Senator Zappone: “the effective delivery of the SBCI’s low cost finance to SMEs has to be ensured.”


Senator Zappone welcomes the introduction of SBCI and its mission to finance SMEs, social innovation businesses and green enterprises. However, she reminded the Minister of State, Gerald Nash that the Central Bank needs to conduct stringent oversight of the SBCI to ensure the effective delivery of the benefits of the SBCI finance to these companies.

Below the Senator’s speech and a link to the debate in the Seanad: 

I welcome the Minister of State and I thank him for the enthusiasm and vision he has brought to his work. I want to focus my remarks on one aspect of the access to finance for SMEs, which the Minister of State referred to in his speech as the "market disrupter", namely, the Strategic Banking Corporation of Ireland. I would make three points in regard to it. 

First, I congratulate the Minister, Deputy Noonan, and the Government on its establishment. It is an extremely important initiative. I supported it during the legislative process. I was grateful for an engagement with the Department of Finance officials with regard to some suggestions I had in terms of its memorandum and articles. It is extremely important that the banking corporation will be able to provide €800 million of additional credit. That is hugely positive. It is a job well done.

  I am especially delighted that the Minister, Deputy Noonan, accepted my proposals that the overall mission of the SBCI would include a commitment to social innovation and environmental protection as well as contributing to economic development of the State. The memorandum and articles that were agreed relatively recently state that the SBCI is to consider economic and social development of the State and hence, were appropriate, to provide credit to financially viable social businesses and environmental projects. I hope and expect that mechanisms will be put in place to ensure that these kinds of enterprises do have access to funding.

  I appreciate the open-mindedness of the Government on the issue. The growth potential of social businesses and green enterprise has not been fully exploited due to the difficulty of this highly innovative sector accessing funding from the retail banking sector. SMEs in general have that difficulty but particularly these types of SMEs.

There may be additional European resources that we could draw on for the SBCI within the sector of social innovation European venture funds.
  There is a concern about ensuring the effective delivery of the SBCI’s mission to finance SMEs in a way that truly provides flexible conditions and lower cost finance. There are reasons to be concerned that the SBCI funding may not reach the companies it is set up for. When low-cost funding for SMEs was available from the EU in the late 1990s, the funds were often not granted to SMEs. The money was sometimes used for larger businesses to replace existing funding because they were perceived as being less risky.

It is important for the Central Bank to conduct stringent oversight of the SBCI and not allow the mistakes of the past recur. Every effort should be made to ensure that the low-cost funding reaches SMEs, including social and green businesses. I support the Irish Small and Medium Enterprises Association, ISME's, advocacy in this matter.

  There also needs to be appropriate oversight of SBCI’s on-lenders to make sure that the benefit of the lower cost finance is carried to the companies and not consumed by the on-lenders as often happened in the past. We know that the European Central Bank's refinancing rate is at an historic low of 0.05% following a series of cuts. While tracker customers have benefited from this, SMEs and variable rate mortgage holders have not. I believe that banks that benefit from the ECB rate cuts should pass the benefit on to the customers, and this is an opportunity, particularly for SMEs.
  It is expected that the loans through SBCI will be approximately 1% less expensive than current market rates. We need to be absolutely sure that the benefits of the lower cost credit will be passed on to SMEs and not to the on-lenders. The Minister of State might update us on how that will be monitored and controlled.

The SMEs in my community are not accessing the funding they need. They have not experienced any consistent recovery yet. I spoke with the management of the sustainable business programme in South Dublin County, run in conjunction with the council and the Chamber of Commerce. They have contact with more than 4,500 companies in the area and according to those companies, access to finance, not only loans but also access to overdrafts and short-term finance, is a critical issue. That affects not only the survival and success rates of small businesses, but those of the communities within which they reside.

You can find the full debate here

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