Government of Jersey

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A decision made (23/07/2007) regarding: Delegation of Powers - Re-approval of borrowing.

Subject:	Delegation of Powers – Re-approval of borrowing
Decision Reference:	MD-TR-2007-0075	Exempt clause(s):		N/A
Type of Report (oral or written):	Written	Person Giving Report (if oral):		N/A
Telephone or e-mail Meeting?	N/A	Report File ref:		JPD/6/18/07/07
Written Report – Title:	EDD Loans Guarantee Scheme	Written report – Author:		James Dixon – Finance Director.
Decision: The Minister agreed to delegate the power to approve borrowing per Regulation 9 of the Public Finances (Transitional Provisions) (No. 2) (Jersey) Regulations 2005, to the Treasurer for the specific purposes of the Small Firms Loan Guarantee Scheme, on the basis that the total amount borrowed by this and other methods does not exceed the borrowing limits prescribed in paragraph (4) of the Regulations. The Minister agreed to ratify the five loan guarantees made under delegated powers since MD-TR-2007-0040.
Reason(s) for decision: To replace MD-TR-2007-0040 which was incorrect in its reference to Article 9 of the Public Finances (Jersey) Regulations 2005.
Action required: · The Treasurer to sign forthcoming Small Firm Loan Guarantees in accordance with this corrected Decision. · The Treasury Finance Director to provide the Greffier of the States with a copy of the terms of the delegation (in the usual format) for presentation to the States.
Signature: (Minister/ Assistant Minister)			Date of Decision: 23rd July 2007

Delegation of Powers – Re-approval of borrowing.

Date: 13th July 2007

EDD – Loans Guarantee Scheme

Purpose of the report

The Minister has previously delegated his authority to lend for the purposes of the Small Firms Loan Guarantee Scheme to the Treasurer (Ministerial Decision TR40 refers). The previous delegation has been reviewed by the States Greffe and is deemed erroneous on the basis that it refers to Article 9 of the Public Finances (Jersey) Regulations 2005, which should correctly be to "Regulation 9 of the Public Finances (Transitional Provisions) (No. 2) (Jersey) Regulations 2005".

The Minister is asked to re-approve the delegation on the correct basis.

The Minister is asked to ratify five loans that have been approved by the Treasurer under the former delegation.

Background

The States approved the principle of the SFLGS in P38/2005 – The Economic Growth Plan in April 2005. This Plan outlined a loan scheme, underwriting £5m of loans to small firms, in order to stimulate entrepreneurial activity.

The Scheme has now been finalised and has the following summary criteria:

o Loans will be taken between the Business and the Bank, interest rates are set by the bank

o All applications will require EDD approval

o EDD will underwrite upto 75% of loan

o Total underwriting of £2m

o Expected default rate 10% (based on UK benchmarks)

o Expected annual cost £200,000 if and when the loan scheme is fully subscribed

o Loans must not exceed £250,000

o Loans must be repaid within 10 years

o Borrower will pay EDD 2% arrangement fee

o Sector specific restrictions apply

o The scheme will be reviewed on an annual basis and closed if not meeting its objective

Per Financial Direction 3.3, the Minister is allowed to approve upto £500,000 for any one loan agreement provided that the overall scheme does not exceed £3m.

The scheme mirrors a UK scheme, the benchmark 10% UK default rate is therefore considered appropriate.

EDD accept all the risk and costs associated with the scheme, and retain the ability to cease new entrants to the scheme at short notice if costs and risks become too high.

reCOMMENDATIONS

That the Minister re-approve the lending upto £2m by way of four separate £500,000 guarantee agreements with four banks in accordance with Financial Direction 3.3

reASONS FOR THE DECISION

To encourage entrepreneurial activity in the Island, in accordance with the Economic Growth Plan, at reduced risk and administration cost to the States.

On the basis that EDD monitor the risks and costs of the scheme on a monthly basis and cease the scheme if the costs become unaffordable from EDDs cash limit.