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Thursday, 5 Jul 2012

Microenterprise Loan Fund Bill 2012: Committee Stage


As amendment No. 1 has been ruled out of order, we move to consideration of the section. Are there any comments?

Amendment No. 1 not moved.
Question proposed: "That section 1 stand part of the Bill."

With regard to the amendments being ruled out of order, I can understand amendments Nos. 3 and 5 in my name being ruled out of order on the basis that it would be a charge on the Exchequer but all amendment No. 1 states is that the Bill, or the Act as it will be then, "shall come into operation within 3 months of its passage by Oireachtas Éireann." The only conceivable way this can be a charge on the Exchequer is if the provision is not introduced within three months. I want to ascertain the Minister's intentions on this point. When does the Minister envisage this scheme will be up and running?

It will be well within the three months the Deputy is seeking. It is our intention to move immediately on this. There are a number of issues and, as soon as the Bill has passed through the Oireachtas, we will seek to get the European Investment Fund to offer a partial guarantee. It is our intention to move immediately, well ahead of the three months.

The ability to commence different sections at different times is a standard provision to allow a Minister some degree of flexibility in order that one would not have to come back to the Oireachtas if, for some unforeseen reason, some element was not being brought in at the same time as everything else. I can understand the Deputy's eagerness, which I share. We want to get this up and running. I assure the Deputy that we are straining at the lead, so to speak, to get this out.

The advice from the Bills Office is in two parts. First, one can amend a Bill but one cannot amend a Minister's intentions. Second, the main point is that the charge could possibly be brought forward earlier than intended, and this charge would be a charge on the State. That is the ruling. We had the exact same ruling on the last day we met. It is a tight ruling but a fairly standard one, and I am afraid they will not budge on it.

I welcome the Bill. Am I correct in understanding that the amounts that can be loaned by this proposed new company to very small businesses-----

I will take general questions towards the end, if that is okay. I want to deal with the amendments first.

I am somewhat concerned about the adjustments proposed by Deputies Willie O'Dea and Peadar Tóibín. I was of the view that the amounts provided for in the Bill could be adjusted upwards. Essentially, they are not fixed forever.

We are investing €10 million now and, with permission from the Oireachtas, there is capacity for another €15 million to be borrowed. This gives a total of €25 million. The position is that we will leverage the €10 million through bank lending. This will allow us to lend approximately €40 million over a five year period. The sum of €25 million would allow us to leverage up to €100 million over a period of a certain duration. We could seek to amend the position at any stage. If the scheme was going incredibly well, we could return to the Oireachtas to seek further provision. The putting in place of ceilings is aimed at protecting the taxpayer and ensuring the Oireachtas will have oversight of a further extension of spending under the scheme.

Therefore, the amounts are not fixed for all time.

We will deal with that matter in the context of section 5.

Question put and agreed to.

I move amendment No. 2:

In page 4, subsection (2), lines 11 to 25, to delete paragraph (b).

As the Minister will be aware, there are two criteria a company must satisfy in order to qualify for the scheme. First, it must be established in the State and employing fewer than two people and, second, there is a financial limitation in the context of its turnover. I do not disagree with the Minister that some financial limitation should be imposed. The Bill states turnover should not exceed €2 million and that the annual balance sheet value should also not exceed €2 million. That is somewhat tight because the information available to me indicates that there are quite a number of companies with turnover and balance sheet values which marginally exceed €2 million. I refer to those in the €3 million to €4 million range. I tabled this amendment in order to explore whether we might be able to loosen the criterion relating to the financial limitation.

The Minister wants the scheme to be targeted in order that it will achieve certain outcomes for particular businesses. That is perfectly understandable, but I must agree with Deputy Willie O'Dea to some extent on this matter. Certain businesses have different levels of turnover. For example, it is probable that a service business with a turnover of €2 million is highly profitable. However, a manufacturing company or a company which is selling a particular item - for example, a property - and which might have one or two employees might exceed the limit of €2 million for certain a period. The amendment suggests there should be no limit. It is necessary to have some limit in place, but I also believe that, in the context of manufacturing or sales-based organisations, the €2 million limit could be somewhat tight.

The definition of "microenterprise" provided in section 2(2) reflects that which is accepted across the European Union. It is in accordance with European Commission Recommendation 2003/361/EC of 16 May 2003 and was published in the Official Journal of the European Union. Section 2(2) has been crafted on the back of the EU definition. Any proposal to amend the definition beyond the scope of the EU version would open up the loan fund to all enterprises with fewer than ten employees, regardless of the size of their turnover or the strength of their balance sheets. It is not our intention to do this. Rather, we want to confine support to companies in the real microenterprise sector which have fewer than ten employees and an annual turnover that does not exceed €2 million.

The loans that will be provided will be up to an amount of €25,000 and they are not really intended to support the establishment of a particular manufacturing sector. We will be directing companies with turnover or balance sheet values exceeding €2 million to Enterprise Ireland which provides seed capital funding for such companies or to the banks. There is a suite of financial instruments in place, most of which are provided by the banks but some are provided by the State. We are enhancing that suite through the introduction of the microfinance fund which will be placed at the bottom. There is also the temporary loan guarantee scheme and Enterprise Ireland has its established seed capital schemes in place. In addition, there are also instruments on offer from the private sector. The development capital scheme is a new State-supported initiative.

The microfinance fund is tailored towards a particular cohort of start-ups, the needs of which do not exceed €25,000 worth of loan capital. I take the point made by the Deputies to the effect that there is potential demand for loans from other businesses. The definition of "microfinance" provided in the Bill reflects that which is accepted within the European Union. First-Step Microfinance has been operating in this field and in the light of its experience, I am of the view that ceilings such as those under discussion will not in any way inhibit the performance of the fund in the sector at which it is targeted.

This is an extra source of funding, albeit a targeted one. It is not my intention, as stated, that it should be open-ended in nature. I remind the Minister that in order to qualify or be eligible for funding, a company must have been refused credit by the banks. I am aware of the alternative sources of funding, but there is a danger it will, as it were, fall between the two stools. Will the Minister reconsider the position on the limit between now and Report Stage? I remain of the view that it is somewhat tight.

I will have no difficulty in re-examining it. We will consider the experience of First-Step Microfinance and that of other European operators in this sphere. Our research to date indicates that the operations of the cohort of businesses at which our efforts are aimed will not be curtailed. I will certainly check what the experience has been in other countries which have established schemes of this nature.

Amendment, by leave, withdrawn.
Section 2 agreed to.
Sections 3 and 4 agreed to.

Amendments Nos. 3 to 6, inclusive, are out of order.

Amendments Nos. 3 to 6, inclusive, not moved.
Question proposed: "That section 5 stand part of the Bill."

The idea behind the amendments I tabled and that have been ruled out of order is that they would increase the ability of the fund to deal with an area of business which is in real trouble. For reasons relating to demand, costs and credit, those involved in the sector in question are finding it extremely difficult to survive. I welcome the Bill because it is going to deal with the issues relating to credit. There are many businesses which are in a healthy position but which cannot obtain access to credit through the normal channels. This is limiting their potential to develop their operations further.

Amendment No. 4 suggests the limit should be increased. In other words, the Minister of the day would be allowed to invest more than the sum of €10 million for which the legislation makes provision. I am not stating there would be pressure on the Minister or the Government do this immediately. The amendment would have merely made provision for the amount to be increased. The Minister indicated that the legislation could be amended in the future in order to allow for increased limits. That is absolutely the case. The Government should not necessarily be obliged to make such an amendment, however, particularly if we were to make provision in the Bill now in order to allow the fund to be increased.

What we are concerned with is the microenterprise loan fund. However, €10 million is microfinance; it is small beer in the context of the needs identified.

The amendment in my name would not have imposed a cost on the State. It would have given the Minister an opportunity to decide whether to increase the amount to be allocated in the future. There could come a sunny day when, following a general election, my party will be in government and one of its members will be Minister for Jobs, Enterprise and Innovation. In such circumstances, we would immediately increase the amount to €100 million because that would reflect our policy. However, we would be obliged to return to amend the legislation in order to allow this to happen. If the Minister were given the power to decide, then he or his successor - whoever that may be - would be able to provide for the needs of microenterprises without the need for the legislation to be revisited. What I have outlined represents a better way to make provision for potential increases in the future.

Will the Minister indicate exactly how the leveraging is going to work? He stated that it will be leveraged on a three-to-one basis, that is, €3 for every one €1 invested. Will he outline how this will work?

This scheme is vitally important and it has my strong support. However, it is quite unambitious. The Minister's press release indicated that approximately 7,500 jobs will be created over ten years. While this would be a welcome development, the number of jobs in question is - when one considers the recent figures released by the CSO - a drop in the ocean. I am not too hung up on what should be the amount invested in the scheme, whether it be €30 million, €50 million or €100 million. The reason I tabled an amendment to increase the limit is that I have genuine concerns. I accept that the limit is included in the legislation and that the Minister will be in a position to increase it. I am of the opinion, however, that officials in the Department will take the approach that the limit has been set and that it should not be exceeded.

It is my view that the take-up in respect of this fund is going to be greater than anticipated. There will be a great deal of demand for it. I do not want it to be the case, therefore, that a couple of months after the scheme's introduction we will be informed that there is no money left and that we will be obliged to wait until next year to see if it can be increased. I genuinely believe we could be heading in that direction. If a more generous limit were put in place, it would keep the scheme going for the year. At that point, the Minister and his Department would be able to review the position. I am sure the Minister will be pleasantly surprised by the level of take-up in respect of this scheme.

We have carried out an analysis in respect of the nature of the demand in this sector. We consulted people from First-Step Microfinance, which has worked in a limited way in this area, and the banks and analysed the flow of applications that have been received and the refusals that have been issued. The estimate of the level of activity in respect of the scheme is that no more than €10 million per year will be required. We have made provision in the Bill for an initial sum of €10 million to be allocated. This will be the equity base. The Social Finance Foundation will also be in a position to borrow a further €15 million in order to bring the total up to €25 million. In the initial period, therefore, we hope to borrow €15 million and add this to our own equity in order to meet the demand. The level of the latter is expected to be less than €10 million per year.

It will be a rotating fund and there will be a repayment schedule. This means that the fund will refresh itself. It will have the capacity, as already stated, to borrow a further €15 million on top of the €10 million equity we will be investing, bringing the total up to €25 million. In the first few years, this will be comfortably leveraged up to at least €40 million. There is a reason the Oireachtas and those who count the coins that come into the Exchequer - and ensure that these are well spent - insist on the inclusion of ceilings such as that contained in the Bill. These ceilings are a well-established mechanism. In the context of the fostering innovation, we are moving into an area where we will clearly be taking a risk and we expect to lose some of our money. We are investing equity of €10 million and we expect that this will, over time, be whittled away as losses in the sector have an impact. Implicit in this is the fact that we are carrying some of the risk.

Those who drafted the legislation are stating that the Oireachtas is entitled to have some control over the way this scheme develops over time. We have made provision for a review and there is also a right to invest additional equity as the original sum is whittled away over time. We are investing €10 million now and we can put in another €15 million in order to bring the total up to €25 million. As already stated, it will be a rotating fund and it will have the capacity to meet a level of demand that is considerably higher than best advice indicates currently exists. We have built in sufficient headroom whereby if the scheme is a success and exceeds expectations, we will still have the capacity to meet a level of demand that is twice that envisaged or expected.

The protections we are putting in place are prudent, particularly in the context of a new scheme. We will want to be able to rest assured that it is working well. This is a sound approach to funding. The scheme will give rise to social benefits, namely, the savings which will accrue through savings on social welfare payments and the increase that can be expected in tax revenues. Even though the failure rate in the sector could run as high as 20%, shipping that loss on the part of the State would, particularly in light of the benefits to which I refer, be well worthwhile. Based on the research we have carried out and on the experience in respect of other microfinance schemes, I am satisfied that the scheme proposed in the Bill is well structured and will be able to meet the likely demand within the sector.

Let us not forget that this is only one of a number of measures. For example, county enterprise boards are providing grants to certain sectors, Enterprise Ireland is providing seed capital and then there is the temporary loan guarantee scheme. This, therefore, is only one of a suite of measures. The limits that are provided in the section are sensible. If the scheme proves to be a resounding success, it will be easy for me to obtain approval from the Government to proceed further and to return to the Oireachtas to ask it to increase the amount sanctioned. I would have no difficulty in doing the latter. However, it must be remembered that prudence dictates the way in which we must approach matters of this nature. At this time we must be prudent in expending State money.

I wish the people who draft legislation of this nature had as much confidence in the Minister as I do in the context of his ability to make the necessary decisions.

I will have to bottle that remark and put it on the shelf.

Absolutely. The programme for Government contains a clear political promise to the effect that €100 million would be provided in order that the needs which exist on the ground might be met. Some 1,600 businesses are going wallop each year in this State. A significant proportion of these go under as a result of credit issues. A significant section of society is unable to make the transition from business idea to functioning business because of the lack of credit. The business owners who go bust and those who fail to start their businesses because of the lack of credit are going on to do it in Australia, Canada, the United States and England where they can get credit.

I agree there is a significant challenge in the whole credit area and that small and medium enterprises, SMEs, are suffering as a result of the lack of credit but as we know well, the target for SMEs is €3.5 billion from both banks. We are not seeking to substitute in that space or to cater for the entire cohort of bank clients who are struggling to get credit, although as Mazars confirms, many of them are consolidating and are not looking for credit for one reason or another. This is a targeted scheme and if it is a success, as I believe it will be, we will be well able to extend within our limits to meet any likely demand. If we need to top it up over time we will come back to the Oireachtas but with the limits of €25 million in equity available as a buffer against losses, the scheme is well funded for the foreseeable future.

Is it correct that amendments Nos. 5 and 6 were deemed out of order?

Yes. I called Deputy O'Dea-----

Amendments Nos. 3 to 6, inclusive, were deemed out of order.

They were and we had a debate on the entire section.

Go raibh maith agat.

Question put and agreed to.
Sections 6 and 7 agreed to.

Amendment No. 7 is in the name of Deputy O'Dea. Is Deputy Tóibín moving the amendment on his behalf?

I move amendment No. 7:

In page 6, subsection (2), line 28, to delete "not exceed €25 million" and substitute the following:

"be such an amount as the Minister may determine from time to time to be appropriate".

Section 8(2) limits the aggregate amount of borrowings at any one time by the Social Finance Foundation, SFF, in regard to the fund of €25 million. This figure was deliberately chosen by the Department, in consultation with the Department of Finance and the Department of Public Expenditure and Reform, to definitely limit the scope of the Social Finance Foundation to borrow for the purposes of the legislation and to avoid the danger of reckless borrowing. It caps the borrowing capability of the SFF in respect of the fund in such a way that if further borrowings were to be sought, Oireachtas approval would be needed.

The Department believes that this is the appropriate way to proceed given the model proposed, the size of the sector and the expected average loan size. The wording proposed by Deputy O'Dea would appear to afford the Minister and the SFF greater flexibility in the operation of a borrowings cap. While this would appear at first sight to be the case, the current imperative of good governance and tight oversight demands that we operate tightly in this respect and that the Oireachtas should be afforded scope to comment on increases or excesses in the SFF borrowing for the purpose of the fund.

Amendment put and declared lost.

We may bring forward on Report Stage some minor amendments in respect of this section and some other sections. I wish to flag that we are in discussions with the Department of Finance and the Attorney General about some small amendments.

Is that in section 8?

Sections 8, 10 and 12.

Section 8 agreed to.
Section 9 agreed to.

Amendment No. 8 is in the name of Deputy O'Dea. Amendment No. 9 is related, therefore, amendments Nos. 8 and 9 may be discussed together.

I move amendment No. 8:

In page 8, subsection (3), line 15, after "made" to insert the following:

", every such scheme shall be debated by the Committee on Jobs Enterprise and Innovation,".

It is not our intention to have a fresh debate every time the scheme is amended. We are anxious to proceed quickly with this. The best practice in the Oireachtas has been that the scheme would be laid before the Oireachtas and not have individual debates. There would be the 21-day period during which the Oireachtas, if it were unhappy, could seek to rescind it. We are developing the scheme. It is at a fairly advanced stage. If people want to discuss the scheme and get a sense of it as it develops I am happy to facilitate that but the scheme will set out matters such as the criteria that will be applied, the requirements of a borrower in terms of what an application would need to contain, the repayment frequency, what would happen if a borrower got into difficulties and the arrangements that would be made. Obviously, the interest rate cannot be settled at this stage. The most obvious issue is the cost of the funding we get from the banks, which is the top-up to the State's equity. Also, there is the detail of the European Investment Fund's partial take-up of losses and so on. A number of details remain to be worked out.

A number of Deputies were anxious that there would be a range of providers close to small business who could be reference points, and we are providing for that. It will not be confined to county enterprise boards. It can be other local bodies which would be in a position to support a business to provide the requisite business plan to be eligible. It could be referrals from the Companies Registration Office, CRO, where a loan had been turned down. The maximum loan, as the Deputy is aware, is €25,000. That is the sort of detail that is going into the scheme but to quote the advertisement, terms and conditions will apply but no sneaky ones. That is what is going on. I can offer a briefing to Deputies if they are interested but the intention is not that we would come back here for every revision in a scheme as experience dictates new changes in it.

I would be interested in seeing the details of the scheme and having it explained in its full context. In terms of the difficulty we have with this, and I am sure the Minister would have the same difficulty if he were in our shoes, I am not yet fully au fait with the legislation landscape but we are dealing with enabling legislation to provide for a scheme which will go before the Oireachtas and can be refused by a negative resolution. In other words, if the Opposition has a difficulty with any element of it we will have to use Private Members’ time or one of the few other options we have to bring about that negative resolution in the Dáil, which greatly reduces our ability to influence and develop the legislation. Amendments Nos. 8 and 9 reflect that in that both seek more input from the entire Chamber. There is a great deal of enterprise experience and knowledge on all sides of the Chamber. While I accept that the Government will have a certain political desire to achieve its own objectives, the reality is that most of its efforts in this area will reflect objectives common to all Members. We might argue about the breadth and scope of a particular scheme or initiative, but the associated objectives are largely shared. My concern is that the process in respect of this scheme, as set out in the legislation, will edge out the Opposition to a significant degree in terms of influencing the future development of the initiative.

As always, the devil is in the detail. I suggested on Second Stage that a designated amount of funding be ring-fenced under the scheme for applicants aged 18 to 24 years, given that there has been a 50% reduction in the number of persons in that age category accessing financing. Younger people generally have no credit record with the financial institutions and will thus be in a difficult position, if their loan application is rejected, in presenting their case to the credit review group. There is enormous potential within that age group. The vast bulk of entrepreneurs are aged 36 years and over, but by the time a person reaches 46 or 47 years of age, the enthusiasm and hunger might not be as strong as those of a younger person. I realise that most of us in this room are in that older age category, although I do not want to insult Deputy Brendan Griffin or anybody else. My point is that some ring fencing for the purposes of assisting young entrepreneurs would be helpful. This is particularly important, given that Ireland is the leader in Europe in terms of the number of young entrepreneurs. We should support them as much as possible in developing their business plans. As Deputy Peadar Tóibín observed, we will not see the detail of the scheme until it is too late to have an input. Will the Minister consider including a dedicated measure for the youngest age cohort, whose members are facing the highest unemployment rate of any age group? We have all seen the huge potential of the young people who participate annually in the Young Scientist and Technology Exhibition and the county and enterprise boards' enterprise awards scheme. We should support them in every way we can.

I assure Deputy Peadar Tóibín that it is not our plan to get this legislation through the Oireachtas and then begin devising schemes without ever again consulting Deputies. Rather, our intention is to have a scheme that will evolve with experience. I would be entirely in favour, for example, of the committee inviting representatives of Microfinance Ireland or the Social Finance Foundation to discuss the scheme once it is up and running. We are anxious to get out of the traps quickly and put the scheme in place to see how it will work. I would very much welcome an interplay with the committee in due course in terms of its experience of how the scheme is actually working. It is inevitable that an initiative of this type will evolve over time. I have resisted creating a very formal structure whereby a proposed change would have to command time in the Oireachtas, with a formal order laid and debated. The pressure that would impose is clear. Instead, we intend to have something that will evolve more organically. I will welcome the input of the committee as it proceeds.

Deputy Anthony Lawlor raised the issue of ring-fenced supports for young people. I take his point that they are most likely to be handicapped by the absence of a credit rating. In this regard, we are considering the possibility of including bonus points in whatever rating scheme Microfinance Ireland will use for evaluating projects. Such a provision would recognise the particular handicaps faced by young entrepreneurs compared with others who are more advanced in their career and might be able to tap refunds from the seed capital scheme, for instance. There is also scope for flexibility in regard to the seed funding applicants will be expected to provide. There would obviously be greater leniency in the case of somebody who was at the very start of his or her career as opposed to an older applicant who might already have resources. The latter would be expected to demonstrate his or her commitment to the business in terms of matching the microfinance being provided. All of these issues are under consideration. I am not, however, in favour of a quota mechanism. Such a measure would be a crude instrument and problems would arise if the quota was not filled and moneys went unspent. Our focus is on finding a way of weighting the scheme which recognises the particular handicaps young entrepreneurs face. As such, we have taken on board the argument made by the Deputy on Second Stage.

Amendment put and declared lost.
Deputy Peadar Tóibín: I move amendment No. 9:
In page 8, subsection (3), lines 15 to 19, to delete all words from and including "and," in line 15 down to and including "thereunder" in line 19 and substitute "for agreement".
Amendment put and declared lost.
Section 10 agreed to.
Section 11 agreed to.

I move amendment No. 10:

In page 8, lines 33 to 37, to delete subsections (3) and (4).

I alluded to this issue on Second Stage. I have no doubt that the Social Finance Foundation is a good organisation which is meeting its remit fully. Nothing I say in reference to this amendment is in any way a reflection on its work. Typically, however, when an organisation is involved in the research in respect of a particular scheme while also having a responsibility for its administration, alarm bells must ring in terms of governance issues. Having worked for private and not-for-profit organisations in the past, I am aware that for any body seeking to develop and grow its responsibilities, there is a natural momentum to seek to write itself into schemes and programmes of this type. My concerns in regard to the Social Finance Foundation, a not-for-profit organisation established by the former Taoiseach, Mr. Brian Cowen, relate to its structures. What alternatives were considered in the delivery of the scheme? Is there a role for organisations such as First-Step Microfinance, for instance? I understand the Social Finance Foundation was previously a wholesaler of microfinance and is now, through a subsidiary, entering into the delivery of microfinance also. That changes the dynamic within that delivery.

There is an accountability issue in that Microfinance Ireland will be a subsidiary of the Social Finance Foundation. I understand the former will be legally accountable to the latter, rather than directly to the Minister. I understand that legally this will include the power to appoint to the board of microfinance Ireland. It is unclear how Microfinance Ireland and the Social Finance Foundation, SFF, will be accountable to the Department. Who will nominate the boards of microfinance Ireland and SFF? It strikes me that a committee has been set up to design a horse and it has come up with a camel. This is a complex roundabout structure. Will Microfinance Ireland be required to refund the likes of First-Step Microfinance or will SFF continue to support such bodies? We tabled the amendment because it has the effect of taking the shareholding of SFF out of Microfinance Ireland. I call on the Minister to address some of these issues.

The purpose of section 12 is to set out the name of the subsidiary and to identify its share capital and ownership. Sections 12(3) and 12(4) list the share capital of the subsidiary at €1, which will be passed to the Social Finance Foundation. They indicate that the share capital cannot be revised without the consent of the Minister. The amendment seeks to remove the limitation on the share capital and the inalienability of the share. It offers no alternative structure for the subsidiary and the intent of the amendment is not clear. In view of the lack of clarity about the reason these provisions should be removed and the fact that the subsections were inserted on the strong advice of the Parliamentary Counsel to ensure that the subsidiary could not be broken up and sold off in part or in full without the consent of the Minister, it is not possible to accept the amendment. That is the technical response.

There must be an owner of Microfinance Ireland, MFI, and therefore we must have the provisions in sections 12(3) and 12(4). They cannot simply be deleted. As I suggested earlier, we may bring forward an amendment to afford flexibility. Deputy Tóibín has raised several points. SFF has been the wholesaler for First-Step Microfinance and, as the Deputy has suggested, a subsidiary will now act as the retailer. I do not believe this creates a conflict of interest. The chairman and board of directors will be appointed by SFF following consultation with the Minister for Jobs, Enterprise and Innovation and the Minister for Public Expenditure and Reform. Key stakeholders to be represented on the board include the administrator, banks, county enterprise boards, First-Step Microfinance and other appropriate bodies or organisations. We will seek to put in place a board that is broadly representative of people with experience in this field. It will provide annual updates to the Minister for Jobs, Enterprise and Innovation and it will publish annual reports and financial statements to be laid before the Houses of the Oireachtas. It will be subject to full oversight. The scheme will include the type of reporting that is required by the Minister and it will be set out in some detail. We believe that the structure is robust. We have a consultation right in respect of the board and the board will not be appointed unless we are satisfied with its make-up. We have control, full accountability and oversight.

I am unsure about the exact nature of the concern. The Deputy referred to the organisation being an adviser and then becoming a provider. Social Finance Foundation is a not-for-profit body which has been in this field and which has worked successfully. First-Step Microfinance has been an exemplar of why this scheme is worth developing on a more extensive basis. We are using that experience rather than seeking to re-invent from scratch something the State would have to put in place. I am unsure whether people would be keen on elaborate administrative structures being put in place where there are already structures that have experience, relevance and capability to do the task. We chose this model to be cost effective and to leverage worthwhile experience. There will be an independent board of which we will have oversight. The model is robust. If the Deputy has concerns, I will consult the Parliamentary Counsel before Report Stage. We will be making some amendments in this context and some of this section will be coming back. If the Deputy has concerns, I am happy to consider them between now and Report Stage. These are the reasons we believe it is robust, cost effective and that it has all the necessary controls.

The Minister referred to the oversight of the board of directors of MFI. That is one step removed from full control of board nominations. It could be too far removed. Will the Minister explain to me or educate me; as I am keen to be enlightened? How exactly will the Minister have full oversight legally over the nomination of board members of MFI?

We will have the usual oversight. We are consulted in the appointment. We set the terms and conditions of the returns the board must make. There will be audit by the Comptroller and Auditor General.

The Minister said he would be consulted. Could the Minister refuse a board member?

Is that in the legislation?

It is in the scheme.

I am sorry for being pernickety.

That is covered in the next amendment

There is a requirement for consultation under company law.

The next amendment refers to the chairperson specifically.

Yes, it is a private company. Section 11 states: "The Social Finance Foundation shall, after consultation with the Minister, the Minister for Finance and the Minister for Public Expenditure and Reform, cause a private company limited by shares (in this Act referred to as the "subsidiary") conforming to the conditions laid down in this Act to be formed and registered under the Companies Acts." It is in conformity with the requirement of company law. We are providing that the board of directors will be appointed by the Social Finance Foundation, which is establishing the subsidiary, but this will take place following consultation with the Minister for Jobs, Enterprise and Innovation. It is being established as a subsidiary and this requires that the foundation has some control over its establishment. It is required by company law.

I am open to correction but my understanding is that MFI will be responsible to SFF through company law. It may consult with the Department but I do not see any legal imperative under which the Minister can instruct the organisation not to appoint a given person or where that can be enforced legally.

The appointment is by SFF and if one is establishing a subsidiary then that process is required by company law.

It is at arm's length from the Minister. If it was directly-----

In that case it would be State body rather than a private company established as a subsidiary. We were advised that this was the most cost-effective way of providing for the vehicle rather than setting up a State body with all the associated paraphernalia of a newly-established semi-State body and so on. This is a cost-effective way of putting it together. This vehicle provides us with all the necessary powers and oversight. I will come back on Report Stage and seek assurance for the Deputy. I realise he raised this on Second Stage. The amendment probably does not meet his concern. I will get advice between now and Report Stage but I note I also have approval over the memorandum and articles of the subsidiary.

No, I appreciate that much. If the Minister is happy to revert to this-----

While the structure is different, given my role in the appointment of the board, the memorandum of the articles of association, the approved accountability and the oversight by the Comptroller and Auditor General, the standard provisions are in place that would represent a belt-and-braces approach. However, I will revert to it on Report Stage to give the Deputy a proper account.

Amendment, by leave, withdrawn.
Section 12 agreed to.

I move amendment No. 11:

In page 9, between lines 8 and 9, to insert the following subsection:

"(4) The chairperson and board of directors of the subsidiary will be appointed by the Minister.".

This is a similar amendment but it is even more obvious to me that a governance problem exists in this regard. This is because the regulatory impact assessment, RIA, stated:

The Chairperson of the SFF subsidiary will be appointed by the Minister for Jobs, Enterprise and Innovation subject to consultation with the Ministers for Finance and Public Expenditure and Reform. An appropriately qualified and high profile voluntary Board of Directors will be established with the approval of the Minister

The first point there is the appointment will be made directly by the Minister for Jobs, Enterprise and Innovation. To demonstrate how important is the regulatory impact statement, in a recent response to a parliamentary question, the Minister for Public Expenditure and Reform, Deputy Howlin, stated:

Regulatory Impact Analysis ... is a tool used by Departments to assess the costs, benefits and qualitative impacts of regulatory proposals. The use of this tool has been mandatory in relation to proposals for primary legislation as well as significant secondary and EU regulations since 2005.

My present understanding is that the SFF will appoint the board and the chair to the subsidiary in direct contradiction of the regulatory impact analysis. Is that correct?

Section 10 deals with the memorandum and articles of association of the subsidiary and states there will be consistency between these and the Act. They must be approved by the Minister following consultation with the Ministers for Finance and Public Expenditure and Reform. Alterations to the same can be made only with the Minister's approval and the consent of the other two Ministers. The amendment seeks to insert a specific provision in the Bill for the appointment of the chairperson and the board of directors by the Minister. It is intended that the SFF, as shareholder, upon consultation with the Minister and the Minister for Public Expenditure and Reform, will appoint the chairman and board of the subsidiary, with key stakeholders being represented on the board. This is in line with normal company law practice. It also is intended that the board will meet quarterly and provide regular updates regarding the fund, which will be laid before the Houses of the Oireachtas. Provision for all this will be made in the microenterprise loan fund scheme, which currently is being finalised by officials in association with the SFF. Appointment of a chairman and board is part of the normal operations of any company. It is not considered necessary to make explicit provision for such operations of the subsidiary in this legislation. This is better left to the scheme, which is all but finalised. Accordingly, the proposed amendment is not acceptable and should be rejected as not being necessary in a Bill of this nature, which enables the establishment of the fund and the subsidiary.

This essentially is the same argument. I am choosing the most flexible, speedy and easy way of establishing a fund quickly without the full paraphernalia of creating a State board. I am using established machinery with experience in the field to create the checks and balances I believe to be necessary to provide the necessary accountability and control. This is being done through the memorandum of the articles of association, the scheme that is being developed, the obligation to be consulted on the appointments and so on, as well as the protection from selling on. It is a different structure from a conventional State board in which the Minister appears in every single clause. The Deputy has seen the legislative frameworks for State boards with plans and all the rest and it is quite an elaborate superstructure. I have chosen not to take that route for this scheme but have chosen a more flexible route based in company law. Following consultations among my Department, the Department of Finance and those experienced in the field, I am confident such an instrument is the best way to deal with it, rather than the much more centralised model that would obtain with a State company, which would be more appropriate for managing a huge network such as the ESB. This is the model that has been developed. As I indicated, I will revert on Report Stage and hopefully allay to the satisfaction of the Deputy his concern that State money might not be under proper supervision in some way. I believe I will be able to provide him with chapter and verse and reassurance that this will not happen.

At this point I am unhappy with the proposed governance structure as currently provided for in the legislation. It is taxpayers' money and many other aspects comprised cautious proposals to ensure taxpayers' money was not frittered away or lost. Potentially, if this does not work properly, it could be taxpayers' money at one step removed from the governance and control of the Minister. It is unusual for the regulatory impact analysis to state one thing clearly and for it to be used as the foundation of legislation only for it then to be completely ignored within the legislation itself.

The Minister has made the point that a State board or similar would not be as flexible and, given all the associated bells and whistles, probably would cost a lot more than the private enterprise model with which it is proposed to run the subsidiary. However, it would be interesting for all members to establish the cost comparison. I put that point as a straight question to the Minister's team of officials. They may not be in a position to deliver such information today because there could be work to be done. However, with the delivery of X amount of money to one sector of the economy, one should be clear on what could be done with Y funding through the private model and perhaps Y plus one funding through a State board. I must agree with the regulatory impact analysis in that the governance detailed in the legislation is looser than I would wish.

The RIA was originally written before we got into detailed drafting and consultation with the Attorney General. The advice the Department has received from the Attorney General is that this model is robust and protects the taxpayer. The Department continues to develop governance procedures with the SFF, which will be enshrined in the scheme when it finally is in place. As the Deputy is aware, that must be signed off by me as Minister and laid before the Houses of the Oireachtas. As for the issue of a cost comparison, obviously one gets into all sorts of structural issues when one establishes a State board, as one is getting into pensions, chief executives and all those additional costs. Moreover, it would be controlled by limits on public sector numbers and the Department obviously does not have the capacity in this regard, as its employment control framework is limited and declining. Consequently, one would experience all these kinds of difficulties if one chose the other route. From the perspective of getting this scheme established, the private sector model is better and has the flexibility to deal with this requirement. This is a private sector-interfacing programme and does not pertain to the management of a huge important State utility with all the network protections and State interests that must be protected in such a body compared with this one. This model has been developed in consultation with the other Departments as a flexible response in an area, albeit with satisfactory governance.

I am happy to return to the issue of governance on Report Stage but while we will be considering the possibility of certain small changes in respect of the relationship between the shareholders, it will not go to the heart of changing the model as the Deputy is considering. It will just be a tidying of the arrangements between the shareholder and the retail arm. I do not think it will be possible to convince the Deputy that this will be identical to a State company because this is not the case. However, I hope I will be able to convince him that this structure is not exposing the taxpayer in any way and that the Government's model will be robust. I will set out on Report Stage the full extent of the governance structure, which, hopefully, will satisfy him at that point.

Is the model to be based on the Social Finance Foundation, which has a chairperson and a board of directors?

It is a different board.

But the model will be the same. Will charitable status tax exemption apply?

Amendment put and declared lost.
Section 13 agreed to.

Amendments Nos. 12 and 13 are related and may be discussed together.

I move amendment No. 12:

In page 9, subsection (1), between lines 20 and 21, to insert the following:

"(g) is dismissed by order of the Minister.”.

The Bill provides in section 12 for the removal of a director on legal grounds of bankruptcy but not for the Minister to intervene directly to dismiss a board member. With tens of millions of euro in State funds being expended, this amendment seeks to empower the Minister to control the board more strongly. Amendment No. 13 is a consequential technical amendment.

This section sets out the criteria by which a director may be disqualified from office. It is a standard provision on disqualification for office and has been crafted based on similar provisions in other legislation. The proposed amendment is to include a provision making dismissal by order of the Minister a disqualification criterion. This does not make sense. If a director is dismissed on other grounds then he or she obviously ceases to be a director. The subsection is designed to deal with extraneous events which will disqualify directors from operating as directors, such as bankruptcy, imprisonment on conviction, etc. In view of the above, it is not proposed to accept the amendment.

Amendment put and declared lost.
Section 14 agreed to.
Section 15 agreed to.

I move amendment No. 13:

In page 10, subsection (5)(a), lines 42 to 45, to delete all words from and including “may,” in line 42 down to and including “direction.” in line 45 and

substitute "may, remove that director from office.".

Amendment put and declared lost.
Section 16 agreed to.
Section 17 agreed to.

I move amendment No. 14:

In page 11, lines 30 to 32, to delete subsection (2).

I will not go over the same ground as we have already debated it.

This section deals with the disclosure of confidential information by directors, members of staff, consultants or advisers. Section 18(2) deals with the disclosure of confidential information by any such person to the Social Finance Foundation and has been inserted to facilitate the work of the Social Finance Foundation in gathering all relevant information. The proposed amendment seeks to remove section 18(2), which is included in the Bill to ensure that all relevant information can be transmitted to the Social Finance Foundation as administrator. The purpose of the proposed amendment is not clear. It is not proposed to accept the amendment.

Amendment put and declared lost.
Section 18 agreed to.

I move amendment No. 15:

In page 11, subsection (2), lines 46 and 47, to delete all words from and including "(other" in line 46 down to and including "Finance" in line 47 and in page 12, to delete lines 1 to 4.

I will not go over the ground again. This is a consequential amendment to removing the Social Finance Foundation from the structure of Microfinance Ireland

Section 19 provides for the funding of the subsidiary out of moneys in the fund and allows the Minister to make an arrangement with the administrator related to the operational aspects of the subsidiary. Section 19(2) is designed to cover operational issues and not the loans made by the MLF. The effect of the proposed amendment would be to enable the Minister to make an arrangement concerning loans and this is not the intention of the legislation. The Minister will not have any role in the provision of loans but may wish to put in place provisions relating to staffing, pay rates, etc. In view of the effect of the proposed amendment, it is not acceptable.

Amendment, by leave, withdrawn.
Section 19 agreed to.
Section 20 agreed to.

I move amendment No. 16:

In page 12, line 42, after "Oireachtas" to insert the following:

"and debated by either or both Houses of the Oireachtas".

Deputy O'Dea is seeking to have the annual report of the subsidiary debated by either House of the Oireachtas. This would run contrary to current practice whereby annual reports are laid before the Houses of the Oireachtas and Members may question Ministers through the normal system. An amendment along the lines proposed may pose operational difficulties for the Houses of the Oireachtas and is not acceptable. We propose to continue the existing practice which affords Deputies the opportunity to question Ministers on receipt of the report and, therefore, I cannot accept the proposed amendment. The committee can at any stage call in the body for examination.

Amendment put and declared lost.
Section 21 agreed to.
Section 22 agreed to.
Title agreed to.

I thank the Minister and his officials for their attendance.

Bill reported without amendment.