I thank the committee for the opportunity to present the views of the Department of Enterprise, Trade and Employment on the general scheme of the loan guarantee schemes agreements (Strategic Banking Corporation of Ireland) Bill 2021. In order to meet the pressing need for finance by Brexit-impacted SMEs, small mid-caps and primary producers, this new scheme will need to be fully operational by the end of quarter 2 of this year, as the Chairman mentioned. I am joined by my colleagues Ms Fiona Kilcullen, principal officer and head of the Department’s finance for growth unit, and Dr. Elizabeth Harvey, assistant principal in the unit.
As the committee will be aware, the Department of Enterprise, Trade and Employment has been working with Brexit-impacted businesses since 2016 to ensure we have the right range of supports in place at the right time to help businesses adjust to Brexit eventualities. Before commenting on the specifics of the Bill, I will provide a general outline of the plans for a new Brexit-focused loan scheme. Loan guarantee schemes continue to be a key instrument for providing help to vulnerable but viable businesses impacted by the effect of Covid-19, Brexit or both. Since the start of the pandemic, close to €931 million in lending has been sanctioned to more than 8,000 businesses through State-backed loan guarantee schemes operated by the Strategic Banking Corporation of Ireland, SBCI, on behalf of the Minister for Enterprise, Trade and Employment and the Minister for Agriculture, Food and the Marine. The results from the Central Bank of Ireland’s bank lending survey from January 2021 indicated that 2021 will see increased demand for business lending for both guaranteed and unguaranteed loans, with the increase in demand for guaranteed loans expected to be larger, as businesses navigate the uncertain and difficult times and as the parameters governing the schemes evolve.
Introducing the Brexit impact loan scheme, BILS, which provides for easier access to a wider range of financing needs for Brexit-impacted SMEs and small mid-caps, including primary producers, which were not included in the previous scheme, will ensure that appropriate access to finance options will remain available for SMEs over 2021 and 2022 at least, beyond the lifetime of the credit guarantee scheme, which is allowed by the European Commission only until the end of this year. It is intended to help viable but vulnerable businesses respond to the liquidity challenges presented by both the Brexit and Covid disruptions, ultimately helping them to sustain their operations and employment.
The Joint Committee on Enterprise, Trade and Employment is being asked to provide a waiver of pre-legislative scrutiny for the general scheme of the Bill, which is intended to provide a statutory basis for the Ministers for Enterprise, Trade and Employment and for Agriculture, Food and the Marine to engage with the SBCI on the new scheme and on future loan guarantee schemes to be delivered by the SBCI, and to enable us to benefit from the European guarantee fund. It is a short, technical Bill with a narrow scope, relating to a technical agreement that the Ministers will need to sign with the SBCI, rather than with the European Investment Fund, EIF, by the end of May 2021 in order for the BILS to be delivered by the end of quarter 2. The new Brexit scheme will leverage a counter-guarantee by the European Investment Fund’s pan-European guarantee fund, to which Ireland is a contributing member and which will be of benefit from the funding to which we are contributing. Based on financial modelling, the effect of this guarantee for the BILS will be to make up to €330 million in lending available by the end of 2022 at an Exchequer cost of €29 million, and this relates to a multiplier effect of greater than a factor of ten for the Exchequer in terms of the money flowing.
This means that we will be able to leverage and much of the guarantee is coming from European sources.
In considering the legal basis for a new scheme and how the Minister might progress such a scheme, advice was sought from the Attorney General. The Department is satisfied that it is appropriate to provide for the specific vires in legislation and to provide a statutory basis for relevant Ministers to fund and enter into future agreements with SBCI for the purpose of facilitating access to finance for qualifying enterprises.
The intention is to be fully operational by the end of the second quarter. We mentioned at the beginning why there is some pressure on this. There are several processes we have to work through to have it launched in time. The first is to have an open call and assessment of the applications by lenders. We would go out to a range of banks and financial institutions to participate in the scheme. Legal agreements have to be developed between the European Investment Fund and SBCI, between SBCI and lenders to the scheme and between SBCI and the Minister of Enterprise, Trade and Employment. The Bill would enable this. Information technology systems need to be put in place as well.
The Brexit impact loan scheme, as proposed, provided for lending to enable diversification of businesses in response to, and to mitigate, the impacts of Brexit and Covid-19. SMEs and small mid-capitalisation companies, including primary producers, will now be included and can utilise lending through the scheme for activities aimed at addressing climate change challenges and other opportunities. Funding through the Brexit loan scheme can also be utilised for purposes which yield environmental benefit but which are, under normal lending conditions, less attractive to lenders due to longer return-on-investment periods.
The proposed legislation will also enable Ministers to separately or jointly enter into future agreements with the SBCI and provide the necessary financial support thereunder, with the purpose of providing policy responses to identified market failures in access to finance for SMEs, including primary producers and small mid-caps.
Today, we are focusing on Brexit but we have headroom to enter into further agreements in other areas. In particular this will allow Ministers the opportunity to act quickly to enter into agreements with the SBCI to leverage further European funding that is, or that becomes, available to Ireland through European-funded guarantee facilities.
The legislation must be enacted by mid-2021 if the scheme is to go ahead in time to provide support to Brexit and Covid-19 impacted SMEs, including primary producers and small mid-caps that are grappling with the twin disruptions of Brexit and Covid-19. On behalf of the Department, I thank the committee for the opportunity to present and I look forward to engaging in the discussion.