The State's major banks are to face Government pressure early in the new year to put up €100 million worth of loans annually for people and organisations in socially-deprived communities, writes Mark Hennessy, Political Correspondent
In the Budget last month, Minister for Finance Brian Cowen scrapped a bank levy introduced three years ago by his predecessor, Charlie McCreevy, which has cost the institutions an equivalent sum every year.
The Government has now decided to create a fund, supported by the banks, private donors and others, to back socially-useful projects which in the past have struggled to get loans. Described as "social finance", the money is to be used to fund projects which would have a positive impact on local communities, although these will have to generate sufficient funds to eventually repay the sums borrowed.
At present, individuals and organisations in poor areas often struggle to get loans from banks and building societies - a practice known in the United States as "red-lining". In some instances, organisations end up becoming dependent on State grants, which eventually run out, when they might have been capable of succeeding if they had been able to borrow at the outset.
The Minister is now understood to be prepared to accept most, if not all, of the recommendations of a major 2004 report, "In the Common Interest - The Case for Social Finance in Ireland".
"A key element of the initiative is the creation of an investment vehicle which will, firstly, pool the funds made available from various sources and, secondly, provide a channel for the funds to agencies that will make loans for individual social and community projects," the Department of Finance told The Irish Times.
While revealing little about his plans on budget day, the Minister said that he had been encouraged by the "initial reaction" of the banks to the proposal.
Although the precise arrangements are still at an "early stage of consideration", Mr Cowen is keen to ensure that legislation governing the new structures will be "as light as possible", the spokesman said.
Having removed the bank levy by the end of 2005, as had been promised, the Minister is understood to expect the institutions to make a similar amount available every year to the new fund.
The ending of the levy is expected to raise earnings at Irish Life and Permanent by 3 per cent this year, while Allied Irish Banks, Anglo-Irish Bank and Bank of Ireland will see earnings jump by 1 per cent.
The availability of €100 million in borrowings could revolutionise the ability of community organisations to access vital capital.
A private social capital fund known as "Clann Credo", set up by Sister Magdalen Fogarty and the Presentation Order in 1996, has raised €10 million from charities and religious congregations since then. Loans have been given to community and voluntary bodies, including a west Dublin youth project, a transport service for the elderly and disabled in Baldoyle and a Kildare drug rehabilitation centre.
A number of other social finance providers exist, including the Western Development Commission and Triodos Bank, a Dutch-based "ethical" bank set up in 1980.
The social finance model has already proved successful in Northern Ireland, where "Aspire" has loaned over £920,000 to "painters, plumbers, florists and window-cleaners", to quote the agency.
Almost half of the 2 million small businesses set up in the EU each year collapse. This is partly due to lack of access to loans, according to the European Commission.
