State aid fix to unlock farm loans from Microfinance Ireland

Microfinance Ireland was set up by the Government to help micro-enterprises that cannot get funding from the main banks.

EU state aid regulations have cut off a valuable source of credit for Irish farmers since 2023, but agriculture minister Martin Heydon has indicated it will soon return.

Over 10 years since 2013, Microfinance Ireland (MFI) made 182 loans to Irish farmers, totalling €3,252,368.

MFI has continued lending to non-agriculture businesses, but cannot resume lending to farmers until it satisfies new EU agriculture state aid requirements, including new legal arrangements for data-sharing between MFI and the Department of Agriculture. 

This has been the case since the EU's Temporary Crisis and Transition Framework ceased in December 2023, and MFI had to change over to providing loans under the newly applicable State Aid Framework, which is the De Minimis Regulation.

Mr Heydon said in the Dáil recently a statutory instrument was expected to be published shortly, to facilitate the data-sharing required to comply with de minimis regulations. 

"This SI is currently being finalised, and will provide the necessary legal basis for the sharing of data between third-party agri-loan providers, such as MFI, and my department." He was answering a question from Galway East, Fianna Fáil TD Albert Dolan.

The lender was set up by the Government to help micro-enterprises that cannot get funding from the main banks.

MFI is a not-for-profit organisation that does not compete with the main banks, and predominantly supports start-ups, with loans at low interest rate charges relative to the credit risk.

Microfinance Ireland provides loans from €2,000 up to €50,000 to businesses that do not meet the conventional risk criteria applied by commercial lenders.

It has continued lending to non-agriculture businesses. MFI assists businesses with fewer than 10 employees to meet payments for stock, working capital requirements and other overhead expenses. In September 2024, MFI increased the permitted loan limit from €25,000 to €50,000.

The loan term is typically three years for working capital purposes and can be extended to five years for capital expenditures. Interest rates range from 5.5% for clients of Local Enterprise Offices and other partners, to 6.5% for direct applications.

In 2023, 78% of loans approved by MFI were to microenterprises outside Dublin.

Loan records indicate the main farming enterprises supported up to the end of 2023 were dairy and cattle farms, taking out 34 loans totalling €642,749, and 28 loans totalling €455,900, respectively. 

There were 21 loans totalling €344,000 for mixed farming; 14 loans totalling €214,999 to support activities for animal production; 13 loans totalling €171,074 to horticultural growers; and 12 loans totalling €197,499 for poultry production.

The recent annual MFI lending breakdown to farmers was 41 loans in 2020 totalling €950,600; 29 loans in 2021 totalling €558,300; 14 loans in 2022 totalling €255,024; and 14 loans in 2023 totalling €225,000. 

There have been no loans to agriculture in 2024 and so far this year. From 2013 to 2020, loans to agriculture ranged from five in 2014 totalling €76,498, to 24 in 2016 totalling €352,050.

Mr Heydon said MFI was not under the aegis of his department. Nor does his department impose any restrictions or have any role in its operational decisions, but where it offers loans to farmers, MFI must ensure such loans comply with relevant EU state-aid regulations. 

When member states give aid through financial instruments co-financed by the European Structural and Investment Funds, compliance with state-aid rules is necessary in order to encourage economic efficiency and prevent public support unduly distorting competition.