficult country in the eurozone for small businesses to access credit. He stated bluntly that credit was not flowing as freely in Ireland as in other EU countries. He said, "Credit conditions for SMEs are tougher in Ireland than anywhere else in the euro area, both in terms of cost and availability". That is a pretty stark judgment from the Governor of the Central Bank .

A recent EU survey on access to finance in the euro area, found that Irish SMEs were the second least successful in obtaining credit, after Greece. It examined factors such as the likelihood of being rejected for a loan, the size of loans, the level of collateral required to secure loans, commissions and fees, and the interest rate charged. All of those factors were found to be "substantially less favourable in Ireland than in the euro area generally".

A recent survey by ISME published on 12 March, found that 91% of firms felt banks were making it more difficult, rather than easier, to access credit.

A Central Bank paper by Dr. Fergal McCann, which studied and analysed bank lending for the first nine months of 2011, found that while an extra €1.6 billion was loaned into the SME sector of the economy, during the same period the banks removed €2.4 billion credit by closing credit facilities. Therefore, real lending to SMEs in this period was minus €800 million.

Together with those in Greece, Irish SMEs are the least successful in obtaining credit according to the EU survey on access to finance in the euro area. The Government has responded on a number of fronts. A small amount of money was allocated to the development fund for medium-sized and larger companies. A relatively small amount of money was dedicated to the innovation fund, and in addition there is the credit guarantee scheme and the microenterprise loan fund scheme. However, if the banks do not lend properly into the economy all of this will not begin to scratch the surface. Let me put it in context. The total amount of outstanding credit to SMEs is about €60 billion. The target for the two recapitalised pillar banks, AIB and Bank of Ireland, for a two-year period was €3 billion per annum each. That is €12 billion extra funding over a two-year period. We are talking here about €10 million over a number of years, which is like the little Dutch boy with his finger in the dyke.

In the Government's press release and again in the Minister's speech, it is claimed that this will create 7,700 jobs over a ten-year period. What is the basis for that claim and how has that figure been measured? Was it just picked from the air or is there any logical, scientific explanation? If so, how has it been calculated? I know those matters are, to a certain extent, dependent on opinion but what analysis has been done?

Even if we assume that it achieves its target of 8,000 jobs over ten years, to be generous, that is 800 per year. I have already made the point that emigration is running at over 200 per day, so the yearly target for the amount of jobs to be created here will cover about 3.5 days' emigration. The ten-year target figure will cover about one month's emigration at current rates. I am not saying this in order to belittle the Government's efforts but just to put the matter in context; we are not even beginning to scratch the surface.

I would like the Minister to address a number of questions in his reply. First, is it intended that the Joint Committee on Jobs, Enterprise and Innovation will be able to debate this scheme before it comes into effect? I have no intention of delaying it.

Second, when does the Minister envisage that it will come into effect?

Third, to whom must one apply in order to avail of the scheme? Will it be some central agency in Dublin or will it be done locally? Can it be done through county enterprise boards or the new one-stop-shops as they will become? If the administrative costs are not too high, this should be done locally or at a very minimum regionally. Many people are interested in this scheme and they have asked me how it will be administered. We do not have a clue so all I can tell them is that the legislation is going through the Dáil, which will give the Minister the right to set up a scheme.

I wish to raise a technical point with the Minister. What are the civil consequences for directors of the lending company who fail to disclose a material interest? They are obligated to disclose a material interest and there are certain statutory consequences set out in the Bill, but what will the civil consequences be? For example, will they be liable for damages and, if so, how will those damages be measured?

Section 18 prohibits disclosure of confidential information by directors and staff of the lending agency, but the section does not seem to contain any sanction to be applied when people disclose such information. Where is the sanction therefore?

Section 22 provides for a review of the operation of the scheme within two years of its commencement. However, there is no time limit for this review and there is no obligation for the review to be placed before both Houses of the Oireachtas for the purposes of debate.

Those are a small number of queries I had for the Minister, but I will turn to more detailed matters on Committee Stage. I welcome anything that gets €1 of extra credit into the economy. While the potato famine destroyed the social and economic fabric of this country 170 years ago, it is now being destroyed by a credit famine. I will therefore support anything that tends to get extra credit into the economy. I am not opposing the Bill but I deeply regret its shortcomings and limitations.

Ba mhaith liom fáilte a chur roimh an Bille seo ós comhair na Dála inniu. The legislation has been a long time coming. When the Government took office, the European progress microfinance fund was created simultaneously. The fund is open to all European countries and, at the last count, 11 countries had drawn down money from it, including Bulgaria.

In the 16 months since the Government took office, roughly 2,064 companies have gone bust - not to mention the number of sole traders that have lost their businesses. While it is hard to believe, in the last week alone, 27 companies have closed per working day. A large proportion of these are closing because demand has fallen off and there is a lack of credit. Not included in those figures are business start-ups that were sole traders or potential business start-ups that were stillborn. They were stillborn due to lack of demand and credit.

Many of these former entrepreneurs, some of whom never got started, are languishing and struggling on the dole trying to make ends meet or are scattered across the four corners of the world, probably utilising their skills to the benefit of other economies.

Prior to my election as a representative of the people of Meath West, I worked over a seven year period with approximately 2,000 microenterprises throughout Ireland, North and South and in Scotland. These businesses are the engine of the economy. They are not the headline grabbing businesses like foreign direct investment but they account for the vast majority of businesses in our economy. They are rooted in all of our communities. Every corner of this State is dependent upon these businesses, which are made up of sole traders, craft workers and local retailers, who are, beyond any shadow of doubt, suffering. Many business owners in order that they will not have to let people go are not taking wages. They are doing their damnedest to get their businesses through this hard time without having to let go good staff, many of whom have been working for them for 20 and 30 years. This can only happen for so long. As each month passes, many are going to the wall.

Of the 195,000 private enterprises in this State, 99.8% are in the SME sector and account for 70% of employment. The vast majority of these microenterprises are sole traders and employers of fewer than ten people. They are the backbone of the Irish economy. It is on this sector that we need to focus much of what we do. Much of the talk in this Chamber since this Government took office has been about foreign direct investment, which employs fewer people than do microenterprises even though it accounts for a far larger proportion of the economy in terms of output. The vast bulk of our microenterprises are suffering because of demand and the freeze on lending, both of which are in reality the outworkings of Government policy. These entrepreneurs are highly motivated people. They are individuals who have invested their whole lives and often all of their savings in their businesses. I am often told by individuals that when asked by people when walking down the road how they are getting on they immediately think people are inquiring about their business because they do not differentiate between their businesses, which are struggling, and themselves. The identity of most of these individuals is wrapped up in their businesses

Up to now, much of this motivation and energy has been obstructed by a lack of support from the banking sector and some of the business agencies. The first objective of this State is to make the banks deleverage significantly from the economy and, second, to make them lend €6 billion to small businesses. Those two objectives are mutually exclusive. The Government is telling the banks to have less exposure to the economy and to lend more. The reality is that the banking policies of this State are procyclical. They are further deepening the economic trough in which we find ourselves, causing damage to small businesses on the ground.

The sole focus of the banking sector up to 2007 was property loans and development. Bonuses were given to staff who could lend as much as possible to this sector. Skills previously the core of small business have been lost. The lack of support since 2007 for microenterprise and small business has become acute. Despite €64 billion of our money being sunk into the banking system it is failing the economy. I recall the previous Taoiseach saying that the purpose of the blanket guarantee was to ensure we had a banking sector that functioned and served the economy. Yet, in 2012 we still do not have a banking sector that is properly functioning or serving the real economy.

ECB data indicates that businesses operating in the south of Ireland are between 15% and 18% more likely to have a request for credit rejected. That is 15% to 18% higher than the European average. I believe the true figure is greater. Despite the rhetoric of "Not one more red cent" this Government continues to pump money into the banks and to be powerless to direct the banks, which it owns, to function in the public interest. This process is happening throughout Europe. Last week, €100 billion was put into the Spanish banks. This money will be used to pay off bond holders and to recapitalise the banks, which, owing to their paranoia about their capitalisation levels, will withdraw from functioning with the real economy, which is exactly what happened in this State. The European Union is persisting with this extremely detrimental economic policy.

On behalf of Sinn Féin I have continually called for the establishment of a microenterprise fund. We welcomed the programme for Government commitment to the establishment of a €100 million microfinance start-up fund, in addition to the establishment of a working and effective banking sector. What we have now is a €10 million fund in an attempt to offset our banking shortcomings. While we welcome this initiative, the sum provided is shockingly low. Given the scale of demand in this area an initial fund of €10 million will not be sufficient. We believe far more should be done within the lifetime of this Government to fully achieve the €100 million fund as set out in programme of Government. It is now a constant theme that this Government promises much but delivers little. What it delivers is always below expectation.

This legislation and fund have been developed to plug a market failure. Banks are not lending to business. ISME has stated that fewer than 50% of its members requiring credit receive it. This should be addressed directly with the banks. The Minister knows as well as I do that the banks are not lending. Even with a functioning banking sector there would still be a need for some form of microfinance. That is the international experience of institutions in the developing world such as the Grameen Bank. There are other examples across the EU. In looking at the failure of banks to lend for a number of reasons, such as those which I have outlined, it is important to ensure the banks are re-educated about how to lend to small business. The success of the Government in terms of supporting microenterprise hinges on its ability to tackle these issues. No one single initiative will succeed in solving the problem.

As I stated earlier the Government needs to tackle the banks that have been recapitalised and to address funding to microenterprises. I hope that the Minister will ensure that his plans to close down the county enterprise boards will address the issue of building capacity and support for this sector. The most famous and successful microenterprise programme of which I am aware is the Grameen Bank to which I referred earlier, the focus of which is not only on providing credit to small business but on peer lending. This approach shares risk across a number of small businesses, leading to greater support and mentoring between the peer groups. If a loan is defaulted upon it affects everyone involved in the group. I suggest that the Minister peruse this model of peer lending, which not only delivers credit but provides business support.

I note that the regulatory impact assessment states that the objective of Microfinance Ireland is to provide loans to start-up, newly established and growing microenterprises. We all accept there is a failure here.

I am concerned the regulatory impact analysis also makes it explicit that an application to the microenterprise fund must be made after rejection by a bank. I understand the Minister wants this microfinance to be a last resort. He wants the normal economy to function and he does not want to let the banks off the hook with regard to their responsibilities. However, due to the fact the banking system does not have the necessary skills the banks require over the top documentation. While documentation is important and good business plans are pivotal to the development of the business, in my experience sometimes due to their processes banks require too much in this regard. The information is then delivered up the food chain in the bank far too slowly and often the person with the power to make the decision has not read the business plan and will only see an executive summary, or met the entrepreneur because he or she is three or four steps away. Given these problems, it would be beneficial for businesses to be able to apply to the microfinance fund directly. This could be another hurdle in the process of receiving funding.

Will the Minister outline the support that will be available to businesses to build their capacity to develop business plans and feasibility studies? The county enterprise boards do some of this work, and I hope the new formation will too but it is important to buttress this aspect of enterprise development at the microenterprise funding stage. Given that these are start-ups and new businesses will the Minister give consideration to the microenterprise fund becoming a first port of call for business? This is not to let the banks of the hook.

While I note the Minister's intention to develop the fund, from the outset the working and practice of the fund should be based on the needs of microenterprise. It should be microenterprise-centric. In this regard, a point of contact should be established between the microenterprise financing agency and the business to gather information on behalf of the business prior to and after an application is made and for consultation purposes. This would draw on the existing agencies, in particular the enhanced role of Enterprise Ireland. This type of wraparound facility for small businesses, including support and mentoring, could increase the professionalism and feasibility of the initial request for microenterprise funding, strengthen the business and reduce the risk of default in the long run, which is in the interest of the Government and State.

I am concerned the structure of the microenterprise funding agency is a little convoluted. It could be expensive and may not offer a comprehensive service. I note from the annual report of Social Finance Foundation that it worked with the Department and consulted with stakeholders to develop the proposal that is now under consideration. I do not want to cast aspersions on this fine organisation which has done good work, but I am always concerned when the body consulting on and drafting the proposals will also be the body to deliver it. Often, not in this case directly, it can lead to the researching body writing a role for itself and orienting the programme to include itself.

I also note that over the past year the administration costs of Social Finance Foundation doubled without taking on additional roles. I further note that when established, Social Finance Foundation was a provider of wholesale finance and that delivery bodies applied to it to pass on credit. First Step, one of the few organisations that delivers microenterprise funding worked in this regard. My understanding is that the proposals as set out in the legislation and the regulatory impact analysis change the role of Social Finance Foundation from a credit wholesaler to a direct deliverer through the microfinancing agency. Will the Minister clarify the experience and capacity Social Finance Foundation has to deliver this new role? What will be the role of First Step and will the microenterprise funding agency support intermediaries?

I seek this clarification not to undermine Social Finance Foundation but to ensure the support available to microenterprises is straight forward, accessible and speedy. While we need more than one provider we do not need a plethora of them, as this would mean excess administration which would confuse businesses and support organisations and draw on the resources of the fund. Will the Minister clarify exactly how the body will be established and accountable? The legislation must ensure there is no potential for lobbying by any elected representative on behalf of a small business. Decisions should be made in a clear cut manner and should be transparent and open for the State to see.

The legislation gives the Minister the power to dismiss board members from the microfinance fund, which will be a subsidiary of Social Finance Foundation, but not the power to appoint board members. However the regulatory impact analysis states that the chairperson of the Social Finance Foundation subsidiary, Microfinance Ireland, will be appointed by the Minister who will also approve the board members. Which version is correct, the legislation or the regulatory impact analysis? I hope those appointed to the board are fully independent.

The establishment of Microfinance Ireland as a subsidiary of Social Finance Foundation also confuses the issue of operational accountability. As a subsidiary the normal practice is that it would be accountable to the parent company and not another body. The regulatory impact analysis states all governance will be overseen by the Minister. Will the Minister assure us the operation of the board will be fully accountable to the Minister and the Oireachtas? If I have difficulty following the lines of accountability for this process and knowing who is responsible for lending and lending practice where will it leave prospective borrowers and start-ups?

Given the need for a clear microenterprise-centric approach, has the Minister given any consideration to developing the fund under Enterprise Ireland or another agency to ensure a one-stop-shop for enterprises which would bring together support, credit and grants? I would welcome the Minister's assessment of the ability of Microfinance Ireland to make an application to the European progress microfinance fund. This fund was established with more than €200 million and has been operational for more than a year. A number of EU countries have drawn down this support

The regulatory impact analysis makes a number of assumptions on the roll-out of the fund and these are highly optimistic. Is the Minister confident about this analysis and will he make this the basis of the review of the work of Microfinance Ireland? If the microfinance fund is to meet the needs of microenterprises and redress market failure, loans must be offered a rate that will support business growth. It is maddening that the banking sector can access funds from the ECB at a rate of 1% yet businesses have to go over the odds for support. It is another case where the short-sighted needs of banking are undermining the real economy. There is a need for loan terms to reflect the support and leg up that new businesses require if they are to become sustainable and build employment.

Despite these concerns about the length of time it has taken to develop the initiative we welcome it as a positive step in supporting microenterprises. We are mindful of its limitations and the need to resolve them and we look forward to doing so on Committee Stage.

I wish to share time with Deputies Seamus Healy and Finian McGrath.

This Bill is overdue, but it is also necessary and I welcome it. A public representative very quickly becomes a one-stop shop and I am sure we all have the experience of people calling to our offices every week with ideas. People come to us asking us to whom they should go because they have a very good idea but they do not have the funding to get it off the ground.

One can send them to a body like a county enterprise board, where mentoring and funding for a business plan or feasibility study are available, but they will run into the difficulty at the next point after that if the option of bank finance is not available to them.

Many people laugh when it is suggested to them that they could ask a bank for finance. It is the last place where many people would think of going, unfortunately. Many of those who have good ideas are depending on social welfare. In some cases, they have been unemployed for a long time. Their reluctance to approach the banks might be understandable because they do not have the kind of profile that is normally associated with those who are thinking of starting new businesses. I appreciate that this fund is not for the exclusive use of start-up companies. It will also be used to help existing enterprises to grow, which is just as important. The micro-enterprise sector is central to the generation of sustainable growth. This country is not short on ideas. We need to focus on exploiting, or taking further, the great creative ability that exists here. It is clear that as long as the means of entry are right, there is potential to take businesses beyond the micro-enterprise sector. That will continue to be important. When I learned that over 90% of the businesses in the European Union are categorised as being in the micro-enterprise sector, I was surprised and I thought it was very high. I was under the impression that most employment is based in large enterprises. It is an interesting statistic.

If we are to build a strong indigenous base, we have to harness the creativity that exists. This is an element of what is definitely needed. One gets a better return into one's economy on the purchase of raw materials from the indigenous sector than one does from foreign companies, welcome as they are. Seed capital of €25 million will continue to be supplied to the banks, which will comprise the primary supplier of finance to the micro-enterprise sector. The availability of another fund cannot be an excuse for the banks to reject applications or fail to take risks. I am worried that is what will happen. I would like to hear what the Minister has to say about the sanctions that will be open to him if the banks behave in such a manner when the fund that is being set up is available. The banks, particularly those into which we have pumped enormous sums of money, cannot be allowed to evade their responsibility to this sector. No one is saying there should be irresponsible lending, or there should not be a return on lending. However, it should not be so cautious that the development of an entire sector is impeded. Similarly, established companies that would be viable if they had the funding to keep going should not be hindered. I wonder if the banks know how to lend to business. The conventional criteria for lending that they have used have involved things like a return on bricks and mortar. I do not think they have got their heads around the need for a change in their culture that involves looking at how returns can be made from investment in businesses.

I would like to speak about the county enterprise boards, which are still in place but are about to come under the umbrella of the local authority sector. I understand the local authorities will receive applications in the first instance. They will process them and make recommendations on them to the Social Finance Foundation, which is a non-profit company. The foundation has had some success in awarding or approving loans. There has been a reasonable level of take-up. One would not expect everything that is awarded to be taken up. The foundation has demonstrated that it can achieve a reasonable level of success. Considerable funds continue to be available to it. While is obvious that some risk is associated with the establishment of this fund, I suggest there is a real possibility of a return from it. This has to be viewed in the context of the totality of the experience of the person who will come in to start an enterprise. Much of it will depend on whether good-quality training is provided to ensure proper business plans and feasibility studies are conducted. Some of the businesses which have been through this approach have availed of the mentoring that is available, for example. Many people say that although they got nothing other than mentoring from the county enterprise boards, it was more valuable than funding. It is important that we do not lose much of the valuable work that has been done by the boards.

I am concerned that the county enterprise boards will become a little more anonymous when they are no longer out there on their own. When they are subsumed into the local government system, I do not think they will have the kind of visibility they had before now. It is obvious that a cost will be associated with making sure the transition is smooth. We will have to ensure the boards' valuable visibility, which took time to develop, is not lost. That reputation was built through the power of word of mouth among people who had successful experiences with county enterprise boards. If the boards were funded in a slightly different way, it would complement the work they do. At present, they are funded on an annual basis. I suggest there is an absolute need to consider the possibility of providing roll-over funding, perhaps over three years. I appreciate that moneys can be redistributed. I have some experience of the board in Kildare, which ran out of money in February of last year only for some money to be returned later in the year. Viable proposals that were made during the valuable months after February could not be progressed because the board did not have sufficient funding until the moneys in question were recycled to it in October of last year. When a board receives money late in the year, as happened in Kildare in October 2011, it has to return it if it does not spend it by December and look for it to be drawn down again. A different way of doing things needs to be found to give some certainty to this sector. Given that people will be dealing with this organisation in the first instance, it is important for us to get this right. Having said that, I do not think we should be afraid of institutional change. We should wait to see how this works.

Some things could have been done to save money. Each of the 35 county and city enterprise boards had to pay audit fees of between €7,000 and €8,000. That comes to approximately €250,000, which is a waste of funds. If a single organisation had been involved, it could have been done in a much more cost-efficient way. A decision has been made on how to save money in that respect. The main thing is that we ensure the new system functions as optimally as possible. Not only will legal arrangements need to be put it in place, but there will also have to be a publicity campaign to heighten awareness of it. We have to let people know how this process will work. Although risk is always associated with a loan fund, there is also the potential for huge reward. This is the least expensive level at which to create jobs. It is clear that if people are taken off social welfare, the demand on the Department of Social Protection is reduced. If people are successful in finding work, there is a return in the form of taxation. It is a no-brainer. We will not know what the take-up of the fund will be until it is rolled out. That is why it is important for the fund to be visible out there. There should be flexibility with regard to how people can access the fund. I know they have to go through the banks in the first instance.

I have made the point that I am concerned that the banks might be too ready to refuse other funding in favour of this funding.

It should be there as a secondary source. It is intended that this fund should go live by September. Does the Minister believe that target will be met? At what stage would he see funding for this year coming through? The banks must consider this. Will it be available for people immediately so that if, for example, there was a refusal in August a person could apply in September? Will the Social Finance Foundation have any criteria other than the viability of the enterprise it is considering, for example, the geography involved?

The Deputy has spoken for 11 minutes. I am not sure what she is doing.

I am sorry. I will finish. Why is Microfinance Ireland being set up as a wholly owned subsidiary of the Social Finance Foundation? I do not understand that. I have made my other points and will not eat into the time of Deputies Seamus Healy and Finian McGrath. I thank the Minister, Deputy Bruton, and look forward to his replies to my questions.

Deputies Healy and McGrath have nine minutes each.

Eight minutes will be fine for me. I am happy to have time to speak on this Bill which, as other speakers remarked, is long awaited. The proposal was announced on a number of occasions. It is welcome although it is a very modest proposal. The overall aim, over a ten year period, appears to be that some €90 million will be lent to approximately 5,500 enterprises and during that period a possible 7,700 jobs will be created, for an average loan of about €16,000. This is worthwhile and welcome but is very modest. It really only scratches the surface in regard to job creation.

This is a particularly important area for job creation as small enterprises are the very backbone of the Irish economy. If one walks the main streets of any of our towns, villages or cities at present one sees the effects of the devastation that has been visited on small enterprises, with shops, offices and small businesses closed. Very many have been in existence as family enterprises for a long number of years but due to the current recession and the lack of credit they have had to close their doors in recent years, only doing so as the very last resort. In very many cases, and for some time, the owners have taken little or no wages from their enterprises.

The availability of this credit is welcome. Micro enterprises need credit to keep their businesses afloat and to increase in size and this, in turn, is a necessary precondition for economic recovery and growth. Research by the Central Bank has identified that Ireland is the most difficult country in the eurozone for small businesses to access credit. That has been mentioned by the Small Firms Association and other organisations representing small business. It is not before time, therefore, that this initiative has taken place.

The background to this is a very much bigger area. Although every job created or retained through this proposal is obviously welcome and worthwhile there is a much bigger picture. To reiterate, this measure simply scratches the surface in that regard. The recent CSO figures published two weeks ago reported on the state of health of the Government's job creation measures since it came to office, offering a type of report card on the Government's work in this area in the past 12 months. It was a very poor report card. It showed that job creation was in reverse in that period, that this is a job-destructive rather than a job-creation Government. There were 18,100 fewer jobs in this economy at the end of the first quarter of this year, taking the 12 month period until that date, a period within which this Government was in power. There is 30% youth unemployment and well over 14% general unemployment. Half of those unemployed have been so for more than 12 months and a third have been unemployed for longer than two years. Horrendous as they are, those figures are set against a background of significant emigration, especially of skilled, trained and educated young people who are now supporting economies throughout the world, from Australia to Canada.

This Bill is well and good but although it is welcome a much bigger job of work has to be done, one that needs considerable job creation measures. The promises made during the last general election and in the programme for Government must be implemented. We need a significant public works programme in order to put people back to work. As I stated, it is simply not good enough to say that what the Government and the State need to do is to create the right environment. It has gone well beyond that now and the State itself must create jobs. We are in a situation where the number of people unemployed and the number of jobs that need to be created can only be dealt with by the State, and only in a situation where there is a great investment strike by very wealthy people, not only in this country but in Britain and throughout the European Union.

It is no longer good enough to talk about creating the environment or creating small numbers of jobs with measures such as this. In order to put people back to work in significant numbers we need significant public works programmes, for example, the school building programme as well as a hospital building programme and a roadworks programme. Doing that will stimulate the economy and ensure that people will have money in their pockets to open up those shops, offices and small businesses that are closed in all our towns, villages and cities throughout the country.

Austerity has taken vast amounts of money out of the economy and has created a recession which, if it continues, will create a depression. There is no alternative other than the State getting involved in job creation. That would be good for the economy and the State, for families and the community in general.

The Deputy has one minute remaining.

I will conclude. For small businesses as a whole this Bill is welcome and every job that can be created or retained is welcome.

I wish to refer to the position of individuals, particularly in regard to their social welfare contributions, who might want to take up initiatives under the provisions of this Bill. We are all aware of the extremely difficult position in which self-employed have found themselves on applying for social welfare entitlements when their businesses have gone bust. In many cases they find they are not entitled to any payments possibly because other family members are working. The self-employed individuals are not entitled to any payments and their means are assessed on the basis of the income of other family members. That must be a change in that respect. The type of social welfare contribution must be changed to ensure self-employed individuals are encouraged to take up initiatives such as this one in the knowledge that if they do not work out that at least they have the safety net of social welfare benefits.

I welcome the Minister to the House. I thank the Leas-Ceann Comhairle for the opportunity to speak on this Bill.

I welcome this debate as at last we can deal with the economic world of small businesses and jobs for our people. We hear a lot of talk about growth and jobs and now is the time for action. Now is the time for creative ideas and I am glad some of my colleagues have put forward some constructive proposals in this debate. It is also a time to examine new ideas in regard to jobs and investments. I welcome any new idea that will create jobs.

We should first consider the facts in our small business economy. I have many family friends and constituents in this sector and they often feel they are forgotten with all the talk about the big companies, the multinationals and the debate on the corporation tax. They often feel excluded and that is a matter we should address. Some 177,547 small businesses employ under ten people, 9,769 employ ten to 19 people, 5,215 employ 20 to 49 people, 2,441 employ 50 to 249, and 459 employ 250 and more. Those are the figures. Small businesses that employ between three and 12 people number 37,488. Many people employed in small businesses. This business economy covers industry, construction and services. It does not include enterprises in the public sector, health, education or agriculture sectors. There is huge potential in the small business sector and we need to help those people on the ground. That is the reality. I will deal with a number of constructive proposals later.

As we are talking about jobs, I had to laugh in recent weeks when a number of Deputies in this Dáil were criticised by certain people about using their expenses to employ people. What is wrong with that? It is a good idea. If a Deputy uses his or her expenses to take on a part-time worker or to take somebody off the dole, that is a good idea. To me, that is not an abuse of public money. That is a matter that should be carefully examined. I want to commend those people directly involved in it.

As the Minister and I now represent the new Dublin Bay North constituency north of the River Liffey, located mainly around Dublin Bay, I draw to his attention that 2014 presents great potential in regard to the celebration of the Battle of Clontarf. People are already knocking down my door, and I hope the Minister's door, to talk about developing ideas in tourism, the arts, etc., in the Clontarf-Dublin Bay area to bring in tourists from Norway, Sweden and Denmark with the idea of "Bring the Vikings, Bring them Back Home". I believe Deputy Catherine Murphy already has experiences in this respect of visiting Leixlip in Kildare. We need to be radical and creative to bring in tourists and to bring in money. The Minister should up his game on this issue. He should push that issue with the Minister, Deputy Deenihan, in regard to the celebration of the 1,000 year anniversary of the Battle of Clontarf in 2014.

Another idea I thought of during the week relates to the Garden of Remembrance and the build up to the commemoration of the Rising in 2016. Why could we not have a guard of honour at the Garden of Remembrance similar to the guard of honour in England and America? Tourists would come from all over to see the guard of honour and the change of the guard at the Garden of Remembrance. Americans, French and all nationalities would get their photographs taken in the Garden of Remembrance and we could have beautiful system of changing the guard. It could be an international historic item. Those are two sensible ideas.

The Bill provides for the establishment of a micro-enterprise loan fund and the formation of a private company to lend to micro-enterprises and to mange the fund. The fund is designed to stimulate lending to sustainable micro-enterprises and it is targeted at start-up, newly established or growing micro-enterprises across all industry sectors, employing not more than ten people. The company will be empowered to provide loans of up to €25,000 for commercially viable proposals that do not meet the conventional risk criteria applied by commercial banks. We are talking about enterprises employing up to ten people. We should zoom into those and I welcome that aspect of the legislation.

I want to commend the Minister on another aspect. The Bill will also empower the Minister for Jobs, Enterprise and Innovation to give €10 million of Exchequer money to the company for the purpose of lending to microenterprises to set up a scheme which will provide for various terms and conditions such as the purpose for which the loan may be given, the terms of the loan agreement, reports and information by the subsidiary to the Minister, audit and examination of accounts of the subsidiary and other matters. That is what this debate is about. It is about giving a leg up to these people. I commend that part of the legislation.

Section 3 provides that the costs associated with administering the Act will be subject to sanction from the Minister for Finance with the consent of the Minister for Public Expenditure and Reform and will be met from moneys provided by the Oireachtas. I have a concern about that section. We have to keep an eye on the Minister, Deputy Howlin, and the Minister, Deputy Noonan. These two individuals seem to have caught the austerity bug. If we are to get out of this economic crisis, we will have to have a growth strategy as well. I urge the Minister to stand up to those two Ministers, make his mark in terms of creating jobs because that is the number one item. There are three issues of importance in this State - jobs, jobs and jobs, and that is the reality.

My colleague, Deputy Healy, mentioned the role of the semi-State sector. We should not run away from that. We should not have ideological hang-ups. If some semi-State companies are making money and they have ideas to make it, we should let them at it, roll them out and support them. We should not be against them because they are part of the semi-State sector. If they have a contribution to make, we should act on that, particularly in the context of new ideas in this area.

We have more than 455,000 people unemployed and we need to get our act together and come up with ideas. We need a proper growth and jobs plan and a strategy to ensure it is implemented. Also, people have a contribution to make themselves. It is not up to the politicians or the Government, it is also up to people. We had a good campaign a few years ago in the old Dublin North Central constitutency, which is now Dublin Bay North in regard to creating jobs. We encouraged people in our constituency to spend an €20 a week in small businesses in the locality. We targeted the campaign at people over the age of 55 who happened to have a few bob. Many young couples do not have the money because they are under stress in terms of their mortgage, employment and cuts in wages. There is a sector of the population that has money. There is money in the economy and it should not be denied that there is not. There is approximately €75 billion in savings accounts in this country. I say to the people who have money that they should spend an extra €20 a week in their local businesses and try to do something as well.

I ask the Minister to examine the VAT issue, the rates issue and the insurance issue for small business. We need to give small businesses a chance because they are the future of this country and they will help us get out of this crisis.

The next speaker is Deputy Deasy and he is sharing his time with Deputy Corcoran Kennedy.

This Bill deals with the second commitment in the programme for Government regarding credit for businesses. The question I have relates to section 10. It sets out the maximum amount that can be lent to microenterprises. It deals with the length of the loan, the potential uses of the loan but the part that I am interested in is the part that refers the class or classes of microenterprise that can apply. The explanatory memorandum it states that these loans will be for "commercially viable proposals that do not meet the convention risk criteria applied by commercial banks". There is no wording in the Bill that explains this further. Therefore, any potential restrictive provisions must be written into the scheme to be drawn up under section 10. It is not clear which businesses this would affect.

I wonder who will be targeted by this Bill. The departmental explanation is that the county and city enterprise boards and the new local enterprise offices will actively engage with applicants in the development of business propositions under this scheme. One might then assume that the category of businesses or potential businesses affected might be quite small unless the scheme under section 10 is broader than the normal or existing remit of the county and city enterprise boards and their national agreements. There needs to be clarification as to who will be affected. The question then arises as to the effect on businesses such as local hardware stores, pubs, restaurants, flower shops, the retailers and whether they will be able to avail of the relief afforded by this legislation.

I have a concern. The IDA and Enterprise Ireland deal with the multinationals and the large exporters and the enterprise boards and Leader organisations deal with innovation, new business ideas and this is how it should be. However, there is a category of businesses which are not benefiting from some of the schemes which we devise and design. These businesses are the small and medium enterprises which have been in business for ten to perhaps 40 years. This category accounts for about 230,000 businesses. They provide €10 billion per year to the Exchequer and they employ 900,000 people. I refer to schemes such as the seed capital scheme and the three-year corporation tax exemption for new start-up companies, competitive start funds for innovative companies doing business in global markets, innovation vouchers, employment and investment incentives. This is all good and productive and I am regularly contacted about these schemes. However, I am also contacted in Waterford more often by long-established businesses who are looking at disaster in the face.

The Minister has been very innovative with regard to these schemes. My concern is that this House and the Departments should spend more time assisting the existing small and medium enterprises or as much time as is spent on the potential small and medium enterprises. A large number of jobs have been lost and we need to give more thought to preserving the 900,000 jobs in the small and medium enterprise sector. The emphasis needs to shift slightly back to keeping some of these businesses afloat. We all know that many of them are hurting. I ask for clarification whether this Bill will be engineered to help them.

It is one thing having a business idea and being unable to access financial assistance but I am aware of people who have businesses and ideas yet the problem is they have seven or eight employees as it is and they are €2 million in debt. This is the situation I come across again and again in Waterford. To put it simply, the existing back bone of small businesses is collapsing in some cases, in particular, in the retail sector. They are not exporters nor are they carrying out research and development; they are traditional retailers such as the dry cleaners, the people who sell motor cars and their issues are commercial rents and rates, energy costs, indirect taxation, legislation and regulation which costs them money. We need to know which businesses the scheme described in section 10 will affect. We need to spend a little more time thinking about the indigenous small and medium enterprise sector and its survival and as much time as is spent on innovation and start-up companies. We have to keep those 900,000 jobs because jobs are haemorrhaging from that sector.

I am pleased to have the opportunity to speak on this important Bill and I commend the Minister and officials in the Department for their work in bringing it before the House.

Cash flow is the life blood of business. In the best of businesses, credit or loans are inevitably needed. It is clear that small and medium enterprises are in significant difficulty in obtaining credit or loans in recent times. Public representatives know this from anecdotal information. Businesses in Offaly and Laois have highlighted the difficulty and it is official as a result of research conducted by the Central Bank.

For example, a local business man with a well-established company recently secured extra business. He had a good credit rating and substantial collateral. However, this was not enough for a bank who refused him a loan when he wished to expand the business. Thanks to this Bill, this will no longer be the case and the entrepreneurs on whom we so clearly depend will be in a better position to continue to do what they do best, to create jobs.

Surprisingly, we are the most difficult country in the eurozone for small businesses to access credit. Clearly, this situation cannot be allowed to continue. Small businesses are a key component in the functioning and growth of the economy and so this is serious matter which must be addressed. I will take the liberty of quoting Patricia Callan of the SFA who said, "At a time when jobs are in short supply every citizen should be actively encouraged to create a job for themselves".

While we are all delighted to welcome good news stories of job announcements as a result of foreign direct investment, it is vital that we provide for the 90% of small businesses which are microenterprises. It has been calculated that on average, funds will be available to the tune of €16,000 and if a business has already been refused credit from banks or other financial institutions, despite being a viable business such as my friend, they will be in a position to apply to Microfinance Ireland.

Many of our people have ideas, skills and determination and it is the responsibility of Government to foster entrepreneurial spirit. Microfinance Ireland will be a welcome addition to the existing supports and grants already available through the city and county enterprise boards which will soon be under the auspices of Enterprise Ireland within the local authorities. I welcome the fact that this finance will be available within the coming weeks. The State will grant €10 million to lend to microenterprises. This sum will also allow Microfinance Ireland to lever further funding.

An important component of this Bill is that the focus will be on lending to the microenterprises only as loans to the larger enterprises are already guaranteed under the new credit guarantee scheme. The Government is playing its part in delivering on its commitments in the programme for Government but each of us as consumers must ensure that when we spend, we spend locally and buy Irish as far as possible so that our small businesses such as local butchers and hairdressers, restaurateurs, small food producers, garden centres, can thrive and grow and provide us with the products and services we need. We must play our part in ensuring that as consumers we help to sustain them in their microenterprise and entrepreneurship.

Whatever one's socioeconomic viewpoint there can be no denying that access to finance and credit is critical to the success and sustainability of small businesses which are, in turn, crucial in providing jobs in every community across the country. Almost 200,000 small firms provide employment for over 650,000 citizens a level of employment higher than either the multinational or public sectors.

The Government, being acutely aware of this, has demonstrated its commitment with a range of measures to support and help small businesses. The advisory group for small business, chaired by the Minister of State with responsibility for small business, Deputy John Perry, had extensive consultation with a range of stakeholders to examine what is required in order to remove barriers and to help our small businesses compete. It is an important plan of action which clearly sets out what we need to do and even more important, it identifies those responsible for achieving the stated goals.

The Microenterprise Loan Fund Bill is the latest measure introduced by the Minister, Deputy Richard Bruton and his Department and its genesis can be found in the report on the advisory group for small business. The support the State has afforded the banking sector has been well documented. Some banks were saved on account of their strategic importance to the entire economy while others were saved with more questionable justification. However, once decisions of that magnitude are taken, it can be almost impossible to deviate from the course of action without substantial further cost.

By rights, this Bill should not be necessary.

It is entirely plausible and appropriate for citizens to expect the banks to ensure an adequate and steady access route to credit. However, Central Bank research proves, to the shame of the banking sector, that our country is the most difficult country in the eurozone in which to access credit. I recently received representations from a local company in Galway, of many years standing and success, whose efforts to expand by tendering for contracts from abroad were being hampered by the unwillingness of two banks to provide guarantees or letters of credit. The attitudes of the banks have endangered not only the employment of this company's workforce but also that of many other local companies.

The advances in technology have transformed the marketplace so that while the focus of the mircofinance fund will justifiably be at the community level, the potential for it to assist our indigenous companies to compete on the global scale are immense. As a small, open economy with a straightforward, investment-friendly framework, enabling local businesses to compete on a European and global level is a logical step and an opportunity which must be encouraged and taken. Just as our wonderfully talented artistic and cultural organisations are internationally renowned, so too can our indigenous businesses be ambassadors for Ireland.

The presence of some of the world's largest organisations in Ireland, some of which have established their Europe, Middle East and Africa area headquarters here, is another reason for the importance of promoting and facilitating access to credit for small businesses. The clustering effect which has emerged for several industries, including information and communication technologies, pharmaceuticals and medical devices, has encouraged and stimulated local entrepreneurs to identify and grasp opportunities overlooked by the bigger multinationals. In some cases these smaller Irish start-ups have grown to become leaders in their respective industries.

In the past the Irish banks have been the mainstay for providing the financial support and investment required by such companies. However, following the financial and economic turbulence of recent years, a reluctance to take chances has emerged. Undoubtedly, caution and oversight are required for the process of supplying credit and investment but we have reached a stage where previously successful businesses or new businesses with sound entrepreneurial plans are being denied the funds necessary for growth and expansion. In such an eventuality the State must intervene and demonstrate its faith in our entrepreneurs. Although some financial institutions are co-owned by the State, it is not possible for a number of reasons, not least proper governance, for the State or the Department of Finance to become involved with individual cases or the day-to-day running of these institutions. The microfinance loan fund, alongside the Credit Guarantee Bill which was passed by Dáil Éireann last week, will provide a new avenue for the many constituents who have contacted their local Deputies to express their frustration with accessing credit from banks and who have asked Deputies to set up meetings with the Department of Finance so it can peruse their requests or intervene in some manner to provide access to credit which thus far has been refused. There are many examples of that across the country.

For an initial outlay of €10 million, to be supplemented by borrowings totalling over €15 million, over 5,500 microenterprises will be able to expand or start up, which will result in an estimated 7,700 jobs. I look forward to the implementation of the other recommendations from the Department on small business. If we could help each small firm employ one extra person, our unemployment rate would be cut substantially and, more importantly, hundreds of thousands of citizens would benefit from the independence, fulfilment and personal development that having a job provides.

I welcome the opportunity to speak on the Bill and I praise the Minister for being present for this Second Stage debate. There is no doubt that many businesses are struggling hard due to the lack of credit. I see it in my constituency every week. People who have shops in Galway city, Oranmore and the surrounding areas come to talk to me about the difficulties they are experiencing. Many of them are attributable to the dire economic circumstances of the country and the complete decline in consumer demand, but in many ways they are due to the relationship with their banks. Some of the stories I have heard are very disturbing. One example was a shop that was trading over Christmas. Its overdraft was cancelled on the day before Christmas Eve, when the company was in the middle of its peak trading period. It was a measure calculated by the bank to ensure it could stop the overdraft when the money was there and prevent the overdraft recurring in the new year. In other words, it cut off a vital cash flow and lifeline for that company.

I also hear from people in Galway about the heavy handed nature with which banks are treating them, especially small businesses. They are almost being bullied. The old relationship or approach banks had, where they would know the business, have a partnership relationship, understand the ins and outs of the business and work with businesses on an individual case by case basis, is being over-ridden by regulations and guidelines from the top applying to every business in the bank. These things are happening.

Another matter worth noting, given that we are discussing a Bill that specifically focuses on small businesses, is that many of the businesses the banks look after are very big, and they get priority. It is as if they are too big to fail. The banks cannot allow the big businesses to fail and must keep bankrolling them because if the bank incurs a loss it will be huge. On the other hand they can be much stricter and harsher on small businesses because the exposure level is so much smaller. There are huge concerns among the constituents I represent about how the banking sector works.

I congratulate the Minister for his work on the Credit Guarantee Bill. I spoke on that Bill, and it is very good legislation. I believe this Bill has great potential to re-orientate the economy. I view it as putting in place a scheme to help start-ups. There was a lack in this country during the boom time. We were very reliant on the sectors that worked, for example, foreign direct investment was working so we banked on it and construction was creating jobs so we banked on it. We neglected the very foundation that any country should have, an indigenous enterprise base. All companies must start somewhere, with some level of funding. It is usually a case of one person or two people having an idea and the drive and energy to pursue it, and this Bill and the fund it establishes will be a key measure in that regard.

On looking through the Bill I tried to find some lending guidelines, to indicate the type of companies that are being targeted. I thought section 10 might contain them but it does not. I understand the Minister will publish them separately. They will certainly be worthy of consideration and debate on Committee Stage because we must ensure that this fund is defined and that people know exactly what it is for, so it is not seen as a be-all and end-all for people with an overdraft problem, loan problem or credit problem. We must know exactly what it is there for so we can market it as such.

The scheme is to be integrated with the county and city enterprise boards, which are to be integrated with the local authorities. I hope all of that will be done in a single move. It should not be a type of one-stop-shop one calls to which then refers one to another office. We must ensure there is a link and relationship with those people, so the people who work in the renamed enterprise boards know the intricate workings of the scheme, have a good relationship with the managers and so forth. That will lead to a real flow of information to the people who require it.

It was mentioned in some of the documentation that the Credit Review Office can duplicate some of the functions. I realise the Credit Review Office's work only applies to two banks, Bank of Ireland and AIB, but it would be great if that office could declare, having reviewed the file, that there is a credit case for the enterprise, even though the bank was right to refuse it. To save the work being done again that file could be sent straight to the microfinance fund as a credible alternative source of funding. It it is deemed worthy of the criteria, we would again be saving the enterprise that extra hurdle and extra bureaucratic layer in seeking funding.

Again, I welcome the Bill. It is a very positive step. I congratulate the Minister and his Department on the work they are doing. The action plan for jobs is an excellent plan and the fact that it is being rolled out properly and on schedule is to be commended. I look forward to seeing exactly what the lending guidelines will be, but I have no doubt that the Bill will be a success. It will be very welcome to the small business sector and will ensure our economy generates indigenous enterprises to help us get out of the current mire.

It is fair to say that nobody could reject any proposal to make money available for business. On that basis nobody could argue with what the Minister is trying to do.

That brings me to the issue Deputy Nolan mentioned. It seems to be all Galway speakers tonight. Deputy Nolan and Deputy Kyne have spoken. I am the third speaker, and I do not know if Deputy Grealish or Deputy Walsh intends to speak.

Deputy Finian McGrath spoke a moment ago.

He is from east Galway. That is a very different territory to west Galway.

North Galway, actually.

Do not insult the Leas-Cheann Comhairle.

Section 10 states that the Minister will set out the maximum amount that can be lent to microenterprises. I was involved in setting up a number of enterprises, and getting the first loan was not the biggest difficulty. It was when we tried to get beyond our little industry to make it a proper industry that we hit the wall.

If we are talking about average loans of €16,000 and €90 million over ten years, which is €9 million a year, the reality is that someone who sets up a business will find very quickly that this kind of money will be petty change in their pocket. That is the hard reality for most businesses that will have any kind of significant employment.

I was a great advocate for just starting the business and figuring it out later. It is just as well we did it that way because if we had not we would never have set up a new business. I have no doubt that if everything we had planned to do was analysed carefully at the beginning, the flaws in what we intended to do would have been seen. When we set up the timber mill we had no three phase electricity and therefore we got a tractor and put the machine for debarking the timber on the back of it. We needed a treatment plant. We bought that and put it on the single phase electricity. We then realised there were problems getting trucks to bring the timber in and out of the forest and, lucky for us, we managed to get some assistance to get that sorted out. We found it was not as simple as we had figured out because timber was coming in that was not suitable for our equipment and we had to keep growing it.

The problem with this is that in terms of going from finance provider to finance provider, when a company gets to a certain stage of a problem as well as to a certain stage of growth - at €16,000 it will not be a very big company - many of them will get into trouble. In terms of my experience, we were lucky. The one wise decision we made was to bring in North Connacht Farmers, now Connacht Gold, as a partner. It had resources and it also had a market for us and, therefore, I did not have to worry about the market in the short term.

I am not saying this to be negative. I am saying it because I often find that a business always works out at the initial stage when the idea is written on a bit of paper. One will do the figures to make it work out because if one did not do that one would not even start the business. However, when one actually starts, and it is similar to somebody saying they are going to build a house for a fixed amount of money, one suddenly realises that there are things one had not thought of or provided for that needed to be done and issues that needed to be solved. In terms of the actuality of people's lives, everybody who started a business will say that they underestimated the difficulty of setting up a business, particularly anything in manufacturing.

Where one really hits the wall is on the phase 2 operation, in other words, when one is under real pressure. It is costing more than one thought and one goes back to the bank and says that at this level it will not work. My worry is for someone in the microfinance process. The company has set them up. It has given them a loan of, say, €15,000 or €16,000 to get them started but when they realise that amount will not get them business and that they are not making the profits they had predicted, that is when they really need the faith and the help.

For that reason, the limit the Minister will impose under section 10 will be vital. The question of whether the microfinance lender can remain with that person and give them more money will be vital because most people who start in business run through the dark hours of it going wrong. Some of the most successful businesses needed that great leap of faith, the second loan, the loan that provided when everything was not going according to plan. It is very important that we examine how that will be provided.

I hope that we will get acorns out of this measure that will grow into oak trees. I agree that microenterprises are important but we must be clear that if we are talking about a microenterprise employing only one or two people, we will be a long time solving the unemployment problems of the country if we have to do it that way. I presume what the Minister would hope for in reality is that these enterprises would grow and employ ten to 20 people, or even more than that. We were luckier. The business we started on the back of a hill is employing multiples of that number.

This is important but I have had this argument about Leader funds over the years and with the de minimis rule in Europe set at €200,000. I have argued time and again that I do not believe a substantial industry employing ten or 20 people can be set up with that kind of grant aid. It is not sufficient because the cost burdens in setting up a business are very significant, particularly if it is a business in the manufacturing sector. I welcome this measure. Nobody could go against it, but it is very finite. Any idea that this is a major panacea, at €10 million a year, in terms of dealing with the major problems of unemployment is wide of the mark.

The second issue that we must examine is the length of time given for repayment. There is a presumption that a business gets into profit quickly but many companies find that when they start in the real world, so to speak, they do not get into profit fast. What they want are more borrowings without any repayments, and the big advantage of a grant over a loan is that they do not have to repay the money. The time given for repayment is vital. Based on all my experience of dealing with other people who were involved in setting up businesses, and having been involved myself, I believe we must give reasonably long timescales for people to pay back loans. In the first year it would be very difficult even to service the interest on a loan, never mind the capital on a loan.

There is much work to be done on the enterprise sector. I never agreed with the European Union attitude towards state aids where, for example, under the Leader programmes it has the de minimis rule of €200,000. I can never understand the logic that giving a grant of €300,000 or €400,000 to a small industry in the far west of Ireland will in some way upset the free trade of Europe or in some way be unfair competition, regardless of where one is on this island, with an industry located on the main territory of Europe which does not have to travel across two seas to get its goods onto the large European market. Europe could look to America and learn some lessons there. I recall as Minister travelling to Europe and arguing with Commissioners that their de minimis rule and their attitude towards state aid was very negative and over-restrictive.

I remember visiting Wisconsin and being told that an American state can give any grants it wants.

Debate adjourned.