The Covid-19 Loan, available from Microfinance Ireland (MFI), was introduced as a support to microenterprises to help them access funding arising from the Covid-19 crisis.
These loans are available for eligible microenterprises responding to Covid-19-related difficulties, the negative impact of which must be a minimum of 15% of actual or projected income or profit. Loans up to €50,000 are available with terms that include a six months interest free and repayment free moratorium, with the loan to then be repaid over the remaining 30 months of the 36-month loan period.
MFI provides vital support to microenterprises by filling the lending gap in the market by lending to business that cannot obtain loans from other commercial lenders. It lends to business that do not meet the conventional risk criteria applied by commercial lenders and applies interest rate charges for its lending which are not reflective of its credit risk.
Standard loans from Microfinance Ireland have interest rates of between 6.8% and 7.8%. Given the cost burden to businesses even with these subsidised rates of interest I decided to apply a substantial reduction in the interest rate to 4.5% on the Covid-19 loans provided by MFI. This reduced rate is available to all micro-enterprises where the application is made through the Local Enterprise Network or referred by a bank or Local Development Committees. The new rate for direct applications to MFI is reduced to 5.5%.
As these loans are available interest free for the first six months, the net effect is to further reduce the net interest rate payable over the period of the loan.
The types of businesses normally supported, if they could obtain unsecured bank funding, would normally attract a significantly higher rate of interest due to the unsecured nature of this lending and the inherent risk. Microfinance Ireland is a not-for-profit lender and is loss making due to the nature of the risk it is mandated to take.
There were 484 applications received under the Microfinance Ireland loan scheme from the 19 March 2020 up to 13 May 2020. There were 283 applications approved for a value of €7,985,762 and 103 applications deemed ineligible/declined. The remainder of applications are in progress within MFI's application process.