Dáil Éireann Debate, Tuesday - 24 April 2012
319 Deputy Michael Healy-Rae asked the Minister for Jobs, Enterprise and Innovation if the Government has published draft legislation that will let the State guarantee up to 75% of loans advanced to small businesses, if he will explain the way it proposes to stop banks using the plan to off-load riskier customers on to the taxpayer. [20534/12]
View answerThe Temporary Partial Credit Guarantee Scheme, on which legislation was published on 3 April, is designed to address two specific market failures, namely:
1. inadequacy of collateral (Pillar 1) and
2. inadequacy of bank understanding of novel aspects of the business environment, particularly in the areas of new markets, new technologies and business models (Pillar 2), which may restrict the bank's ability to offer certain lending products as they are perceived as a higher risk under current credit risk evaluation practices.
SMEs in these two categories are eligible to access the Guarantee Scheme.
For lenders to participate, we will require a detailed consideration of how the lender will use the Scheme to support lending over and above that currently being achieved. In order to demonstrate an understanding of the additionality principle, lenders will be requested to provide examples of where the Scheme could have been used in the past — i.e. examples of viable lending applications that were declined specifically due to the circumstances that the Scheme is intended to address.
By training participating lenders on the scheme criteria at the outset and requiring specific declarations to be made in connection with each facility guaranteed in terms of loan viability and/or the two market failures set out above and then following-up with appropriate monitoring over the life of the Scheme, it is possible to ensure that additionality is consistently being monitored and achieved.
The design parameters of the Scheme and the proposed three year timespan of the scheme will ensure that the State's exposure is capped and will deliver an overall risk share of approximately 50:50 between the State and the Banks over the lifetime of the Scheme. In that way, both parties (Lender and Guarantor) are demonstrating a joint commitment to addressing market failures with regard to meeting the borrowing requirements of Irish SMEs.
It is my intention that Scheme-related performance and behaviours will be closely monitored and reviewed, and that data will be analysed on a regular basis. The Operator chosen to run the Scheme (Capita) will be responsible for the data-gathering, analysis and the reporting process.
