I welcome the Minister for Jobs, Enterprise and Innovation, Deputy Richard Bruton, and ask him to make his opening statement.
Vote 32 - Department of Jobs, Enterprise and Innovation (Supplementary)
This is a technical adjustment to the Estimate of €1,000 net to provide a budget line so the temporary loan guarantee scheme can be implemented. The budget line provides for additional revenue of €500,000 and additional spending of €500,000. The latter is in respect of administration and to cover defaults on loans. The €500,000 on the revenue side is in respect of the premium which will be charged to those who take out a loan under the guarantee scheme. Our best estimate is that one will offset the other and they will be neutral in the course of the remainder of the year. The €1,000 is to provide a line so in the event that revenue and spending are slightly out of kilter we can move money from other approved budget lines to meet the requirement. We need the sanction of the Dáil to have such a line to allow us proceed and fund the guarantee scheme.
The guarantee is about providing a new line of credit for those who would otherwise be refused credit by the banks. It is designed to cover two categories of loan that would be turned down. One is a loan turned down because the borrower did not have sufficient collateral. The other is a loan turned down because the category of business is of a specialised nature in which the bank does not have the experience and would tend to refuse the loan based on risk aversion.
Each €100 million of loans we guarantee under the scheme we reckon will benefit 1,200 businesses and provide €15 million net benefit to the Exchequer. While we are taking the risk on losses in respect of an individual loan whereby up to 75% of the loss would be borne by the State, it is capped for each financial institution participating at a total of 10% of the portfolio of loans which come under the scheme from that institution. While we expect to take a hit in terms of losses, the overall benefit from the Exchequer's point of view in terms of taking people off the live register, getting businesses up and running and contributing to the tax take is positive. That is why we are intervening to fill this market failure.
This is just one of a number of instruments we are seeking to develop to deal with different types of market failure. We have the microfinance scheme which is aimed at small or micro start-up businesses. We have this loan guarantee scheme which is aimed at a bigger range of companies which are experiencing market failure. We have the development capital fund which is aimed at companies which have the ability to grow but whose balance sheet may be impaired for one reason or another which is preventing them from growing.
We have a number of financial instruments we are introducing which are innovations in the funding marketplace to try to deal with the pressure on businesses.
Are there any questions?
This is a very good indication of how the Government is getting involved in the minutiae of the provision of credit. I do not think previous Governments ever really bothered to address the real deficits in this area because they were low down the pecking order. I know I am making a general remark when I say that is a new aspect of government in this country. It strikes me that someone is now looking out for the real concerns of guys who are trying to get businesses up and running but do not have the extra authority to get the collateral they need. I commend the Minister for looking at business through that prism. It is something we should be praising.
I thank Deputy Conaghan for his remarks. Our approach is borne out of necessity. The banks have withdrawn from much of this activity. Perhaps it is more complicated than that. The banks got used to lending to property. They lost their capacity to lend to business, which is the heart and blood of the economy. I refer to exporting business in particular. The main part of our approach has to involve getting the banks to rebuild that expertise so they can get back into the marketplace in an effective manner. Each of them is committed to lending €3.5 billion. That is the primary driver in this regard. As the Deputy has said, even a well-functioning banking system will not be able to pick up on certain niches within the marketplace. We are trying to fill such gaps.
Potential employers are falling between those gaps.
Absolutely.
They are giving up and going elsewhere.
Are there any final questions? No. I thank the Minister.