Written Answers. - Business Funding.
Bernard Allen
Ceist:
22
Mr. Allen
asked the
Minister for Enterprise and Employment
the progress, if any, that has been made in developing new sources of funding for business as outlined in the Government's response to the Moriarty report; and whether the Government is willing to underwrite some or all investment risks involved in high risk small ventures which have in the past prevented more widespread allocation of funds by investment institutions.
The recommendations of the Moriarty Group in this area relate mainly to the provision of more equity and other similar forms of capital for smaller Irish firms and for greater involvement of the financial institutions in the funding and development of indigenous industries.
A number of steps have been taken to give practical effect to these recommendations. Following consultations between my colleague, the Minister for Finance, and representatives of the Irish pensions industry, a report was commissioned to assess the potential for venture capital investment by the pensions industry. This report has now been completed and recommends investment of between £10 million and £15 million per annum by pension funds in commercial, venture type enterprises. I understand that there is a widespread commitment to this initiative and that steps are being taken to give practical effect to this new source of venture funding.
I welcome the coming into being last year of the Smurfit job creation enterprise fund. This £10 million fund is directed at firms with the potential for increasing employment and which are seeking equity injections of between £100,000 and £500,000. I also note that the AIB Group is reportedly launching a new venture capital fund with funding of about £30 million. Such a development would represent a positive contribution to increased funding for growth orientated companies.
I would also like to draw attention to the scheme of preferential loans to small industry operated by the main banking institutions. In excess of £90 million in loan finance has to date been committed by the banking institutions to these loans, whose main feature is that personal security is not required. I am also pleased to note that the two biggest banking groups have recently introduced loan schemes whereby loans to qualfying businesses can be made available at an interest rate significantly below the normal business lending rate.
Within the public sector, the creation of Forbairt provides the appropriate vehicle for the development of policies to give effect to the Moriarty recommendation that a decisive shift from grants to equity and other similar forms of support takes place. Within the public sector also, the creation of county enterprise boards will provide new sources of funding for small enterprises at local level and, with their wide geographic spread, should assist in creating the type of enterprise culture which we aspire to.
The business innovation fund has been operational since January 1992 and its remit is to provide seed capital for enterprises at the earliest stage of business development. This fund is a partnership between the public and private sectors and represents an example of where public authorities in Ireland are willing to play their part in facilitating risk capital in small ventures.
As the Deputy will no doubt be aware the funding of Irish industry has been enhanced by the constructive amendments to the business expansion scheme contained in the 1993 Finance Act and will be further enhanced by the BES proposals in this year's Finance Bill.
I would also draw attention to the fact that, within the context of the National Plan, provision has been made within the operational programme for industry for the co-funding, through the Structural Funds, of seed/venture capital activities. Any such funding would be dependent on the availability of matching private sector funds. This initiative is also in line with the thrust of the Moriarty recommendations.
In response to the second part of the Deputy's question the primary responsibility for the provision of equity capital to Irish industry rests with the private sector, but where high risks are involved the State is willing to consider the sharing of that risk. For example, I have already mentioned the Government's initiatives in relation to the business expansion scheme. Since its inception and up to April 1993, the State has invested £140 million in underwriting business risk through the BES in the form of tax refunds. Through the proposed co-financing of eligible venture capital activities using Structural Fund support the State is showing its willingness to share the risk. In relation to high rish investment by investment institutions I would add that some of these institutions, and particularly pension funds, currently benefit from a very favourable tax regime.
A major need identified by the task force on small business was access to capital at competitive and affordable interest rates and recognition of this was reflected in the announcement in the budget of £100 million small business expansion loan scheme being made available in long term loans at low fixed interest rates, already some £15 million of loans for manufacturing companies is committed at this stage.
