Finance Wales should be scrapped, says report
An investment bank set up by ministers to boost small firms in Wales is not "fit for purpose" and should be scrapped, according to a report.
Business expert Prof Dylan Jones-Evans said Finance Wales has focused more on generating profits than developing the Welsh economy.
Finance Wales was set up in 2001 to lend money to or buy shares in Welsh companies, investing £31m last year.
The report asked if it was essentially being run as a commercial fund manager.
What is Finance Wales?
Is it a tool to boost economic growth or is it a bank?
Prof Dylan Jones-Evans's report suggests it's been too much of the latter and not enough of the former.
Prior to the financial crash and the bailouts that followed, banks traditionally operated in the private sector so their duties were to their shareholders.
Organisations funded by governments, like Finance Wales, generally had a wider remit to stimulate the economy by supporting firms and developments whether by funding, advice or both.
Critics of Finance Wales have long argued that its remit had become confused.
Over many years, bodies like the Federation of Small Businesses complained about the organisation having high interest rates.
The Finance Wales response was that the companies they loaned to were high risk and therefore the high interest rates were necessary and justified.
There's no doubt that many firms have profited and prospered from the organisation's support.
The Access to Finance Review sets forward a comprehensive plan for the future.
Prof Jones-Evans wants a new Development Bank which will become the "single source of public funding" for SMEs in Wales.
He believes that will offer a tidier and more focused approach to help SMEs perform their vital role in boosting economic growth.
Prof Jones-Evans, an academic at the University of the West of England, was asked in June by Economy Minister Edwina Hart to examine funding for small and medium-sized enterprises (SMEs) who faced difficulties borrowing from banks.
In the first part of his report, Prof Jones-Evans called on the Welsh government to clarify the role of its investment arm Finance Wales stating there "remains confusion" about its exact role, and concerns about its charges.
In October the first minister announced that SMEs in enterprise zones would receive a 2% reduction in interest rates charged on new loans from Finance Wales.
But the second part of the report, published on Tuesday, said Finance Wales was offering higher rates of interest on borrowing than it needed to under EU state aid guidelines.
Prof Jones-Evans wrote: "It remains unclear as to whether Finance Wales is still essentially operating as a commercially oriented fund manager in all but name.
"Given this, the minister may have a view as to whether Finance Wales is fit for purpose or whether the organisation needs to be taken in-house into the Welsh government so that it can focus on its economic development role for the Welsh economy."
Prof Jones-Evans called for Finance Wales to be incorporated into a new one-stop-shop operation called Development Bank of Wales.
In response, Mrs Hart told AMs the review had "raised important challenges for both private sector and government that need full and thorough consideration".
"The full scope of the professor's recommendations will require further investigation and a short consultation period will now open."'Affordable rates'
Opposition parties blamed the Welsh government for the problems highlighted by the report.
The Welsh Conservatives said small firms had been "ripped off" for too long.
FINANCE WALES FACTFILE
- Finance Wales was set up by the Welsh government in 2001 to provide commercial funding to small and medium-sized businesses
- Since formation it has funded a total of £268m in 3,028 investments
- In 2012-13, Finance Wales invested £31m through 189 debt and equity investments
- The group includes fund management and a "business angel" network
- Source: Finance Wales
Shadow Business minister Nick Ramsay said: "It appears that [First Minister] Carwyn Jones's small business lending body has been ripping off Welsh businesses for a decade by charging over-inflated interest rates in Welsh Labour's equivalent of the Libor scandal.
"Small businesses in Wales must be able to access funding at affordable rates to allow them to compete with firms in other parts of the UK and in emerging markets overseas."
Ahead of the report's publication, Plaid Cymru repeated its calls to establish a new publicly-owned, not-for-profit bank to lend money to small businesses.
Economy spokesperson Alun Ffred Jones said: "We need a new body, owned by the public but at arm's length from government to lend money to small businesses at competitive rates.
"Securing cash flow for businesses, particularly for small businesses, is key in creating employment and keeping the wheels of the economy moving.
"It is vital that our SMEs are able to access the resources they need in order to operate effectively and to prosper so that the Welsh economy can return to growth," he added.