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Dáil Éireann debate -
Wednesday, 27 Jun 2012

Vol. 770 No. 2

Microenterprise Loan Fund Bill 2012: Second Stage (Resumed)

Question again proposed: "That the Bill be now read a Second Time."

Deputy Ó Cuív has ten minutes remaining.

I believe there is an urgent need for the Minister to make a very strong case in Brussels for an increase in the de minimis provision to which I referred earlier. I suggest that he might consider a figure which I tried to have agreed the last time this issue was under discussion, namely, a minimum provision of €500,000. If such freedom was given we would be able to make companies grow more rapidly than is possible at the moment.

The Minister announced this initiative in May 2011 and when this Bill is passed there will still be considerable work to be done before the scheme becomes operable. I would be interested to hear how, despite all the promises given over the past year and a half, when this would all happen. Members of the public will want to know when they can they apply for and receive microfinance for their business. The Minister will also decide how much money can be borrowed by an individual.

Many a person has set up a business only to realise when the business was operational that they had not provided for all the necessary equipment or costs in their set-up plan. Whether one is building a house or setting up a business, it is common to find that people have not provided for every contingency. The ability to get a second loan to allow a person to correct deficiencies in the original plan is very important. We have to take some risks, and I will discuss that later.

A micro enterprise is defined as an enterprise with less than ten employees and a turnover of less than €2 million per annum. There is a huge discrepancy between that definition, particularly with regard to turnover, and the idea that average loans of €16,000 and a total loan fund of €10 million per year will be sufficient. I doubt that €16,000, €20,000 or even more will be adequate for setting up a company with a turnover of €2 million. We must be concerned about a much wider issue here. If the banks were functioning properly, the need for micro finance would not be so acute. There would be a one-stop-shop called the bank, whose job is to lend money to people who have a reasonable proposition with a reasonable chance of success. We established the Credit Review Office and I would be interested to find out from that office, where it has overturned the decisions of banks, how successful the businesses concerned were, in other words, whose was the right call.

One experience which I found frustrating when I was looking for money from the banks in the past, and I do not know if matters have changed dramatically since, was that they could be quite slow before making a decision not to lend the money. No detailed explanation was given about where they saw a deficiency in one's plan. In hindsight, they were sometimes probably right to turn down applications I sent to them on behalf of the business for which I was working. Perhaps we had not figured things out, but if they had explained the deficiencies or weaknesses and why they were not giving the loan, we might have been able to address those weaknesses and we might have had a better business plan as a result. It is important that there is real dialogue and debate between lenders and borrowers.

Sometimes in life one is told things one does not like. When that happens one might say: "You are wrong and I am right", but many people will, on reflection, see the merit of a valid point that is made. Many times in my life somebody might have given me advice that I was not expecting and perhaps I was not initially enamoured with it but, when I reflected on the issue, I saw validity in the point being made and I came back with a better plan. It is not only a question of the banks giving out money but also a question of whether there is real interaction between lending agencies and borrowers and whether they explain the reasons they do not lend money.

On the other hand, at the time when I was dealing with the banks, bridging loans against Government grants and so forth were never a difficulty. As long as one instructed the person giving the grant to pay the money directly to the bank, the bridging loan was given as a matter of routine. In recent years however, even before the credit crunch, I have seen people, be they in community bodies or in small businesses, find it incredibly difficult to get what should be the most simple form of credit, a bridging loan against a grant that is due to be paid. There should be a checklist of required documentation and so forth and the bridging loans should be given quickly.

As in the 1980s, unemployment is probably the biggest challenge facing this society. The number of people who are unemployed has consequences both socially and from the point of view of health, as well as for the feeling of worth within our community. Work is about more than money. Money is important but work is also about social standing. I am not one of those who believe there are too many people who are in receipt of unemployment assistance who would prefer not to be at work. The cost of spending one's day without anything to do is enormous, because one must amuse oneself all day. The total effect on one's well-being is serious. All the professional evidence shows that people who are unemployed visit the doctor more often, take more medicines, attend hospital more often and, if they are long-term unemployed, they die younger. We talk continuously about the health system but, in fact, this is one matter that would have a huge effect on that system, according to all the available professional evidence. It is one of the really curable conditions. I also understand from the literature provided to me by experts in the field that there is a 99% cure of all these symptoms when people secure employment. We must, therefore, concentrate on creating employment.

What is the yardstick one should use when one attempts to set up a project? I recall encouraging various people to set up businesses when I was the co-operative manager and we started divesting ourselves of some of our activities. The first obvious requirement is a diversity of projects. When a person makes a success of something in this country we have a habit of saying everybody in the country can make a success of the same business. We saw it happen in the construction sector and in other areas. We glut the market. We even managed to do it with the Connemara ponies in recent years when they were making money. Everybody got into Connemara ponies. We must be very careful to ensure that where sectors are successful we do not try to push everybody into them, because that will also create a problem.

I have always believed that the second requirement for a project is that before one looks at the finances or the details, one must ask if the proposal makes sense. In other words, when one stands back and looks at it, is it a sensible thing? Has one some natural advantage, be it of knowledge or access to raw material, that makes the proposal sensible? I have seen proposals come forward and it did not make sense that they could ever be sustainable.

Finally, the ultimate test I always had was the person. Two people could be given the same conditions and one will make a go of it but the other will not. We must consider whether we are doing enough to attract the people with that magic ability to run a business. They are few and far between. It is the native skill of how to run a business. Sometimes it is not a matter of education. these issues come before finance. Finance is the last issue because if one does not have a good business there is no point in talking about finance. However, when it comes to finance, I believe it should be a mixture of equity finance, grants and loans, and there must be a proper proportion between the three.

I wish to share time with Deputies Lawlor and Humphreys.

Yes, certainly.

I welcome the Bill and the Minister's commitment that employment will continue to be the Government's top priority. This Government is committed to jobs but I ask the Minister to tell his Cabinet colleagues that rather than carry out the budgetary process in public and on the airwaves of our national broadcaster they might do it privately in the Cabinet room. That would do us all a service.

The Minister, Deputy Bruton, has gone about his business quietly. He is committed to small and medium enterprises and to indigenous industry. The Minister is correct. Rebuilding the foundations of the economy requires changing the way we operate in terms of our small and medium enterprises but that requires working banks that lend to and work with business. It requires us having sustainable businesses. It requires having entrepreneurs with ideas who are risk takers, about whom Deputy Ó Cuív spoke, and the need to work with them. We must help those people and not put a barrier in their way. The Taoiseach has spoken about this country being the best country in the world in which to do business. That is the task we have been given.

The Minister spoke about creating a strong indigenous industry, stimulus and creating jobs. That is what we must do, and it requires our banks to work with people, but what Ulster Bank has done this week is reprehensible. It is unacceptable that the bank has gone into hiding and today, Wednesday, we still have not got an answer to the problem. Those are the banks that our businesses require to work with them.

Enterprise Ireland today announced record exports of €15.2 billion. That is an extraordinary result which shows the importance of the indigenous industry and that it is, as the Minister correctly stated, central to achieving growth in jobs in our country. That is the reason it is important that we work with and pass this Microenterprise Loan Fund Bill.

It is extraordinary that there are no Members in the House other than Government Members. What does that say about the jobs issue? It says there are four Government Members who are prepared to come in here at 9.40 p.m. to speak about this Bill because we understand its importance. We do not want to engage in rhetoric but speak about the importance of seeing people who emigrated return here and those who went abroad to start up businesses coming home to reinvest in our own country.

This Bill is about helping indigenous small business and the domestic market. In its budget last year this Government rightly targeted the hospitality sector. In terms of the spin-off, Deputy Griffin is aware of it in Killarney and Kerry South. I am aware of it in the city of Cork and in west Cork. Restaurants in Cork are now employing more people. They have better offers. One can go into Cork city on a week night and get three courses of quality food for €20 because this Government took an initiative to attract people to this country. Similarly, as we saw today, the thriving export market is an indication that we can work, and we must build on our domestic market.

I fully agree with the Minister and the Minister of State, Deputy Perry, that small businesses, or microenterprises as we now call them, are the catalyst to getting our country and our economy moving. That is important.

The fundamental point is that we must go back to our banks, which I believe are codding all of us in the way they are not working with people or allowing any leeway in terms of different types of loans, overdrafts and working capital. They are penalising harshly the small and medium enterprises. I know there are some who are starting up who are being squeezed, so to speak, and are finding it difficult but we must reward them and give them opportunities to grow and develop. Otherwise, we will be stagnant and there will be no further growth. I thank the Ceann Comhairle for the opportunity to speak.

I am delighted to speak on the Microenterprise Loan Fund Bill which is a welcome addition to the work we must do to increase the number of people who are back in employment.

Deputy Buttimer remarked that there are not many Opposition Members present. I recall Deputy Wallace mentioning on a number of occasions when he stood to speak in the Chamber that there were no Members present to listen to him. I assume he is at his VAT free wine bar tonight looking at us on a screen, but we will keep going.

I welcome that the Minister is providing funding and that, most important in that regard, he will able to leverage additional funding associated with it from the European Investment Fund. I welcome also that the Minister has involved the county enterprise boards. As a former member of a county enterprise board I thought the work they were doing was extremely worthwhile in grant aiding small businesses to get up and running.

I would like the Minister to take on board the following proposal regarding young people, which he might bring forward in an amendment. Statistics show that 33% of young people, those under the age of 25, are unemployed. They are a vital sector for the future of the country but with 33% of them unemployed we must examine ways in which we can get them back to work. Many of those young people have entrepreneurial skills. It is a well known fact that since 2008 when figures were prepared there has been a 50% drop in the number of young people who got involved in small enterprises who have shown they have entrepreneurial skills. What is the reason for that 50% drop? Is it because banks have ceased lending to young people and are not willing to take a risk with young people with good ideas? Prior to 2008 banks were taking risks with those young people. Some of them will fail and some will progress, and as a result the banks are reducing the amount of money they are lending to young people with good ideas. The result is a 50% drop in the number of young people starting up their own enterprises. What can we do to return to the number that pertained in 2008? Would it be possible to ring-fence some of the fund that will be available to microenterprises specifically for people under 25 years of age? I will give the Minister a good reason for doing that.

The county enterprise boards run a student enterprise scheme. In recent years thousands of young students and entrepreneurs participated in that scheme. Only last year, Tara Haughton from Kildare set up a company, RossoSolini. The female Members present will be familiar with shoes that have red coloured soles. She came up with that idea and luckily secured finance to pursue it through the county enterprise board. If she was not able to access finance from that source, she would have been unable to export 65,000 pairs of those coloured sole stick-ons. It is people like her for whom we should be providing funding.

The Young Entrepreneur Competition is excellent for people in third level education and below. Some 2,500 young people participated in that scheme last year. To reduce the number of unemployed people under the age of 25, it would be helpful if some of the funding available under the microfinance scheme could be ring-fenced specifically for young people under the age of 25. I hope the Minister will consider bringing forward an amendment in that respect.

I welcome the opportunity to speak on this Bill. I commend the Minister, Deputy Bruton, on bringing forward this important legislation. I have worked in the financial services industry for many years and one story has always stuck in my mind, and it is appropriate that I share it with the Minister in the context of this Bill. I once interviewed a married couple who were seeking a small loan to carry out some renovations to their home. The application was assessed and the loan approved. The wife was delighted because she could fix up the house and make it more comfortable.

The husband was somewhat more hesitant. I asked him what was wrong and his reply was: "The banks - They give you an umbrella when the sun is shining, but when the rain comes they take it away." The umbrellas are well and truly gone now. This simple story paints an accurate picture of what has happened in Ireland. At the height of the boom, when the sun was shining, banks lent recklessly, but now when the rain has started and people have fallen on hard times, the umbrella has been taken away.

In the Celtic tiger years, asset based lending became the norm. The focus moved away from repayment capacity and now we are paying the price. I believe that by introducing the microenterprise loan fund scheme, the Government is providing businesses with much needed financial assistance. The most positive aspect of the scheme is that it will enable entrepreneurs with ideas to access the credit that they require to get their idea up and running. It is hugely important that the Government does its utmost to support small business as they are the lifeblood of our economy. My county, Monaghan, is renowned for its entrepreneurial spirit and the majority of our employment is related to indigenous businesses. The Minister had an opportunity to see this first hand when he visited Monaghan last month and met with a number of local business organisations.

One of the biggest reasons for start-up business failure is poor financial management. People can produce excellent products, but they also need to have the business know-how to manage their finances correctly. If this does not happen, then, unfortunately, regardless of how good the product is, it is inevitable that the business will struggle. The microenterprise loan fund will provide some businesses with the chance that they have been waiting for, but these businesses must ensure that this opportunity is not wasted through poor financial management. I would encourage businesses to use their local county enterprise boards and local enterprise officers who are available to give excellent guidance and assistance. This scheme forms a further part of the Government's plans to get credit flowing to businesses again and will complement other initiatives, such as the credit guarantee scheme and the development capital scheme.

Retaining and creating jobs remains the top priority for Government. There is no doubt that by supporting our small businesses and creating an environment in which they can flourish will in turn have a positive impact on job creation. There are businesses that need access to credit in order to survive, but likewise there are businesses that have diversified and which are turning this recession into a positive by identifying new opportunities. These would be in a position to expand and create jobs if they were provided with the necessary finances. Figures issued today show 2011 as providing a record result for exporters, with over €15.2 billion of exports out of Ireland. The main growth area in exports is with small and medium enterprises, which this fund specifically targets.

It is worth pointing out that research from the Central Bank has identified Ireland as the most difficult country in the eurozone for small businesses to access credit. We have all been told by our constituents that the banks are simply not lending. Part of the reason for this can be attributed to the fact that they do not have the skills to assess or understand the business propositions that are presented to them. The problem is that when a person with a credible business idea is refused a loan, this can have a very negative impact on his or her confidence. The person may lose hope and instead of creating what could have been a successful business employing others, the likelihood is that he or she will give up all together. The other danger is that if people repeatedly hear that the banks will not lend, they will not even attempt to get their project off the ground. That is the reason schemes such as the micro-enterprise loan fund are vital at this point in time, so that entrepreneurs are encouraged and supported. I reiterate my support for the Bill and commend the Minister for his ongoing efforts in attempting to create a more favourable environment within which small business can operate.

I warmly welcome this Bill. When enacted, this legislation will provide a vital lifeline to microenterprises that are currently starved of vital credit. The biggest single problem facing our economy and future economic prosperity currently is the lack of credit available to businesses. We have heard many examples of such cases in the contributions made here this evening. This Bill is good news for all those businesses that will come under its remit. A vibrant micro-enterprise sector is crucial to our recovery and to the creation of sustainable jobs, not just in larger urban centres, but all over Ireland and in peripheral areas. This is very important, particularly for rural constituencies where microenterprises offer major opportunities. I support any efforts to help in this regard.

I welcome the Minister's action plan for jobs and his efforts to implement the action plan as quickly and thoroughly as possible. This is an ambitious plan with specific targets and a detailed roadmap for getting to where we need to be. This is needed more now than at any time previously in our history. Even in the 1920s, 1950s and 1980s, unemployment was not as bad as it is now. It is timely that we now have such a detailed roadmap for job creation and I commend the Minister and those working with him on that. Hopefully, we will see it fully implemented.

I would like to give an example of a case in Kerry I came across recently. I met an entrepreneur from west Kerry who set up a very successful business in the past 12 months which is going very well for him. He is now at peak production. Unfortunately, however, he does not have the capacity to expand his business because of a lack of credit and the failure of the banks to lend to him. He is turning away orders currently. Jobs are waiting to be created in his business, but he cannot create them because he does not have access to credit. I hope such an enterprise will benefit from this legislation and that it will help solve his problems and create jobs for people in desperate need of them. Every job created in our economy helps a family. It puts bread on the table, pays bills and sends children to school and college. We need to be conscious of this. A job is not just a statistic; it is a life. We need to do all we can to help create as many jobs as possible.

I am very concerned by the problems and lack of activity in our domestic economy, but I know the Minister is making every effort to try to stimulate activity. I urge him to consider areas outside of the jobs plan. Perhaps he will consider looking at giving further breaks to employers for creating new jobs. I know there are many schemes available currently to employers. However, many employers are not aware of those schemes. A greater effort must be made to create awareness of the various schemes that exist. Recently, I submitted a number of parliamentary questions to the Minister's Department and received some detailed responses which I have circulated to business people in my constituency who were unaware such schemes existed. An effort should be made by the Department to get this information into the public domain so as to ensure the full benefit of the schemes can be exploited.

In the case of new employment, perhaps the Minister should look at giving further breaks, such as PRSI breaks. We should think about the fact we tax people who create new jobs. I agree we need a tax base and the revenue associated with jobs. However, perhaps there is something we can do to make it easier for employers to create new jobs. That is what the economy needs.

Debate adjourned.
The Dáil adjourned at 10 p.m. until 10.30 a.m. on Thursday, 28 June 2012.
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