Léim ar aghaidh chuig an bpríomhábhar
Gnáthamharc

JOINT COMMITTEE ON JOBS, SOCIAL PROTECTION AND EDUCATION díospóireacht -
Wednesday, 14 Mar 2012

Small and Medium-Sized Enterprises: Discussion

I welcome Mr. Michael Pender and Ms Eileen O'Connell from the Department for Jobs, Enterprise and Innovation and Mr. Neil Cooney from Enterprise Ireland who will brief the joint committee on the proposal for a regulation of the European Parliament and the Council establishing a programme for the competitiveness of small and medium-sized enterprises, COSME, 2014-20. The committee considered the document in February and agreed that, in view of its potential importance to Irish small and medium-sized enterprises, officials from the lead Department be invited to make a submission to it. We also agreed to seek written submissions from IBEC, ISME and Enterprise Ireland. We have received one submission to date. Mr. Mark Fielding, chief executive of ISME, has informed the committee that while ISME has no particular comments to make at this time, he is happy to answer any specific question members may have. If there are issues arising from today's discussion that members want him to address, the secretariat can follow up on them.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they give to the committee. If they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they do not criticise or make charges against a person or persons or an entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they do not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.

I invite Mr. Pender to make his opening statement.

Mr. Michael Pender

I thank the joint committee for inviting me to speak about the competitiveness and SMEs programme 2014-20, COSME.

The EU budget for the period 2014 to 2020 is to be established within a multi-annual financial framework, MFF, in accordance with Article 312 of the treaty. The MFF sets out the overall level of EU budget expenditure on an annual basis and the amounts allocated to the expenditure headings. The European Commission recently published a detailed MFF for the next EU budget for the period 2014 to 2020. The total amount proposed for the period is €1,025 billion in constant 2011 prices. The details of the EU budget are contained in the Commission's communication, A Budget for Europe 2020 - (COM)2011 500 final. One of the initiatives included in the MFF is the COSME programme, for which the funding provided over the seven year period 2014 to 2020 has been provisionally set at €2.52 billion.

SMEs are a major source of economic growth and job creation in the European Union, accounting for more than 67% of private sector jobs and providing more than 58% of total turnover in the Union. There are approximately 23 million SMEs across the Union. They are an important contributor to growth and employment within it. If the Union is to deliver on its Europe 2020 strategy priorities of smart, sustainable and inclusive growth, competitiveness needs to be centre stage.

The European Union has an important role to play in unlocking the growth potential of SMEs, including through the targeted use of the EU budget. Activities in this area focus on addressing the key market failures that limit SME growth, for example, addressing the issue of access to finance where there are deficiencies in debt and equity markets in supporting research and innovation and growth. Banks and investors are also increasingly risk-averse. The European Union recognises the need to complement local and regional access to finance schemes for SMEs. Other factors include the significant gap between the demand for and the supply of loans and guarantees; scarce equity for early and growth stage start-ups; the need to build an integrated European venture capital market at the same level it was at in 1984; ensuring SMEs are able to take full advantage of the enormous potential of the European Single Market; and creating a business environment that is conducive to creating start-ups and generating growth by encouraging an entrepreneurial culture.

The European Union is working to improve the business environment and support the development of a strong and diversified industrial base capable of competing on a global scale. The Competitiveness and Innovation Programme, 2007-2013, CIP, provides funding to address these issues. The proposed competitiveness of enterprises and small and medium-sized enterprises, COSME, programme is essentially the successor programme to the CIP. In drafting the COSME programme the European Commission acknowledges that experiences from previous CIP measures show that any new initiatives must include simplified rules, a clear dedicated legal framework, visibility and transparency of instruments and increased coherence and consistency between instruments. All the research and innovation support to small and medium enterprises, including the innovation part of the CIP programme, will be included in the EU's Common Strategic Framework for Research and Innovation, commonly known as Horizon 2020. Accordingly, research and innovation support to SMEs will not be in the new COSME programme.

What will the competitiveness of enterprises and small and medium-sized enterprises programme cover? COSME will support actions across five headings, namely, improving the framework conditions to make for the competitiveness and sustainability of EU enterprises, including in the tourism sector; promoting entrepreneurship; improving access to finance for SMEs in the form of equity and debt; improving access to markets inside the Union and globally; and management of the new COSME programme. Under the first heading, activities to improve the framework conditions to make for the competitiveness and sustainability of EU enterprises, including in the tourism sector will be addressed by supporting coherence and consistency in implementation as well as informed policy-making at European Union level. SME policy will be developed and SME competitiveness promoted in line with the goals of the EU small business Act for Europe and Europe 2020 strategy.

EU actions will include reinforcing the use of the "think small first" principle in EU and member state policy-making, identifying and exchanging best practices to contribute to implementing the small business Act and supporting small and medium-sized enterprises in making the most of the Single Market's potential. The budget allocation for this heading is €384.4 million over seven years.

What does this mean in practice? Essentially, the European Commission is asking itself and member states to introduce coherent, consistent and informed policies which will place small businesses centre stage and share best practice experiences to allow us to learn from each other, particularly in promoting competitiveness and growth. For example, at national level, the Government has appointed the Minister of State with responsibility for small business, Deputy John Perry, in order that policy measures and concerns affecting SMEs are brought together on a whole-of-government basis. The Minister of State has also been appointed as Ireland's EU SME envoy under the small business Act for Europe.

We have also established the advisory group for small business and high level group on better regulation, both of which include representatives of business interest groups and relevant State agencies, which will hear at first hand the issues of concern to business. Both groups are chaired by the Minister of State, Deputy Perry. The advisory group for small business is based on the principle of facilitating structured dialogue as set out in the European Union's small business Act. A number of the recommendations contained in the report of the advisory group for small business, which was published last November, have fed into the recently published action plan for jobs.

The Department of Transport, Tourism and Sport, which has responsibility for the tourism sector, has stated:

From Ireland's perspective, Tourism is an important sector at national and EU level, which should be explicitly recognised and this is welcome in the COSME proposal. Our priority is that any measures at EU level should be clearly additional to national efforts and should have a clear impact on the tourism industry here. The tourism elements in the proposal are quite high-level and general to date and further detail will be required to assess whether they would be beneficial to Irish tourism businesses. We are also conscious that tourism can benefit from a range of different EU programmes, including regional and social funds and also from rural development funding and so Ireland intends to look at tourism opportunities under the Multiannual Financial Framework in the round, rather than just in COSME.

The second strand of the COSME programme is promoting entrepreneurship. Activities in this area will include simplifying administrative procedures, developing entrepreneurial skills and attitudes, especially among new entrepreneurs, young people and women, and promoting second chances for entrepreneurs. The total budget for this heading over seven years is €86.8 million. The actions will be undertaken primarily by the European Commission through initiatives such as the Erasmus placement programme for young entrepreneurs.

Improving access to finance for small and medium-sized enterprises is the third strand of the COSME programme and relates to providing financial instruments for growth, including new equity and debt platforms to provide equity facility and loan guarantees. These will be designed to help SMEs to access funding more easily through the banks. First, an equity facility for growth phase investment will provide SMEs with commercially orientated reimbursable equity financing, primarily in the form of venture capital through financial intermediaries. A budget of €690 million will be provided for this purpose over seven years. Second, a loan facility will continue to provide SMEs with direct or other risk sharing arrangements with financial intermediaries to cover loans up to a cap of €150,000. A sum of €746 million will be provided for this purpose over seven years.

Under the CIP programme the loan guarantee facility has mobilised €9.4 billion for 155,000 small and medium-sized enterprises across the European Union. The high growth and innovation equity facility has mobilised €1.9 billion in venture capital funding for SMEs across the Union. The proposed budget for this heading is €1.436 billion, which accounts for 59% of the proposed total budget for the COSME programme.

Under this fourth heading, improving access to markets inside the European Union and globally, the Enterprise Europe Network will continue to provide information on funding and support services to growth orientated businesses to facilitate their expansion in the Single Market and beyond. This fourth element of the programme will also provide SME business support in markets outside the Union. Support will also be available for international industrial co-operation, particularly to reduce differences in regulatory and business environments between the European Union and its main trading partners. The total budget for this action line is €535.5 million.

I propose to outline the work of the Enterprise Europe Network in Ireland, which was established under competitiveness and innovation programme. The Enterprise Europe Network in Ireland is organised by Enterprise Ireland in partnership with Chambers Ireland members in Cork, Dublin, Galway, Sligo and Waterford. The network helps companies by raising awareness of EU legislation, CE marking, etc., EU funding programmes, technology transfer and business partnerships for which it has a database of up to 14,000 live business and technology opportunities into which Irish companies can tap. In its first three years in operation the Irish network had 34,000 interactions with Irish SMEs looking for support under the CIP framework. The network organised 225 events for SMEs resulting in nearly 10,000 participants. It also works with all other business support organisations in Ireland, including Enterprise Ireland, the county and city enterprise boards, Chambers Ireland, the Small Firms Association and the Irish Small and Medium Enterprises Association. Its services are free of charge. As part of the new COSME programme, the Irish Enterprise Europe Network will assist all Irish SMEs to access the new supports available to them, including the new SME instruments made available through the Horizon 2020 programme.

The fifth and final strand of the COSME programme deals with the management of the programme, which will be largely outsourced to external bodies, in particular, the EIB Group for the financial instruments for growth and the successor of the Executive Agency for Competitiveness and Innovation for other activities related to SMEs. The total budget for this heading is €79 million.

I will outline what are the next steps in the process. Negotiations on the COSME Programme are already under way, under the Danish Presidency, in the Council working group, competitiveness and growth. The Danish Presidency, expects the draft Regulations to be adopted in their Presidency ending in June. However, I should advise the committee that the proposed budgetary allocations for the COSME Programme are at this stage, very much provisional, as the final figures allocated will have to be agreed as part of the Multi-annual Financial Framework 2014-2020. These broader negotiations are, I understand, likely to be agreed by the Council and Heads of State and Government during Ireland's EU Presidency in the first half of 2013.

We welcome the proposals to establish a dedicated €2.52 billion programme for industrial competitiveness and SMEs which will provide targeted financial support for SMEs. In particular, we welcome the proposed equity facility for growth-phase investment which will support the development of the EU wide venture capital market, as well as the loan facility which will provide direct or other risk sharing arrangements with financial intermediaries to cover loans for SME's

The COSME Programme will cover early stage investment and will focus on SMEs in the growth-expansion stage. The final beneficiaries will be growth-orientated SMEs, via financial intermediaries. This programme is not like the Framework Programme where the money goes directly to businesses per se and they must compete on a call per proposal basis. Such projects would be merit-based funded. The main bulk of the funding will come through financial intermediaries on the second strand, which has 59% of the total funding. I hope members have found my presentation helpful. We will try to answer any questions committee members may have.

I thank Mr. Pender for his presentation.

It was a fascinating presentation and an education for members. It is pity there are not more members present to hear it. It is an issue that the committee must take on board and scrutinise what is coming from the EU. The overall EU budget for the period from 2014 to 2020 is €1,000 billion but only €2.5 billion of it is for small businesses. Yet 58% of the jobs generated within the EU come through the small business sector. Did we submit an argument for additional funding for this pot? Did we make a case for a larger slice of the overall EU cake specifically for SMEs?

As the €2.5 billion covers 27 member states, what percentage will we get? If we do not get a percentage of it, what actions are being taken to ensure we are ahead of the posse when the funding is lodged in 2014 to ensure we get out of the block before the gun goes? I thank the Mr. Pender for a most comprehensive presentation.

Mr. Michael Pender

I thank Deputy Lawlor for those questions. The issue is before the working group. All the figures in the multi-annual financial framework in that €1,025 billion are provisional at this stage, crossing a number of measures and programmes, and will be agreed at the highest political level in terms of how they will ultimately divvy out. As we speak, some member states, such as Sweden and the UK, are seeking to have the €2.5 billion reduced. There is the possibility that the fund of €2.5 billion could be increased depending on how the multi-annual financial framework final package is agreed by heads of Government and the European Parliament. We were happy with the figure submitted by the European Commission which, I presume, is based on previous rounds and the levels of uptake but it is all to play for. If extra money is made available, of course we would welcome it because it would assist SMEs. In the case of the Competitiveness and Innovation Programme, CIP, figures from the Department of Finance show that for the period 2007-10, the latest period for which figures are available, Ireland has secured funding of €5.7 million, which represents about 1.1% of what member states are getting, in line with what is called juste retour, based on the VAT contributions to the central fund.

I am Ireland's national delegate on the CIP and my colleague, Mr. Kevin Flynn, from Enterprise Ireland, is the second delegate on the main management committee. That committee meets three times a year. The next meeting takes place this week. We intend to set up similar structures for COSME in order that we are out of the blocks area to pick up what is happening at central level.

The other part that is difficult to measure in terms of figures - Mr. Neil Cooney may wish to come in on this - is where the financial intermediaries get access to the funds I mentioned because that would be commercially sensitive between the EIF, EIB, the individual businesses and the financial intermediaries. We are aware that there are people who avail of the guarantee and the venture capital funds from that fund. That funding would be additional to those the Department of Finance have given me.

Mr. Neil Cooney

In respect of the gross financing under the equity form of finance, it is the case that under previous programmes the EIF has co-invested in some of Ireland's domestic venture capital funds. We have had two investments under the most recent programme from 2007 to 2012; that is two out of a total of seven funds in which we have invested in the past five years. We would hope and expect that under the next round of the COSME programme that the EIF would invest as a partner in those funds. From that point of view we are intent on being out of the block, as Deputy Lawlor has indicated, to ensure we get all the finance possible in that regard.

On the issue of the financial intermediaries, the main banks, Bank of Ireland, AIB and Ulster Bank, have drawn down or been party to the financing arrangements put in place by the EU in recent years. The Department of Finance and the financial authorities will take the lead role in the application for funding as a financial intermediary under the COSME programme.

It is a no-brainer if we can support the sector in respect of jobs. That €1,025 billion is made available for the scheme is welcome. The difficulty is that the companies that apply for the funding are put through the hoops. That is the experience of most small companies that seek support when they approach the county enterprise board and other groups and at the end of the day they go to the local bank but it is not there. The representatives say that various structures will be put in place and talk about simplifying the processes. What will it mean for a person who has a good business idea and who wants to create employment and has the potential to do so? Will the funding be available to such a person? There were 34,000 interactions with Irish SMEs seeking CIP support. How many of those got this support or is there any information on that? Who should a small or medium-sized employer or enterprise go to in order to access this programme? Are there structures here for it? Is it boards such as the Southern and Eastern Regional Assembly, which sometimes funnels funding from the European Union, that companies on the east coast should approach? Will there be support available for insurance and are there any proposals for one-stop shops to provide supports for small and medium-sized enterprises? These are some of the difficulties for employers who are trying to access funding or support, particularly young entrepreneurs. It is great that significant funds are being provided for these supports, but the funding must trickle down and go to local companies. It is rare that we hear of companies getting access to this kind of funding. I am sure the funding is rolled out in many areas, but we do not hear the success stories.

Mention was made of simplifying administrative procedures and developing entrepreneurial skills and attitudes and encouraging new entrepreneurs. It was mentioned that €86.8 million will be available for this. How will this roll out with regard to people trying to access this kind of programme?

Mr. Michael Pender

First, with regard to the 34,000 financed through the Enterprise Europe network, these would not all be through the CIP, but through many other EU programmes, such as Horizon 2020, the FP7 and other EU and national programmes. There has been criticism of the procedures and of the European Commission, particularly with regard to the financial guarantees. As part of the consultation process, before the Commission published the regulation last year, it acknowledged that there was significant red tape and procedure that was putting small businesses off. The proof of the cake will be in the eating - when the new procedures are worked out by the European Commission and it puts the schemes into place and these are adopted by the Heads of Government.

The Deputy mentioned one-stop shops. One of the commitments in the programme for Government was to set up local enterprise offices, LEOs, as part of the county enterprise board structures being subsumed into Enterprise Ireland. This will bring greater coherence across the system with regard to information for small businesses. The Deputy is probably right that more needs to be done to highlight the success stories and get them out there, because that is what builds confidence among other SMEs. There are some good stories, but because some of the SMEs are directly connected with the financial intermediaries their stories can be commercially sensitive. People do not want to blow their trumpet too soon in the ball game either. Deputy Crowe is right, however, that more publicity would bring about more confidence among other SMEs.

I thank Mr. Pender for his interesting presentation. Deputy Crowe asked a similar question to that I want to ask, which is how do we get this information out to the front line? I appreciate Mr. Pender mentioned intermediaries and so on, but does that apply to the venture capital? If someone wants to access a small amount of money, will that money come through the loan guarantee scheme or how does the funding get to the front line?

On the issue of venture capital, I came across a company from Cork at the Enterprise Ireland start-up show in the Mansion House a couple of weeks ago. This was a company that has done really well and has reached the stage now where it needs €5 million or €6 million of venture capital. However, there is nowhere in Ireland it can get that capital and the company will now have to relocate to the United States, where it already has an office in Boston. The company needs investment, but the only people who will offer it are Americans and they require the company to be based in America if they are to provide the capital. I did some research in regard to venture capital and have found that there is a gap in the market in that area and it has been there for a long time. Will this new funding address that gap in any way?

Mr. Neil Cooney

The first issue concerns how the funding will trickle down and where the impact of the supports will be felt most keenly. The Enterprise Europe network is a key avenue for the delivery of supports, mainly information, conferences, seminars and spreading the message of what Europe has to offer, the new opportunities available, technical assistance towards meeting CE standards and protection of one's IP, etc. As Mr. Pender said, the 34,000 interactions over the past number of years have been a way of getting these supports to the various companies, including within Ireland. With regard to the target audience for the venture capital and how it works, the process works in the following manner. Enterprise Ireland, on behalf of the State, will invest and will seek co-investment that may come from the EIF. The investment funds then operate on a commercial basis. It is in that way companies in Ireland receive the investment.

With regard to international finance, it has been recognised there may be a gap in terms of the venture capital industry in Ireland. The State has been working proactively, since approximately 1994, to establish the domestic venture capital industry. One of the key issues is that when companies reach a particular growth stage, they should have access to the international capital that is required. The launch of the Innovation Fund Ireland was an initial attempt to bolster the amount of international capital that is available within Ireland. The first call for that has been made and an investment of approximately €60 million on behalf of the State is forthcoming and an announcement is imminent on the availability of that capital. Under the action plan for jobs 2012, we are due to announce the launch of the second call for Innovation Fund Ireland. Again, this will provide approximately from €60 million to €65 million of State capital which will seek to encourage tier 1 investors to set up an operation in Ireland so that international capital will be available here.

Along with these direct efforts, there is also significant effort being put into building networks with international and domestic venture capitalists, VCs. Enterprise Ireland has a strong role to play in that and is able to refer companies to various international VCs when the company is at that particular growth stage. This is something we are working on actively and our objective is to close the funding gap in so far as we can. With regard to a specific company seeking investment finance of the order of €5 million or €6 million in a given year, the nature of company growth is that the company will often be required to set up a number of global operations. That is a natural part of the progression of companies in many modern growth sectors. We are keen to make it a priority that such companies retain their headquarters in Ireland, that the strategic functions of the company are retained here and that they get the investment that will allow them to grow on the international stage. We are making efforts to address the situation in that regard.

I thank Mr. Cooney. One of the issues with the company I mentioned was that the US wanted the headquarters in the United States, not just the branch office it already had there. I understand this is a problem that has been around for some time.

I thank Mr. Pender for his presentation. He has stated that banks are increasingly risk averse. I wonder how the Department can help SMEs to access credit. Why has the need to build an integrated European venture capital market not moved on since 1984? Research and innovation was formerly in SIP. Why is it not now in COSME?

Mr. Michael Pender

As part of the programme for Government and the action plan for jobs, the Government is looking at the introduction of a loan guarantee facility and also a microfinance fund. We hope to have those up and running fairly shortly. I might pass the question on the venture capital to Mr. Cooney in a moment. I did not catch the third question.

Why is research and innovation not funded under COSME?

Mr. Michael Pender

There seemed to be confusion in the mind of the public between the old framework research programme and the competitiveness and innovation programme. The Commission acknowledged that they caused confusion. The COSME box is a development for funding in the order of €150,000. From there onwards, we are dealing with more high level research and development performers as SMEs that are more technologically advanced. It is trying to make clear that the research and development stuff is in one area. It was confusing to SMEs on the ground. It has been taken out in order to create more clarity for people on the ground.

Mr. Neil Cooney

In the round, the European venture capital system may not have improved dramatically since 1984. The statistic provided is a European average. However, there has been a significant change in Ireland and we are recognised as one of the most improved nations in terms of venture capital over the last couple of decades. At the moment, there is €630 million in seed and venture capital funds under management in Ireland, which is a dramatic change in the last two decades. We welcome any efforts that are being made to develop further the European venture capital system. We are competing internationally against the US and so on for the types of companies that can provide the growth and jobs that are needed, especially at this time of economic recovery. We welcome the measures here which allow us to compete.

Tá brón orm go raibh mé déanach. Bhí mé i mbun oibre eile cúpla nóiméad ó shin.

The latest figures from ISME show that 49% of small businesses cannot currently access funding. Banks do not know how to lend to small businesses. Their trade over the last few years was to lend for property and only a small cohort - usually the older staff - know how to lend to small businesses.

My experience has been that venture capital is not an option for small businesses employing fewer than 50 people. A business with more than 50 employees will experience much more success in accessing venture capital, because it will be considered a bit more permanent and will typically have a longer history. The small microbusinesses have been free of venture capital and therefore, have been more reliant on the banks. Advice was given to people to go to the CRO, but only 150 businesses have gone to that office since it was formed. There is a jaded mentality in businesses at the moment. They have been around the block so long on these issues that going to the CRO will not make any difference for them. Is the CRO any different in culture than the banks?

The EU progress microfinance facility was mentioned, and this was identified in March 2010. It has been drawn down by 11 countries. Ireland is not one of them and in that period of time, about 4,000 businesses have gone bust. If the ISME figures are correct, half of these failures were due to credit reasons. We know that funding is of emergency concern for most of these businesses.

How much is available to Ireland in the existing scheme and in the upcoming scheme? Is it the case that it is available and the State has drawn down a certain amount so far? In other words, is there a disparity between what is available and what is being drawn down? How much is Government funding through the EU? How much is leveraged private funding? How would a business in Navan, County Meath, with ten employees, access this funding tomorrow? What steps does it need to take?

Ms Eileen O’Carroll

I will deal with a number of these questions and then hand over to Mr. Pender if he has anything to add. Deputy Tóibín mentioned the access to finance issues and he quoted from the ISME survey. The Department of Finance commissioned a survey, which was carried out by Mazars. The Minister of State with responsibility for small business, Deputy Perry, and the Secretary General of the Department of Finance have organised a number of regional meetings in order to publicise the results of the Mazars credit survey. They have covered Dublin, Drogheda, Cork, Waterford, Sligo and Galway, and I understand that there is another one in Limerick. The banks and business representatives are all invited to these meetings in order to ensure that there is an understanding about the current results, and an indication about what needs to be done to increase lending to SMEs. If the Deputy does not have it, I would be happy to supply the Mazars credit survey.

Bank lending is a matter for the Department of Finance, but targets have been set for the banks to lend to businesses. It was €3 billion last year, whereas this year is it is €3.5 billion. Our understanding is that they are meeting these targets, which are being monitored by the economic management committee.

I have received different information on this. For example, if I had an overdraft of €15,000, this would be changed into a medium-term loan, which would then be identified as part of that new lending. There is anecdotal evidence-----

It is recognised in the report that there is much restructuring going on.

I am not sure if that €3 billion is shiny new lending, or if it is restructured lending.

I have spoken to the relevant bank managers in my own constituency and asked them directly whether there was new business. They are clear in what they are saying and the Deputy referred to it earlier when he said that the lenders were mostly from the old stock, who are now being brought back in to do the job that they used to do. During the boom time, we had sales people giving out money purely for the sake of generating bonuses for themselves. Lenders are back lending. They are analysing businesses in a proper manner. They ask businesses to present up-to-date accounts and projected plans for the future which must stand up to scrutiny. That is what I have been told by the banks. I have asked banks, if they refuse an application for a loan, whether they give the individual a reason for the loan refusal. If a loan application is refused on genuine terms, a person can bring the matter to the Credit Review Office. Very few businesses use the Credit Review Office.

Very few are aware of the process.

They do not use it. If a person receives an answer as to why he or she was not granted a loan and that stacks up, then it would be a waste of time for that person to bring the matter to the Credit Review Office. However, if the person is given an answer that does not stack up, we should advise that person to bring the matter to the Credit Review Office.

Before I return to the witness, I should clarify that there is a problem in that one has to go through an internal review process in the banks before one can bring the matter to the Credit Review Office. That is a matter we can examine separately. It is not a matter for us to examine today because we are dealing with access to a European fund, but we will discuss it again. To return to Ms Eileen Carroll, I am sure she wants to add more to what she said.

Ms Eileen O’Carroll

In regard to what the Minister for Jobs, Enterprise and Innovation is doing to try to ensure that bank credit and finance generally are available to small businesses, there are two measures under the programme for Government. One is the temporary partial credit guarantee scheme, which will provide a level of guarantee to banks to encourage them to lend to two particular types of companies where there is market failure, that is essentially, companies which do not have collateral or companies which have a novel product or are lending into new markets of which the banks do not have a great knowledge. To give them greater comfort about their lending and to ensure they can educate themselves in this regard in order that lending can eventually return to normalised patterns and these types of novel companies will be able to access normal bank lending, there is this temporary partial credit guarantee scheme. The second measure, which the Deputy mentioned, is the micro-finance scheme. The programme for Government contains a proposal that a micro-finance lending scheme be established. It would lend amounts of up to approximately €25,000 to businesses that would have between one and ten employees. The structures for that are being finalised at present.

When does Ms Carrell expect that to be functioning?

Ms Eileen O’Carroll

We are finalising the structures. We have to work out various corporate governance and procedural issues, but we hope it would go live in quarter two to quarter three.

It could be as late as after September.

Ms Eileen O’Carroll

Our target would be quarter two.

I would like to mention the EU progress facility. I should explain that it does not come under the COSME proposal with which we are dealing today. The EU progress facility guarantees a level of lending by micro-credit facilities. It provides guarantees to eligible intermediaries who have applied to be intermediaries under this EIF scheme. It will partially cover the portfolio of micro-loans. In this way, micro-finance is inherently unsustainable in that it tends not to make money, as such. It is very important for job creation but it is not financially profitable. To sustain micro-finance lending, the EIF institution guarantees a level of the loan portfolio. The intermediaries are basically micro-finance lenders. They are quite often a mix of public-private institutions. The accreditation process to the EIF facility is managed by the micro-credit lender. They do not lend funds to countries, they lend or guarantee lending to individual micro-finance lenders and that enables them to sustain the fund for longer in order to lend more to micro-enterprise. When one talks about drawdown, it is a lending guarantee that would be called on when the micro-credit facility incurs bad debts.

I understand that First-Step is the only organisation that would have had a relationship with the EIF in this type of system previously and it is seeking to draw down this guarantee in the future. I spoke to a person dealing with the fund in Europe a number of weeks ago and was told that no organisations in Ireland have availed of this facility, and that was the position up to three weeks ago, while 11 other countries had. We are all very conscious of the real emergencies experienced by businesses. Today a number of companies will go out of business, and in the case of some of those it will be due to a lack of credit. I always want to impart that sense of urgency in respect of this issue. Given the fact that this fund was available since last March and that it might be next September before it is functioning, it is difficult for us to note that timescale and compare it with the level of demand there is for it at present.

Ms Carroll said it would be quarter two and we are coming into that now.

It will be quarter 2 or quarter 3.

That explains the reason we are dealing with this proposal today. We will be ahead of the game on this one. We have to learn from the mistakes that were made. We will prepare a report on this proposal and we, as a committee, might even go directly to the Commission with it to ensure we are ahead of ahead of the curve on this one. That is essential.

Ms Eileen O’Carroll

We understand that First-Step is a private charity. Its facility is under the CIP because it was available before the EU progress facility. That is its current facility.

Ms Eileen O’Carroll

It is under the CIP, not under the EU progress facility.

It also has an application under the EU progress facility.

Ms Eileen O’Carroll

That is a matter between the EU progress micro-finance facility and the micro-credit lender. There may be some small micro-credit lenders also . There is nothing to prohibit or prevent any micro-credit lender from accessing the EU progress micro-finance facility. No State involvement is required. It is a matter for the lender to meet the due diligence required to become an intermediary.

The Government, for the first time, has decided to intervene in the micro-finance market. It is clear from the Mazars study that very little lending is going to micro-enterprises. Therefore, it is hoped and anticipated that this fund, when it is set up, and quarter two is our target for that, will achieve accreditation from the progress micro-finance facility. It is also open to any current micro-finance lender to apply to that facility.

I have a question for Mr. Michael Pender. The presentation refers to second-change entrepreneurs. I presume that is people whose businesses have failed due to whatever economic circumstances.

Mr. Michael Pender

Yes.

Do different criteria apply to them in that they will not have a black label attached to them, or what is the thinking on that?

Mr. Michael Pender

The view in the European Commission is that it is a kind of a bad label and that is always contrasted with the United States where-----

Where it is almost a good label.

Mr. Michael Pender

-----it is almost a badge of honour.

Correct.

Mr. Michael Pender

One of the actions covered in the Small Business Act for Europe is to examine the bankruptcy laws, and in some countries the period is too long for people to get back into business. The Department of Justice and Equality is already working on bankruptcy legislation, and it is proposed that the period will be three years similar to that which applies in the UK.

Yes. That covers everything. I thank the witnesses for their co-operation and for waiting to come before the committee. They might keep us informed of developments. We, as a committee, might agree to do a report on this, and we would send it on to the Department and also, perhaps, to the Commission. I would be grateful if the Department kept us informed of developments at its end. That would be most helpful.

Mr. Michael Pender

I thank members and the secretariat. I would be pleased to keep the committee in the loop. As I stated, the people in Brussels expect the regulation to be adopted by the end of the Danish Presidency and tidied up legally during the Cypriot Presidency. The broader issues will probably roll over into our Presidency next year in terms of the provision of the €1,025 billion and allocating funding throughout the system. The amount for the programme could increase from the figure of €2.5 billion, as one members suggested. Certainly, we will keep the committee in the loop.

It is fair to clarify that the Department and the Government will be the first to make the case for the amount of money to go up. We are not looking for it to go down.

Mr. Michael Pender

I imagine so.

The committee will produce a report on the issue. Is that agreed? Agreed.

The joint committee adjourned at 12.30 p.m. until 9.30 a.m. on Wednesday, 21 March 2012.
Barr
Roinn