STEADY DEMAND FOR MICRO FINANCE
Microfinance Ireland, the statesupported entity that provides loans of up to €25,000 to micro businesses, says it has had another strong year supporting small business. MFI was established in 2012 to provide debt finance for small firms and sole traders with under 10 staff and turnover below €2m which have had difficulty raising loan finance.
“We are taking on more risk in our lending than the banks, but we are not pricing for that risk, which is possible due to our government support,” says CEO Des McCarthy.
Microfinance Ireland’s interest rates are a maximum of 5.5%, or 4.5% for applications that come through Local Enterprise Offices and banks. “Our primary objective is supporting small business. Because we don’t price for risk, bottom line profitability is difficult to achieve,” McCarthy adds.
“We are there to provide loans to start or grow a small business and potentially assist people out of unemployment. If you look at the cost to the Exchequer of Microfinance Ireland and the 10,000 jobs created since 2012, the cost per job is very low.”
Microfinance Ireland sources its funding from the Strategic Banking Corporation of Ireland and partly secures its loans with guarantees from the European Investment Fund. “We have just signed a new contract with them which will give us plenty of guarantee capacity over the next three years,” says McCarthy.
MFI provided c.€6m in loans to some 400 borrowers in 2022, with a loan average of €15,000. In a typical year, about half of borrowers have only one employee and very few have over three staff. Data for H1 2022 shows that the lender’s approval rate is 49% and that loans advanced in the period supported 356 jobs in 226 micro-enterprises. Half the approvals were granted to start-ups and 80% of the borrowers are located outside Dublin.
According to McCarthy, micro enterprise activity in 2022 was resilient. “We haven’t seen a massive uptick in failures, although 2023 could possibly bring the beginning of a spike in arrears. We are all seeing in our own personal bills how inflation is having an effect.”
The micro lender endeavours to process complete applications within 10 days and has embarked on an additional digitisation programme which will enable clients to make online loan applications. The aim is to launch the system by the end of the year.