Draft Dáil Second Stage Speech for the Microenterprise Loan Fund (Amendment) Bill 2020
Dáil Éireann, Tuesday 7 July 2020
I am pleased to bring forward the Microenterprise Loan Fund (Amendment) Bill 2020. This is the first bill being introduced to the House by the new Government.
This important legislation forms part of the Government’s efforts to help our smaller enterprises meet the enormous challenges presented by COVID-19.
Purpose of this Bill
The purpose of this Bill is to make certain amendments to the Microenterprise Loan Fund Act 2012 (as amended) and the European Investment Fund Agreement Act 2018 to help businesses access additional finance.
Impact of Covid-19 on the Economy and on Enterprise
Let me start, by explaining why this Bill is necessary.
Covid-19 has had a devastating impact on our society and our economy.
Lives have been lost and livelihoods ruined.
Our small and medium enterprises have been dealt an enormous blow.
Many have had to close their doors for months – with revenues drying up overnight.
Hundreds of thousands of people are out of work and many people have seen their wages or hours reduced.
We must act now to avoid mass unemployment and a wave of insolvencies.
While the number of people on the Pandemic Unemployment Payment is falling week on week, the scale of the crisis is unprecedented.
Despite the challenges we have faced to date – and those that are yet to come – with returning customers, comes renewed hope for our small businesses and for their staff.
Like so many others, last week I enjoyed the simple pleasure of getting my hair cut and going out for a meal for the first time in four months.
Getting small businesses like hairdressers, barbers, cafes and restaurants back open isn’t just vital for our economy, it’s also important for the emotional wellbeing of our people.
Since I took up the role of Minister for Enterprise, Trade and Employment 10 days ago, my focus has been on preparing the July Stimulus Package.
As I said on the floor of this House last week, it will be radical, of scale and speed.
While no final decisions have been made, we are looking at a range of possible actions such as;
- an enhanced restart grant to help businesses reopening
- lower cost long terms loans
- reductions in some business taxes
- extending the wage subsidy scheme
I have previously expressed my concern about the very high level of youth unemployment and inequality that could emerge as a result between younger people and older people, those working in the public sector and those in the private sector.
Poverty and deprivation rates have been falling in Ireland for more than 5 years. We are one of the few countries in which income inequality has reduced in recent years. We don’t want that now to go in reverse.
The July stimulus package will have a particular focus on sectors which employ large numbers of younger people, such as hospitality, retail, tourism and leisure, and perhaps construction as well.
Radical action is required if we want unemployment to fall – youth unemployment and unemployment more generally.
I would be happy to hear, as part of this debate, member’s ideas and proposals for the July Stimulus package, or for the longer term National Economic Plan that will be published alongside Budget 2021 in October.
My Department and its Agencies have worked hard since the arrival of Covid 19 to help businesses and employers overcome the challenge presented by the pandemic.
The impact on SMEs, in particular, has been enormous.
In May 2019, there were 238,000 SMEs in Ireland, employing more than 1.3 million people, out of a total workforce of 2.3 million.
Groups representing SMEs and microenterprises have explained the need for assistance early in the Covid 19 crisis, with a particular focus on liquidity.
This was backed up by research from the Central Bank, which indicated the likely need for some form of external liquidity for firms if they were to re-open once the Covid-19 restrictions were eventually relaxed.
My Department had already begun expanding existing schemes and developing new actions to help SMEs and microenterprises to access that crisis liquidity.
Existing schemes expanded to respond to Covid-19
As part of the initial response, we reprioritised and repurposed existing programmes.
This has included repurposing:
- the Enterprise Ireland online retail, continuity voucher and financial planning grant schemes;
- The Local Enterprise Offices’ business continuity and trading online voucher schemes;
- InterTradeIreland’s e-merge and emergency solution schemes;
- the credit guarantee scheme,
- the working loan capital scheme
- and the microfinance loan scheme.
My Department has been focussed on coming up with practical solutions to help businesses.
For example, in addition to the existing Credit Guarantee Scheme, a new Covid-19 Credit Guarantee Scheme was developed using the flexibilities allowed by the European Commission.
This allowed for credit guarantee schemes to include small mid-caps and primary producers as well as SMEs, but the temporary framework is due to expire on 31st December 2020.
So, any loan guarantees, underwriting lending to enterprises from the financial institutions must be in place by 31st December 2020 in order to qualify.
It is vital therefore that it is put in place as soon as possible, to help as many businesses as possible, in the timeframe available.
Amending legislation is necessary and I look forward to returning to the House to talk about that very soon.
About Microfinance Ireland
Today we are here to talk specifically about Microfinance Ireland and expanding its capacity to extend loans for microenterprises.
That is businesses with 9 employees or less that cannot access bank finance.
It has a high-risk tolerance and provides essential funding to start-ups and other small businesses.
In 2019, just under 80% of loans that were made, were to businesses outside of Dublin. So this legislation is really important for rural Ireland.
The nature of Microfinance Ireland lending changed significantly with the onset of the COVID-19 crisis in March.
In response to an urgent need for liquidity in the face of an unprecedented collapse in economic activity, my predecessor Minister Humphreys announced a €20 million Microfinance Ireland fund for affected microenterprises, which would make loans of up to €50,000 available, with reduced interest rates of 4.5% to 5.5% following a six-month interest free period.
Microfinance Ireland has experienced significant and growing demand since this loan was launched on 13th March 2020.
As of 26th June, 581 loans have been approved amounting to a total of just under €16 million.
I expect this demand will continue to accelerate as our economy reopens.
The proposed amendments to the Microenterprise Loan Fund provide a legislative basis for increased funding for Microfinance Ireland.
This will ensure it can continue to lend to small businesses and help people get back to work.
Given the exceptional circumstances that have ensued from the Covid-19 crisis, it is reasonable to increase the legislative ceilings so Microfinance Ireland can continue to fund very small businesses for as long as it may be required.
Given the urgency of this Bill, these increases have been included as amendments in the Bill as presented for publication.
There are amendments to existing sections, and the inclusion of one new section, to the Microenterprise Loan Fund Act 2012, which will make increased funding available to MFI, so it can continue to provide short-term credit facilities available to businesses.
In addition to increasing grant aid to Microfinance Ireland, the amendments will allow it to source efficient and affordable financing through the Strategic Banking Corporation of Ireland.
The unprecedented nature of the shock caused by Covid-19 makes the need for these changes even more imperative, and even more time-critical.
This is particularly important as our society and economy continues to reopen.
The level of demand for funding from microenterprises has been so large that MFI had to pause its lending from the beginning of last week.
Lending will resume when increased funding can be made available, once this Bill has been enacted.
European Investment Fund Agreement Act 2018 amendment
The Bill also amends the European Investment Agreement Act 2018, to allow the Department to enter into new arrangements with the EIB Group, to underpin financing schemes for SMEs and small mid caps.
The European Investment Fund Agreement Act 2018 allows relevant Ministers to enter into agreements with the European Investment Fund, which have a cumulative contribution committed up to a limit of €75 million.
The amendment included in section 8 of this Bill will increase that limit to €500 million.
We want to be in a position to enter new agreements with the European Investment Fund, for the benefit of small, medium and micro enterprises.
Increasing the Irish limit is necessary to allow expansion of schemes such as the €500 million Future Growth Loan Scheme, which will provide for the longer term lending needs of SMEs such as farmers and fishermen who are exiting emergency liquidity and want to reinvest in their businesses.
Given the significant current demands on the resources of the European Investment Bank Group, this funding may not be available to Ireland at a later date, and so it is prudent to put this legislation in place to facilitate negotiations with the European Investment Bank Group on this €500 million expansion of the Future Growth Loan Scheme as quickly as possible.
Amendment of the European Investment Fund Act will enable Ireland to drawdown further funding from the European Investment Bank.
This would include schemes which facilitate business investment in climate action.
Ireland is committed to the European Green Deal – as our economy begins to recover we must take advantage by the opportunities presented by moving to a low carbon future.
Progression of this Bill to date
My predecessor Heather Humphreys TD, was very active in her efforts to help businesses respond to the pandemic.
This included the urgent drafting of the Bill which we are considering today – the publication of which was approved by the outgoing Government on 29th May.
I am pleased to take this Bill through the Oireachtas, so we can put in place the necessary measures for this vital cohort of the Irish economy.
In the past, SMEs in Ireland have proved themselves to be resilient – and their response to this crisis has shown businesses are determined to adapt, revive and thrive.
This Bill will help viable small businesses and to bounce back, to retain their staff and to serve their communities.
I hope that we can all, across the House, agree on the importance of the SME and microenterprise sectors in Ireland and approve this Bill without delay.