Violation of EU state aid rules by state microfinance providers found

Hundreds of loans made by state lender Microfinance Ireland (MFI) under a Covid-19 financing scheme have been found to breach state aid rules following an EU audit.

The European Investment Fund (EIF), during a compliance review for one of its Pandemic Guarantee Schemes, found that MFI borrowers’ state aid statements in 2021 were “not as comprehensive as required”, according to a statement in the MFI’s 2021 financial statements .

The audit, conducted in the second quarter of this year, found that 653 loans drawn under a European guarantee from December 2020 were affected.

The problem was due to MFI declaration forms distributed to borrowers that did not comply with EU state aid rules.

Immediately after the audit, MFI distributed revised statements to affected customers. As of October 20, 228 of these declarations were still outstanding, while 32 loans for €124,000 were found to be outside the scope of the guarantee because the offers were signed before they came into force.

A spokesman for MFI said the original forms were not detailed enough and the process to fix the issue was almost complete.

“The EGF required borrowers to provide a more detailed state aid explanation than what was requested in our offer letters,” said MFI chief Des McCarthy.

“For example, instead of simply identifying the amount of state aid a borrower may have received under Covid supports, the EGF asked the borrower to break down the support into wage subsidies, social security contributions, tax deferrals and support for uncovered fixed costs. ”

A statement from the Comptroller and Auditor General, included in the MFI accounts, said the amount the MFI could draw down under the funding guarantee was reduced by €1 million due to the error.

Another note in the financial statements said that the usual internal audit of MFIs, which is outsourced to an auditing firm, did not take place in 2021 due to a delay in the tendering process.

MFI receives EIF support through several guarantee mechanisms, including the European Guarantee Fund (EGF), set up in response to Covid-19 to distribute cheap finance to help small businesses struggle.

In April 2021, the MFI signed an agreement with the EGF to obtain retrospective risk-sharing for loans it had taken out from 14 December 2020. Under the terms of the agreement, the EIF covers part of the credit risk on loans granted by MFIs.

The warranty originally expired at the end of 2021, but was extended for another year. MFIs have been eligible for an allocation from the Invest EU guarantee instrument, which will cover drawn loans from January 1st.

MFI Chair Audrey Boyd said these guarantees are integral to the lender’s business model and its ability to support “vulnerable but essential” businesses in Ireland.

It was also able to slash the price of its loans by more than 2 percent after securing a €30 million line of credit with the Strategic Banking Corporation of Ireland (SBCI), another government lender.

MFI was established in 2012 to provide loans to small businesses that did not have access to business credit.

It offers loans of up to €25,000 to companies with fewer than 10 employees or a turnover of less than €2 million.

To date, MFI has lent EUR 75 million to more than 4,500 borrowers, supporting 10,000 jobs.

CEO Des McCarthy said the lender has seen increasing financial distress from its customers in 2022. Violation of EU state aid rules by state microfinance providers found

Fry Electronics Team

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