State agency MFI suspends lending to SMEs until legislation is changed

8 Jul 2020

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After Microfinance Ireland paused lending, Tánaiste Leo Varadkar introduced a bill that will allow the agency to provide increased funding to SMEs, despite opposition from ISME.

On Tuesday (7 July) evening, Tánaiste Leo Varadkar, TD, introduced the Microenterprise Loan Fund (Amendment) Bill to the Dáil to amend an existing law that is preventing state agency Microfinance Ireland (MFI) from providing increased funding to SMEs.

The amendment bill, which marks the first bill introduced to the Dáil by the new Government, aims to help smaller enterprises meet the challenges presented by Covid-19 by providing small businesses with access to additional finance.

The bill will allow MFI to expand its capacity to extend loans for microenterprises, which are businesses with nine employees or less that cannot access bank finance.

The Tánaiste noted that the legislation is important for businesses in rural Ireland, as just under 80pc of MFI loan recipients in 2019 were based outside of Dublin.

The Covid-19 crisis

During a speech in the Dáil, Varadkar acknowledged that the loans provide essential funding to start-ups and other small businesses, but since the onset of the Covid-19 crisis in March, the nature of MFI lending has changed “significantly”.

Varadkar said: “In response to the urgent need for liquidity in the face of an unprecedented collapse in economic activity, my predecessor Minister Humphreys announced a €20m Microfinance Ireland fund for affected microenterprises, which would make loans of up to €50,000 available, with reduced interest rates of 4.5pc to 5.5pc following a six-month interest-free period.”

Since the loan scheme was announced in March, demand has grown and 581 loans have been approved amounting to a total of just under €16m.

Varadkar said that due to the “exceptional circumstances” that have occurred as a result of the Covid-19 crisis, it is “reasonable” to increase the legislative ceilings so that MFI can continue to fund small businesses for as long as is required.

“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,” Varadkar said. “Lending will resume when increased funding can be made available, once this bill has been enacted.”

The bill also amends the European Investment Agreement Act 2018, to allow the Department of Business, Enterprise and Innovation 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 allows relevant ministers to enter into agreements with the European Investment Fund, which have a cumulative contribution committed up to a limit of €75m. This amendment will increase that limit to €500m.


On Monday (6 July), ISME, the Irish Small and Medium Enterprises Association, warned that encouraging borrowing could be “dangerous” for small businesses.

The representative group, led by chief executive Neil McDonnell said that the Government should be focusing on providing grants rather than loans for microenterprises.

McDonnell said: “There are a number of difficulties for us with the entire suite of measures put on the table so far. Small businesses affected by Covid-19 are reluctant to take on debt anyway at this time even at cheap rates. The rate is in the 4.5pc range. The State provider shouldn’t be doing loans at commercial rates.”

The ISME CEO said that the group’s stance is that small businesses need grants with “no strings attached”.

Criticism also came from the opposition Government, with Sinn Féin’s finance spokesperson Pearse Doherty, TD, voicing his disapproval. Doherty said that the State is “failing” small and medium firms “terribly”.

Doherty pointed out that grant support available to SMEs in affected sectors in Northern Ireland amounts to £25,000, while in Ireland it is €10,000 at the most. He added that without working capital, SMEs would not be able to put social distancing measures in place.

Kelly Earley was a journalist with Silicon Republic