Select Committee on Enterprise, Trade and Employment debate -
Wednesday, 22 May 2024

Microenterprise Loan Fund (Amendment) Bill 2024: Committee Stage

An Cathaoirleach

Today we are going to consider the Microenterprise Loan Fund (Amendment) Bill 2024. At the outset, I thank members and witnesses for participating in today's committee meeting.

I remind members that they are required to participate in the meeting either from within the meeting room or remotely from within the Leinster House complex. Should a division occur, any members participating remotely will be required to make their way to the meeting room within the normal division time to vote before returning to their original location. No apologies have been received. This meeting has been convened for the purpose of considering Microenterprise Loan Fund (Amendment) Bill 2024, which was referred to the select committee by order of the Dáil on 20 March 2024. The purpose of the Bill is to provide for the transfer of the ownership of Microfinance Ireland from Social Finance Foundation to the Minister for Enterprise, Trade and Employment and related matters. I welcome the Minister of State, Deputy Calleary, who is accompanied by his official. I propose that we try to complete our consideration of Committee Stage of the Bill today. Is that agreed? Agreed. We will now proceed with consideration of the Bill and I invite the Minister of State to make some remarks.

Minister of State at the Department of Enterprise, Trade and Employment (Deputy Dara Calleary)

Go raibh maith ag an gCathaoirleach. Gabhaim buíochas leis agus leis an gcoiste as a gcuid ama ar maidin. I thank the Chairman for making committee time available to further progress the Microenterprise Loan Fund (Amendment) Bill 2024. My then colleague, the Minister of State, Deputy Richmond had a very good debate on Second Stage in the Dáil. From looking at that debate, I understand there is a lot of support for this legislation.

As members are aware, this Bill amends the Microenterprise Loan Fund Act 2012 to provide for the transfer of the ownership of Microfinance Ireland from Social Finance Foundation to the Minister for Enterprise, Trade and Employment and other related matters. Microfinance Ireland has provided a unique and vital support to microenterprises by filling the lending gap in the market by lending to businesses that cannot obtain loans from other commercial lenders. It is interesting that from 2012 to December 2023, more than €83.5 million worth of loans were approved, supporting 10,000 jobs and 78% of those were to microenterprises outside of Dublin. I believe I am right in saying that Deputy Bruton was the lead Minister in charge of introducing it back in the day. This is my first time at committee since he announced his next chapter and I wish him every health and happiness in that. Microfinance Ireland also provides post-approval mentoring services to its borrowers through the local enterprise office network and helps to sustain communities across the country. There is a wide regional spread, as I have already said. Microfinance Ireland has also shown itself to be able to adapt very quickly. It has provided loans in response to emergencies such as Brexit, Covid-19 and the recent flooding and extreme weather events that disrupted many businesses.

Our Department is very committed to the work of Microfinance Ireland and the need to support SMEs in the face of rising costs, which is why we recently announced increasing the lending limit for Microfinance Ireland loans to €50,000 from €25,000. This Bill will put in place the related governance structures, reflecting the increasingly vital role of State-supported lending to microenterprises for job creation and assistance to start-up and existing businesses to survive and grow in uncertain economic conditions. I give a special mention and thanks to Social Finance Foundation for its dedication and input to Microfinance Ireland and thank it for its services since Microfinance Ireland establishment in 2012. I know we will have the continued support and input of Deputies as we proceed through the Houses of the Oireachtas. I would like and I share their ambition to get this legislation enacted as soon as possible. I thank the officials in my Department for their work on the Bill. I am accompanied by Ms Sabha Greene from the unit.

An Cathaoirleach

I thank the Minister of State. As there are no amendments, we will move on to the Bill itself. Deputy O'Reilly wishes to comment.

Deputy Louise O'Reilly

I have two questions for the Minister of State. They are fairly straightforward. The first is on section 9 and the proposed new sections 13A and 13B about the appointment of the board. It says that the board will be appointed by the Minister and that the CEO will be subsequently appointed by the board. Why, in this case, is the CEO not appointed through the public appointments process?

Deputy Dara Calleary

Subject to correction from Ms Greene, that is normal process, in that the board would get recommendations from the Public Appointments Service, PAS, after it has done its work. The Public Appointments Service-----

Deputy Louise O'Reilly

It would be through the PAS recommendations that the board will then choose-----

Deputy Dara Calleary

Yes. The board will be given names and the recommendation for appointment will be given to the board-----

Deputy Louise O'Reilly

It will then come through.

Deputy Dara Calleary

Yes. It is a technical thing, but PAS would have the ball.

Deputy Louise O'Reilly

It will do the shortlist, which the Minister selects from.

Deputy Dara Calleary

Yes.

Deputy Louise O'Reilly

Okay. The second question is in the same vein. The board is appointed by the Minister. The CEO is effectively selected or shortlisted by PAS and then appointed by the Minister. We have a board appointed by the Minister and a CEO effectively appointed by the Minister. The concern is that they might use the proposed section 13D to not attend an Oireachtas committee where matters might reflect badly of the Government of the day. I am not suggesting that this has happened or that it is even likely to happen. I ask the question just to be certain that the Minister of State is confident there are enough safeguards in place that this type of abuse could not be possible, would not be likely or is not envisaged at this point in the proceedings.

Deputy Dara Calleary

I am confident that the provisions as outlined in section 13D(2) are quite restrictive. Any proceeding that is "before a court or tribunal" is pretty tightly reined in terms of the words. That is the only thing that the chief executive officer of the day "shall not be required to give an account before an Oireachtas Committee". That would have to be live proceedings before a court or tribunal. I am pretty confident that they would be able to attend and that-----

Deputy Louise O'Reilly

It is not whether they would be able to attend but rather, were a hearing to take place that might reflect badly on the Government. Is the Minister of State concerned that in that scenario, where the board and CEO are both essentially appointed by the Minister of the same Government, they could then use the provisions in section 13D as a mechanism by which to say they will not come here because they might have to say something critical of Government and do not want to do that? I am not saying-----

Deputy Dara Calleary

I am confident-----

Deputy Louise O'Reilly

I know this is a hypothetical situation but I want a comment to say that this has been considered and that the Minister of State is not concerned about it.

Deputy Dara Calleary

I am confident that it cannot be. It is also important that the board, even though it is formally appointed by the Minister, will be selected through the public appointments process as well. I will ask the officials to examine it again and make sure it is as tight as possible ahead of Report Stage.

Deputy Louise O'Reilly

They are my questions. I thank the Minister of State.

Deputy Dara Calleary

We certainly do not want any civil or public servant not to be able to be accountable to an Oireachtas committee. They must be.

An Cathaoirleach

Does anyone else want to speak? Does Deputy Bruton have comments?

Deputy Richard Bruton

I have two questions. One is on whether a review of the success of Microfinance Ireland has been undertaken and what are the highlights, the positive things like loss levels and so on. Second, while I welcome all the accountability to the public accounts committee, will there be a reporting requirement? To whom will be the reporting? Going through the different sections, I do not see the furnishing of a strategy or a report to anyone being conferred on the new microfinance body.

Deputy Dara Calleary

In terms of the highlights, a flavour of which I gave earlier, since 2012, just over 5,000 loans issued, at €83.5 million, supporting 10,000 jobs. In terms of sectors, which is probably interesting, 20% of loans were in wholesale and retail, 11% were in manufacturing, 10% were in other services and 9% were in professional, scientific and tech. A total of 42% of approvals were to start-ups, which is significant, and we define a start-up in this context as a business that has been in action for less than 18 months, while 81% of loans were to enterprises with three employees or fewer. In 2023 alone, there were 442 loans, totalling €6.6 million. There is €30 million in the MFI bank account at the moment, so it is quite well financed.

As for the lowlights, of course, we never hear about those but I will give the committee a sense of the challenges. One of the reasons for bringing the body into the Department is in order that it will be more aligned with Department of enterprise policy and SME policy and will be more responsive to that.

I will come back to the Deputy on his point about reporting, rather than give him a wrong steer.

Deputy Richard Bruton

It is a very positive body and at the time it was certainly needed. I just wonder where, in the evolution of the financial services sector, the Minister of State foresees it in the longer term. Credit unions are getting additional capability to serve the changing needs of microenterprise. Will the body need to evolve in any way or are its products sufficiently flexible for the sector it is trying to serve? A lot of small businesses in the area the Minister of State mentioned are under particular pressure. Should we be looking at international best practice to see whether a body such as this can evolve new products or new positioning in the sector?

Deputy Dara Calleary

I would absolutely support that. The recent changes we have announced, such as increasing the loan ability to up to €50,000, will help businesses and increase their capacity. The figure €25,000 was good ten years ago but it needed to be changed.

To give the Deputy some more information on the bad-debt level, in 2020, during Covid, it was 31%, whereas in 2023, it was down to 19%, so there is a very good and proactive policy within Microfinance Ireland. Moreover, it will be working with businesses. In other financial institutions, there is not the post-loan mentorship aspect that I referred to, whereby it works with businesses to grow them. Again, bringing the body into the Department and fully into the enterprise suite, which is not to say the Social Finance Foundation did not do a very good job, and having it within the Department will make us more responsive. By working through the small business forum, the retail forum and the various other forums we have, we can engage directly with business groups and business interests to make sure Microfinance Ireland will be directly responsive.

I pay tribute to everybody in Microfinance Ireland. The bad-debt figure gives a good sense that they are proactive and are assisting companies.

Deputy David Stanton

The Minister of State may have answered the question I was going to ask. How high is the level of awareness of Microfinance Ireland among businesses?

Deputy Dara Calleary

It is not where I want it to be, by any means. We tend to land Microfinance Ireland into emergency situations and people have not heard about it. This year, we will introduce the enterprise hub, that is, the one-stop shop where people will be able to go to get all the supports, and bringing it into the Department will allow us to do that. Second, in respect of the increase in its ability to lend, we have a bit of work to do to support it in getting the word out there and making businesses, especially small ones, aware that this is an option.

Deputy David Stanton

I ask because, in my interactions with businesses, I have not heard anybody talking about it. When I bring it up, they seem to be surprised it is there. Is there a plan for some kind of public or business awareness campaign to make it easier for enterprises to interact and do business with the body?

Deputy Dara Calleary

Absolutely. We certainly intend to incorporate its services much more into our promotion and we will use the enterprise hub, which will come online later this year, in that regard. The expansion of the cap from €25,000 to €50,000 gives it a whole new space it was not previously able to enter.

Deputy Matt Shanahan

Does the Minister of State have an opinion on the ability of businesses, particularly more established ones, to work with the local enterprise offices, LEOs? It is quite normal, as he well knows, for people in the start-up space to deal with the LEOs, but is not something a lot of businesses in the SME space consider once they have been up and running a number of years because they feel they will not get money. They may not, for other reasons, want to get involved in a long, arduous process of trying to access what might be small finance. We should try to cover that issue such that established businesses will be able to get back into the LEO system and get a response quickly.

Deputy Dara Calleary

To an extent, the LEO system is a different beast, even though it is a partner with MFI. Furthermore, it is worth acknowledging this is the tenth year of the LEOs, a significant year.

To go back to Deputy Stanton's point, which is aligned with that of Deputy Shanahan, we have a lot more work to do to promote the work of MFI. One aspect that has changed is that on the body’s inception, a business had to have received a refusal from a bank to be able to access MFI, and that is no longer the case. By improving the profile of Microfinance Ireland and aligning it with the LEOs, we will bring existing businesses back into the LEO fold. I acknowledge the huge work LEOs are doing to encourage businesses. We have just launched new supports, such as online vouchers and so on, and the LEOs are out there trying to promote to businesses. I would encourage any business that does not engage with its LEO to give it a shout and engage with it on training courses and mentoring but also on accessing the work of Microfinance Ireland.

Deputy Richard Bruton

Another feature of the landscape when I was involved was the Credit Review Office. At the time, there were high levels of bank refusals and it was vital in trying to establish a more even playing pitch for people trying to get access to finance. I do not hear so much about it of late. Is it still in place and having the same impact?

Deputy Dara Calleary

It is still in place but it comes under the Department of Finance, so I cannot give the Deputy an update on the office's work. I will ask the Department of Finance to give us a note about its current space, which I will forward to the Deputy.

Sections 1 to 8, inclusive, agreed to.

SECTION 9

Question proposed: "That section 9 stand part of the Bill."

Deputy David Stanton

To return to the issue of the board, will there be any role in that regard for the Public Appointments Service, PAS, in nominating the persons to be appointed to the board or will the Minister have carte blanche to appoint anyone he or she wants?

Deputy Dara Calleary

It will come through PAS and we do not necessarily have nominating bodies, as such, from my understanding of it. The Public Appointments Service will lay down the criteria for membership of the board. Is the Deputy suggesting we should have a nominee?

Deputy David Stanton

No. That is one way of doing it but I am not sure that is the reason it has been raised. It is just that the Public Appointments Service is not mentioned in the section; rather, it refers only to the Minister making the appointment. Perhaps there is some overarching policy whereby in respect of all these boards, the Minister appoints whomever the Public Appointments Service proposes.

Deputy Dara Calleary

This comes back to Deputy O'Reilly's point. It is kind of a given but what I will do, and I go back to the commitment I gave in response to her, is look to see whether we can tighten the language in that regard. It is normally not stated in legislation that the Public Appointments Service has the function, but that is now the normal way for filling appointments, and the governance code of Microfinance Ireland refers to the Public Appointments Service.

Deputy David Stanton

Okay. It is just that PAS is not mentioned in the section in any shape or form.

A Minister could appoint whomever he or she wishes without any recourse whatever to the Public Appointments Service.

Deputy Dara Calleary

That would contravene the governance structure side of things. I can signal now that we will look at this ahead of Report Stage to see if it reflects other legislation in the context of appointing boards. The code of practice for the governance of public bodies is also very strong on the role of the Public Appointments Service in selecting directors. It is not for a Minister to do so. However, I also see where the Deputies are coming from.

Deputy David Stanton

I expect that to be the case but the primary legislation would probably override everything else. Perhaps there is a way to include some reference to PAS before Report Stage.

Question put and agreed to.

Sections 10 to 17, inclusive, agreed to.

Title agreed to.

Bill reported without amendment.

An Cathaoirleach

That completes our consideration of the Bill. I thank the Minister and his officials for attending today's meeting. I look forward to the Bill being enacted and implemented as soon as possible.

Deputy Dara Calleary

I thank the Chair, the members and the secretariat for their help and support.