merrion street

22 June 2012

Over €90million in additional lending to 5,500 micro-enterprises will be made available under a Government scheme which is expected to create 7,700 jobs over 10 years, the Minister for Jobs, Enterpriseand Innovation Richard Bruton TD announced today [Friday]. Minister Bruton was speaking as the Microenterprise Loan Fund Bill was published following Government decision last Tuesday [19

June].

The Microenterprise Loan Fund Scheme, which is expected to be operational from early autumn, will initially facilitate €40million in additional lending to businesses employing not more than 10 people over the next five years, with provision for the scheme to be extended to provide an additional €50million of lending over a further five years at that point. Start-ups, sole traders and existing microenterprises will be eligible to apply for a loan under the scheme.

Today’s announcement represents a key step towards the delivery of a major commitment in the Programme for Government and Action Plan for Jobs 2012.

The key features of the scheme include:

• It will be operated by Microfinance Ireland, a subsidiary company of Social Finance Foundation, which was founded in 2007 by the Minister for Finance, and has substantial experience in this area
• Businesses, including sole traders, across all sectors employing not more than 10 staff will be eligible for the scheme
• In order to be eligible for the scheme, a request for credit must first have been declined by the banks. The Scheme will provide loans for commercially viable proposals that do not meet the conventional risk criteria applied by the banks for various reasons, including the absence of collateral
• The scheme will be demand-led
• In the initial 5-year phase, €10million of Exchequer funding will be leveraged to achieve a total of €40million in additional lending
• In the initial 5-year phase, more than 2700 microenterprises are expected to benefit from the scheme with the creation of 3,800 jobs
• Loans of up to €25,000 will be provided, and the average loan is expected to be €16,000
• An application will be made by Microfinance Ireland to the European Investment Fund for a guarantee to help optimise the State’s investment
• CEBs/LEOs will actively engage with applicants in the development of business propositions
• The Scheme will be closely monitored and will be comprehensively reviewed after two years of operation
• The Microenterprise Loan Fund will form part of a suite of finance schemes provided through the Department of Jobs,Enterpriseand Innovation to businesses of a range of sizes and in a range of sectors, including:
• the €150million Credit Guarantee Scheme, for SMEs who because of a lack of collateral or because of the sector they operate in face difficulties in accessing traditional bank credit
• €125million invested byEnterpriseIrelandthrough Innovation FundIreland, targeted at high-growth, high-tech early-stage companies based inIreland.  This investment by the State will leverage significant private sector investment
• The €150million Development Capital Scheme, aimed at mid-sized, high-growth Irish companies operating in traditional sectors

Making the announcement, Minister Bruton said:

“Employment is this Government’s number one priority, and we are determined to continue implementing our plan to rebuild the economy and create the jobs we need. We must create a powerful engine of indigenous enterprise to sustain the employment we need, and a key part of our Action Plan for Jobs is to ensure that we have more businesses establishing, succeeding, expanding, and creating employment. To achieve this, we are implementing a series of changes to make it easier for small businesses to access credit.

“The Microenterprise scheme will ensure that over a ten year period, 5,500 viable businesses which would not otherwise have got access to finance will now be able to access credit, expand, and create an additional 7,700 jobs. People who have a business idea, but lack the capital to get it off the ground, whether they are unemployed or already in a job, will now be able to access the crucial finance that they need. It will also form part of a series of measures aimed at encouraging more people to start a business.  I am determined that, with a series of further innovations like this, we can create a strong engine of indigenous business to create and sustain the jobs we need.”

Minister for Small Business, John Perry TD said:

"The ability of small businesses to succeed and grow underpins our future potential for jobs, growth and prosperity.  With this in mind the Government is committed to supporting our SME sector in every way to develop their businesses, increase exports, create jobs and rebuild the economy.   

"The Microenterprise Loan Fund Scheme is one key component in a suite of initiatives aimed at ensuring the flow of credit to SMEs to sustain employment and create new jobs.

“Small businesses are currently operating in a particularly difficult environment.  It is important that we continue to focus on delivering a practical programme of actions that can achieve improvements in the operating environment for small business.

“This fund will supplement normal bank lending.  It will provide additional lending to start-up, newly established or growing micro-enterprises which have commercially viable proposals but do not meet the conventional risk criteria applied by commercial banks”.

Please see link to the Microenterprise Loan Fund Bill 2012.

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The Government commitment to establish a Microenterprise Loan Fund targeted at start-up, newly established, or growing micro enterprises is the response to a level of unmet demand inIrelandfor micro-finance. Banks will continue to be the main supplier of finance to the micro-enterprise sector. However, due to its focus on job creation and the benefits this creates, the new Microenterprise Loan Fund will have a greater risk appetite than Banks could possibly have and therefore will be able to fund and help create and sustain additional micro-enterprises which cannot satisfy conventional Bank credit criteria. This model of having a Microenterprise Lender working in partnership with Government and the Banking Industry to promote enterprise and support job creation is becoming increasingly common inEurope.

When viewed in a macroeconomic context, microfinance is a very cost effective job creation/protection mechanism generating a high rate of return. In many cases the business promoters and any other staff hired come from the unemployed ranks and are therefore drawing State benefits. Existing employees who choose the entrepreneurial route and set up their own business are also likely to create a residual employment opportunity in their previous organisation. The vast majority of micro-finance applicants are engaged in locally tradable services. While most may not have the potential for growth in terms of internationally tradable businesses, there are significant benefits to be gained by the development of a successful micro enterprise sector. In addition to contributing to the economic and social agenda, it yields exchequer gains in terms of employment sustained and created, savings on welfare payments and increased direct and indirect tax payments.   

The fund will be managed and controlled by Social Finance Foundation on behalf of the Minister for Jobs,Enterpriseand Innovation.  The fund will be established as a subsidiary of Social Finance Foundation.  It is intended that under the guidance of SFF, the subsidiary will be equipped with the necessary levels of finance, systems and skills and supported by an EIF Guarantee Scheme, to ensure high levels of efficiency, relevant expertise and strong corporate governance.   A single lender will (i) minimize costs which are traditionally high with microfinance,(ii) ensure a clear financial and management information reporting structure, (iii) enhance the possibility for EIF assistance and (iv) allow for a clear identification of the costs involved in operating the scheme.

The SFF subsidiary will have the role of loan application assessment, loan approvals and declines, management of the loan book, and recoveries. It will work closely with the County and City Enterprise Boards (CEBs) / Local Enterprise Offices which provide a range of important business supports, including advice, training and mentoring, to microenterprises. Other organisations may also help in the provision of such supports.

The Loan Fund will only be available to applicants who have had their request for loan finance declined by the Banks.

Based on assumptions on the level and quality of demand on the Fund, the €10m allocation, supplemented by €15m bank borrowing in tranches of €5m over the following years should generate €40m (€8m p.a.) in loan expenditure and create 3,800 jobs over a 5 year period. . The return to the exchequer over 5 years is estimated at over €40m.

A further injection of €10m in year 5, supplemented by an additional €15m bank borrowing in tranches of €5m, should generate over €90m in loan expenditure, finance 5,500 micro-enterprise loans and generate over 7,700 jobs over a 10 year period, thus fulfilling the Government commitment.

Exchequer gains in terms of employment sustained and created, savings on welfare payments and increased direct and indirect tax payments have been calculated at a very conservative €12,000 per job.   

While the majority of micro-finance applicants are engaged in locally tradable services and may not currently have the potential for growth in terms of internationally tradable businesses, they provide a solid enterprise base on which the SMEs and HPSUs of the future can develop. There are clear societal and community benefits in addition to the economic and job creation objectives.

The European Progress Microfinance Facility is a European Investment Fund (EIF) initiative to support entrepreneurship and employment through microfinance activities. It was established by the EU Commission in 2010. Obtaining an EIF guarantee is crucial to this initiative. The Fund will seek EIF accreditation to avail of the EIF loan book guarantee which is anticipated to cover a significant proportion of any bad debts incurred.

Initial engagement has already taken place between Social Finance Foundation and the EIF in relation to the EU Progress Microfinance Guarantee Facility.  Formal application will be made for the EU Progress Microfinance Guarantee Facility on establishment of the Microfinance Fund. A rigorous due diligence process is required to secure EIF accreditation.

ENDS

Conor Quinn, Press Advisor to Minister Bruton, Tel: +353 1 631 2218, +353 87 374 3783, email:

  Press Office, Department of Jobs,Enterpriseand Innovation, Tel: +353 1 631 2200.

ENDS