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Bank refusal requirement to be removed from MFI loans printable version

01 Apr 2015: posted by the editor - Business, Ireland

The current requirement for a bank load refusal is to be removed from Microfinance Ireland (MFI) loans frollowing a Government review to allow more entrepreneurs and micro-enterprises to avail of its loans.

MFI provides loans of up to €25,000 to businesses who employ 10 people or less and who are not able to access credit from traditional sources like banks.

The review found:

In its first two years of operations, MFI received 729 applications for loans, supported 743 jobs in 333 microenterprises and approved loans valued at more than €5 million

The majority of loans went to businesses outside Dublin (76%) in line with Government policy

The average loan size was €15,400 and the average size of the company assisted is three or less employees

The requirement for a bank credit refusal before seeking MFI loans may act as a deterrent to some microenterprises

The lack of an automatic referral system for all bank declined loans is possibly contributing to a lower take up than expected of MFI loans

The Board of MFI should be given more flexibility to adapt to market changes

The relationship with Local Enterprise Offices (LEOs) to deliver loans to their clients has worked very well, and should be deepened

Initial assumptions and targets for MFI may have been overly ambitious, as market conditions meant that small businesses concentrated on repaying existing loans during the crisis, rather than taking on new credit

However, given the improved economic conditions, the original ambition of supporting 7,700 jobs and lending €90 million over ten years is feasible

MFI should continue to target start-ups, youth, female, migrant and senior entrepreneurs in order to support the Government's National Entrepreneurship Policy Statement

Monitoring of credit performance and risk appetite is critical to scheme viability

Announcing the results of the review Business and Employment Minister Ged Nash said, “The vast majority, more than 90%, of our businesses are microenterprises employing more than a quarter of the workforce engaged in the private sector. Yet, they face much greater difficulty in accessing loans from banks. Microfinance Ireland has had some success in assisting such micro businesses get access to credit, but I believe that by making some changes they will be able to help many more."

On foot of the review, Minister Nash will introduce a new Scheme aimed at improving access to MFI loans by:

Removing the requirement for microenterprises to have a bank refusal before applying for an MFI loan, and

Allowing the Board of MFI greater flexibility to adapt to market changes

In addition, MFI will:

Work with the banks to introduce an automatic referral system to MFI when banks decline loans to micro-enterprises

Develop a renewed and expanded marketing and communications strategy

Minister Nash continued: “In the past couple of months, we have also seen a welcome increase in the numbers of applications for loans and approvals from MFI, reflecting the wider economic improvements across the country. The changes we are introducing, particularly removing the need for a bank refusal before applying for a loan will mean many more microenterprises will be able to access credit to grow and create more jobs.”

Geraldine Kelly, Chairman of Microfinance Ireland, said: “We very much welcome the new measures announced by Minister Nash as we believe more and more micro businesses will be given a chance as a result. In the last six months alone, we have increased our lending by 52%, reflecting the improving economy, and we anticipate greater demand for our services in the months ahead. Microfinance Ireland is now providing funding to over 511 small businesses throughout the country, 76% of which are outside of Dublin. This funding is supporting 1121 jobs and we plan to bring that number to 2,000 jobs by the end of 2015.”

The Review of Microfinance Ireland 2015 can be accessed via http://www.djei.ie/enterprise/smes/ReviewofMicrofinanceIreland2015.pdf

Microfinance Ireland is a 100% owned subsidiary company of the Social Finance Foundation and is a private not for profit entity which has been mandated by Government to deliver its statutory based Microfinance Loan Fund.

The EPMF fund from the European Investment Fund covers some of the risk by providing a partial guarantee against its portfolio of lending. The EPMF (European Progress Microfinance Fund) is a Europe-wide fund that underwrites some of the risk taken on by organisations like Microfinance Ireland.

Tags: Microfinance Ireland

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