Friday 28 October 2016

Microfinance Ireland overhauling lending rules to boost credit demand

Paul O'Donoghue

Published 02/04/2015 | 02:30

Minister Ged Nash
Minister Ged Nash

An overhaul of Microfinance Ireland (MFI) lending rules is expected to kick start a major increase in lending by the State-backed fund, which has seen muted interest from borrowers despite significant resources and a high profile launch in 2012.

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a rule that restricted access to the fund's loans to businesses that were previously refused credit by a commercial bank has now been scrapped, following a State review.

MFI has loaned out just under €8m to date.

MFI officials blamed the poor economic climate at the time of its foundation for a lack of appetite for credit and added that the requirement that borrowers had to be rejected by a bank before going to the fund discouraged interest.

However, the fund has seen a strong recent increase in the number of applicants, with lending increasing by 52pc over the past six months.

Speaking to the Irish Independent, MFI CEO Michael Johnson said he expects the upward trend to continue, and hopes MFI will be lending out €12m a year by 2018.

"We're now making serious progress. The economic conditions have been a major contributor to people investing in their businesses [and] by the end of 2017 we should be up to around €10m in annual lending. We'll move into a space of probably €12m a year after that," he said.

MFI was set up to provide loans of up to €25,000 to firms employing no more than ten people because lack of credit was seen as a major blockage in the economy.

But the take-up of the loans was far less than expected.

MFI initially had a target to loan out €40m by the end of 2017, and €90m over its first ten years.

Although Mr Johnson said he is confident that MFI will reach its 10-year target, he admitted that the five-year aim of €40m is unlikely to be met.

"Within the review, the Government has accepted a recasting of how we get to the €90m over ten years. But we're now making up for lost time so we would be confident that we will be back on target in the next number of years."

Business Minister Ged Nash accepted MFI had a slow start. "Government was overly optimistic about appetite for lending among micro-enterprises. We're in a different situation now and that is reflected in the increased loan approvals over the past six months," he said.

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