Project Merlin: Little hope for credible SME loan deal

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ACCA senior policy adviser Emmanouil Schizas examines the prospects for the government’s Project Merlin policy to stimulate small business lending.   After the hiatus of the holiday period, it came as little surprise to hear that the UK government was struggling with its latest initiative to encourage lending to small and medium-sized enterprises (SMEs).    Project Merlin (known in some quarters as “Loans for Bonuses”) is a deal based around the idea that banks will be allowed to set aside slightly more funds for their bonus pots or avoid further windfall taxes if they also commit to lend more to SMEs.   While the discussions stalled in recent weeks, SkyNews reported yesterday that senior bankers agreed during a conference call on Wednesday 2 Febrauray that they would make a collective commitment of just over £180bn for 2011. PricewaterhouseCoopers (PwC) will be retained to audit the fund.   Project Merlin is still being kicked around the corridors of power, but on the basis of previous attempts, I wouldn’t hold your breath about the outcome.   Ever since the 2008 Lehman Brothers collapse small business lending targets have been discussed, and even imposed. But they have all failed. It should come as no surprise then that Project Merlin has now stalled, although enough political capital has gone into it to animate it for a while.   Why the banks and the government will never strike a credible deal… Emmanouil Schizas is senior policy adviser at ACCA.

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03rd Feb 2011 17:24

Check quote...

The £180bn figure refers to the overall pledge of lending to businesses. Only 70bn of this is directed towards small businesses last time I checked but I'll take another look. 

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04th Feb 2011 09:06

whoaaaa ......

'.. Meanwhile, no bank with shareholders to answer to can commit publicly to either lending on non-commercial terms, lending at a loss, or lending without regard to risk ..'

Laudable sentiments but isn't this precisely what has/is happening with banks and the taxpayer bailout with artificially pegged low BOE rates?

Surely what we are really saying is that the Banks want as much leeway (benefit) as possible whilst at the same time adopting a 'holier than thou attitude' about lending. If they applied the same lending criteria to themselves then it is doubtful whether they themselves would pass the test ....

No one is saying that they must lend to questionnable businesses but isn't that exactly what has happened in respect of the banks themselves - an now we get the rhetoric about 'rebuilding their balance sheets'; whilst at the same time reaping onward interest rates of 20-25% on credit cards, 7% + on normal borrowing and paying bonuses out of taxpayer funded profits

Here is an idea - instead of a MLR (minimum) lets introduce a maximum lending rate depending upon the type of business - i.e. normal lending no more than base + 5% & credit cards limited to base + 10%

There is a case for bringing back the usuary laws - US definition (The civil or criminal wrong of charging interest that is beyond the legal limit set by a State)

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04th Feb 2011 11:11

Our apologies, Emmanouil

I've just sent a note in your direction via the ACCA press office apologising for the error.

While adapting the piece for our site, I did a quick check on recent Project Merlin news and saw the £180bn total from Sky. I'm sorry, I was in a bit of a rush and didn't pick up your point that SME loans were only a part of the deal. The article has now been corrected. Thanks for providing us with such an interesting, debate-provoking piece!  

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By NeilW
04th Feb 2011 11:30

No investment without demand

Unless and until there is a clear profit to be made in the economy then nobody is going to be interested in loans - either making them or taking them.

The problem is not lack of reserves, the price of reserves or bank capital. The lack is decent business propositions making a clear profit.

What we need to do is put money in people's pockets permanently so that they can pay back the mountain of debt incurred through the Brown years and then mabye, just maybe they'll start spending again.



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