€90million Microfinance Scheme open for business – Minister Bruton

Scheme to benefit 7,700 businesses over 10 years, create 5,500 jobs

The Minister for Jobs, Enterprise and Innovation TD today [Thursday] announced that the €90million Microfinance Scheme will be open for business from Monday next, 1st October.

From next Monday, applications from businesses and sole traders across all sectors employing up to ten people who have been refused credit by the banks for loans of up to €25,000 will be accepted and processed. Further details, guides and application forms can be found at County and City Enterprise Boards and at www.enterpriseboards.ie <http://www.enterpriseboards.ie>

The Scheme will initially facilitate €40million in additional lending over the next five years to businesses employing not more than 10 people, 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.

Over the lifetime of the ten-year Scheme it is expected that over €90million in additional lending will be provided to 5,500 micro-enterprises with the creation of an expected 7,700 jobs. The Scheme will be operated by Microfinance Ireland.

The Minister made the announcement today at Dux & Co, a catering business which was established two years ago by John Coady and Leah Duxbury, which was refused credit from the banks, benefited from microfinance lending, and which has recently opened a café and now employs eight people.

Today’s announcement represents delivery of a key commitment under Action Plan for Jobs 2012.

Making the announcement, Minister Bruton said:

“Government does not create jobs, people and businesses do. The role of Government, and the centre of our plan, is to make it easier for businesses to start-up, expand, succeed, and create jobs. The Government’s Microfinance Scheme, which will provide up to €90million in lending to 5,500 businesses which otherwise would not get credit, is a key part of this plan, and will help create over 7,700 jobs over the next ten years. As in the case of the Loan Guarantee Scheme, the Development Capital Scheme and the Innovation Fund, this is Government getting involved in filling gaps in the market and supporting viable businesses which can create the jobs we need.

“Dux & Co provides an excellent example of the benefits of micro-finance to the economy. Two years ago John and Leah left office jobs and started their own catering business. As their business expanded they needed access to credit, and when they were refused by the banks they obtained microfinance lending. When Minister Perry and I visited this premises three months ago they were preparing to open a café and take on new staff. Now they employ eight people and are open for business.

“The Government is acting to ensure that a much wider range of businesses who are refused credit by the banks have access to microfinance lending, and I am delighted to announce that the Microfinance Scheme is now open for business. Start-ups, sole traders and micro-enterprises who have been refused by the banks can from next Monday apply via their local CEB for loans up to €25,000 to expand or to get their business off the ground. I urge people with business ideas across the country to speak to their CEB, get their business off the ground and create the jobs we need”.

Speaking at the launch, Minister for Small Business, John Perry TD said “It is only by creating the right environment for businesses to expand that we will see new jobs coming on stream, and addressing their financing needs is a crucial factor. We must champion the cause of the microenterprise sector, to build new opportunities for them to grow, to hire, and to support Ireland’s economic recovery”.

Chairperson of Microfinance Ireland, Ms. Geraldine Kelly said “MFI looks forward to playing its role in supporting commercially viable microenterprises that do not meet the conventional risk criteria applied by banks. MFI is pleased to work in partnership with CCEBs in executing its national mandate in supporting jobs”.

Notes for Editors
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 and with a balance sheet and turnover of less than €2million 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, Enterprise and Innovation to businesses of a range of sizes and in a range of sectors, including:
·        the €450million Credit Guarantee Scheme, for SMEs which because of a lack of collateral or because of the sector they operate in face difficulties in accessing traditional bank credit
·        €125million invested by Enterprise Ireland through Innovation Fund Ireland, targeted at high-growth, high-tech early-stage companies based in Ireland. 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

Microfinance Ireland (MFI) is not intended to replace any current bank lending nor is it intended to address any broader deficiencies in the banks’ provision of lending to the SMEs sector.  Loans of under €25,000 will only be available to individuals who have had their request for loan finance declined by the Banks, and it would be a prerequisite for any loan granted under the scheme that there should have been a bank assessment of a loan application and a formal refusal by that bank to provide the credit for stated reasons

As part of the Action Plan for Jobs the Government committed to delivering an improved support service for micro and small businesses. In line with the Government’s Strategy of a ‘one stop shop’ for enterprise support, most loan applications will be made through the nationwide network of County Enterprise Boards. CEBs can provide assistance with training and preparing business plans and they will carry out an initial evaluation of the quality of the business proposal/loan application before sending it on to MFI.

In the first 5 years, €10m of Exchequer funding supplemented by €15m of Bank funding will be used to achieve €40m in new lending. During this initial period, more than 2,700 microenterprises are expected to benefit from the scheme and the creation of 3,800 jobs will be supported.

The establishment of Microfinance Ireland is a key component in the suite of new Government initiatives aimed at ensuring an additional flow of credit to the SME sector.

Policy Context
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 in Ireland for 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 in Europe.

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 Microenterprise Loan Fund
The fund will be managed and controlled by Social Finance Foundation on behalf of the Minister for Jobs, Enterprise and Innovation.  The fund has been established as a subsidiary of Social Finance Foundation.  Microfinance Ireland, 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.

Microfinance Ireland 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. In line with the Government’s strategy of a ‘one stop shop’ for enterprise support, most loan applications will be made through the nationwide network of CEBs. Other organisations may also help in the provision of such supports.  Prospective borrowers will be advised to go to their local County or City Enterprise Board, www.enterpriseboards.ie <http://www.enterpriseboards.ie> and speak to an advisor who will assist with the application process.

Banks will continue to be the primary and dominant supplier of finance to microenterprises. MFI will not substitute for conventional bank finance and will be a limited but important source of finance primarily for newly established and growing enterprises that due to their risk profile do not meet conventional risk criteria

The Loan Fund will only be available to applicants who have had their request for loan finance declined by the Banks.  The thrust of MFI’s lending policy will always be focused strongly on the potential sustainability of the business, its ability to repay the loan and the creation and maintenance of jobs.

Interest Rate
A 9.5% fixed interest rate will be charged, with a 3 year repayment term and a monthly repayment schedule.  There is no intention to charge an administration fee at this time

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.

Economic Impact
Exchequer gains in terms of employment sustained and created, savings on welfare payments and increased direct and indirect tax payments have been calculated at €23,000 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.

European Progress Microfinance Facility
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. 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 has been made for the EU Progress Microfinance Guarantee Facility. A rigorous due diligence process is required to secure EIF accreditation.

Microfinance Ireland

The Chairperson of MFI Ms. Geraldine Kelly was appointed by the Minister in August, and an appropriately qualified voluntary Board of Directors has been established, (a list of members is attached below), comprised of individuals with expertise and lineage in relevant sectors, including microenterprise, small business, financial and accounting, corporate governance, microfinance lending, bank lending, and the County Enterprises Boards. All Directors including the Chairperson will operate on a pro-bono basis. Such an approach was used in the set-up of the Social Finance Foundation. The Board will report to the Minister for Jobs, Enterprise and Innovation and publish Annual Reports.

Board of Directors

1.        Geraldine Kelly (Chair) is a Senior level Executive with CEO/NED experience in the Software, Technology, Medical & Energy sectors. Currently Geraldine is Chair of Plan Ireland Ltd and serves on the board of AURA Ltd and Tyndall Institute.

2.        Felix O’ Regan is Director of Public Affairs with the Irish Banking Federation and is on the Social Finance Foundation Board.

3.        Mary Brennan is an Independent Consultant, Chartered Accountant, and previously held senior positions in Elan and Boole and Babbage.

4.        John Kelly is a senior commercial lending manager in AIB. He is currently a member of AIB Seed Capital Advisory Board.

5.        Michael Tunney is CEO of Donegal County Enterprise Board and is CEO of Donegal County Enterprise Fund.  Michael has many years experience with the microenterprise sector and business start-ups.

6.        Norma Smurfit is founder and Chairperson of Firststep Microfinance since the early 1990s.  Firststep represented the only organisation operating nationally in the microfinance area and Norma brings much knowledge and experience to bear.

7.        Evanne Kilmurray is a founder member and CEO of Inner City Enterprise (ICE), established in 1991.  This is a charity organisation working in disadvantaged areas to help unemployed people set up their own business.   Evanne has years of experience working with the microenterprise sector.

8.        Bobby Kerr has many years experience as an entrepreneur and is Chairman of Insomnia Coffee Company. He has a variety of business interests in food & hospitality, technology, manufacturing and retail. Bobby is also actively involved in a variety of media roles, is a public speaker and business mentor.

9.        Edmund Jennings is Managing Director at Cregg Recruitment, owner of the Cregg Group and Managing Director at Cregg Outsourcing Ltd.  He was previously a Director at Shannon Foynes Port Company, Director at Shannon Chamber of Commerce and Director at Western Business Park.

10. Yvonne Barry is a chartered accountant with her own practice – DMB & Co. in Cork.  Yvonne specialises in business start-ups, finance and business planning.