Dáil Éireann Debate, Thursday - 16 January 2014
4. Deputy Michael McGrath asked the Minister for Finance when finance from KfW will be available to Irish small and medium-sized enterprises, SMEs; the amount of funding he expects to be available; the type of lending that will be undertaken; if a memorandum of understanding has been drawn up with KfW; and if he will make a statement on the matter. [1768/14]
View answerAs the Minister knows, the Taoiseach announced in November a new collaborative initiative with a German development bank, KfW. The purpose of my question is to seek additional information as to how the discussions between the Irish and German authorities have been proceeding. Will the Minister give the House a picture of how the new arrangement will work in practice and how KfW will be able to assist Irish small to medium-sized enterprises, SMEs, and provide funding for the wider Irish economy?
As the Deputy will be aware, the Taoiseach mentioned in this House shortly before the recess that he had held discussions with Chancellor Merkel on finding ways to reinforce Ireland's economic recovery by improving funding mechanisms for the real economy, including access to finance for SMEs. The German Government has asked KfW, the German development bank, to work with the German and Irish authorities swiftly in order to deliver on this initiative at the earliest possible date.
Officials at my Department, with the assistance of staff of the National Pensions Reserve Fund, NPRF, have worked quickly to investigate ways to ensure that the benefit of this co-operation to Irish SMEs can be maximised. A small party of my officials travelled to a meeting with their counterparts in Berlin in early December and a week later a similar meeting was held at KfW's headquarters in Frankfurt. Officials from KfW and the German Ministry also met with the project team from Ireland in Dublin for a further exchange shortly before Christmas. Both sides have been represented at senior management level for each engagement. In addition, there have been regular conference calls between the parties.
As the Deputy may be aware, KfW channels its funding for SMEs in Germany through a system of on-lending using commercial banks in Germany as the distribution mechanism. Typically, the SMEs can avail of KfW funding at different terms and conditions applicable to that offered directly by the financial institutions. This model is similar to the on-lending arrangements available to Irish domestic institutions using funds from the European Investment Bank, EIB.
The precise arrangements for the structure, level of funding and distribution options are the subject of the discussions between the relevant officials at present and will have to adhere to EU state aid considerations. Experience in other countries suggests that any lending facilitated by a state-sponsored investment institution like KfW is generally complementary to SME lending already taking place in an economy and can assist in improving both the supply and demand for finance.
The Government recognises that SMEs are the lifeblood of the Irish economy and play a crucial role in employment growth. Since March 2011, Government policy has concentrated on ensuring that viable micro, small and medium-sized enterprises have access to capital, equity and debt funding from a more diverse range of sources. The potential new arrangement with KfW, which my officials are exploring, represents a continuation of the Government's concerted focus on ensuring that viable SMEs have access to finance in a manner that supports economic recovery and employment growth.
I thank the Minister for his reply. Any potential new source of funding for SMEs is to be welcomed. I am seeking new information on the shape of the arrangement. The Minister referred to KfW in Germany extending finance to SMEs through commercial banks. As such, one would assume that a similar arrangement would apply in Ireland. This would necessitate the involvement of the Irish banks. I assume that it is not the intention that KfW would lend directly to Irish SMEs. If the Minister clarified this point, it would be helpful. He might also clarify whether KfW will require a banking licence in Ireland. Presumably it will not if it is lending through Irish banks. Have targets been set for the quantum of funding that might be available for the Irish economy from KfW? The fundamental question is when does the Minister hope that this arrangement will be up and running and available to SMEs in practice.
The very fact that an announcement was made to the effect that Chancellor Merkel and the German Government were instructing KfW to assist in financing SMEs in Ireland was one of the helpful factors in accessing the market at low interest rates last week, as it affected market sentiment at our exit from the bailout. There has already been a benefit.
What the tangible benefits will be is being worked out. Various models are being examined at official level. The matter has not come to the political level yet, but a paper is being prepared that will come to me shortly. Upon consideration, there must be a delivery vehicle in Ireland to get the money to the SMEs. The precedent is how EIB funds are delivered to SMEs. The EIB has lent €250 million to the main banks, AIB and Bank of Ireland, which decide in their normal lending processes who to lend on that money to. Perhaps something similar could be done. We will also introduce the NewERA legislation shortly, in which regard the strategic development fund and the NPRF may have a role. We are exploring different delivery possibilities.
This new initiative, which I welcome, is recognition of the fact that Irish banks are not meeting the lending needs of the economy fully. A new initiative such as this one is necessary. I acknowledge the Minister's point that the initiative's announcement helped to promote a positive backdrop for Ireland as we exited the programme.
Have the Irish banks been involved in discussions on the arrangement with Irish officials? As they are the most likely delivery mechanism for KfW funding to SMEs, it is important that this matter be clarified. If they have not yet been involved, it could be some considerable time before the arrangement is up and running and available to SMEs, which have been inquiring about this issue. Many SMEs are paying exorbitant interest rates, have onerous conditions attached to their lending arrangements with Irish banks and have been refused new credit applications. They are looking to this initiative with some degree of optimism. It is important that we give them as much information as possible as to its shape, whether it is likely to benefit them and whether it will be administered through Irish banks, which are regulated in Ireland.
The initiative should be seen in the context of the Government's overall policy of identifying and putting in place sources of lending to the Irish economy, other than lending directly from the main banks. There are three funds now operating out of the National Pensions Reserve Fund, Silicon Valley Bank has a $100 million fund to lend to IT companies, the Department of Jobs, Enterprise and Innovation has a micro investment fund and there are various other sources of lending now available. In fact, we are at a quite advanced stage with one of the Chinese investment funds to put another piece in place. If one sees it as a series of sources of funding to different types of SMEs in Ireland, some for working capital and some for start-ups, there is a range of options and this would be another option. That is the context in which it should be seen.
The banks are in the loop. They are not involved in the discussions, but the Department of Finance is keeping both the Central Bank and the main banks fully informed of what might happen. So far, there does not appear to be any difficulty in using the commercial banks as a vehicle for delivering money to SMEs sourced from KfW. I do not know about quantums; I do not expect it to be massive amounts of money, but it is another significant source of funding to SMEs.
