The Irish Funds Industry Association yesterday welcomed the move by the country’s central bank to complete the framework for what are called loan-origination funds, see as an alternative to bank finance.

The Irish Funds Industry Association yesterday welcomed the move by the country’s central bank to complete the framework for "loan-origination funds", which are seen as an alternative to bank finance.

The association said that once it becomes fully operational, Ireland will have the first regulatory regime in the European Union for loan funds, working under the umbrella of the Alternative Investment Fund Managers Directive.

Authorised managers can market loan origination funds within the EU under the AIFMD passport. The funds will be open to qualifying investors including pension funds, insurers, banks and high net worth individuals that make an initial minimum investment of €100,000 ($60,994).

The development of loan origination funds comes at a time when conventional lending by banks has been squeezed in the aftermath of the 2008 financial crisis and the consequent rise in banks’ capital requirements.

The loan origination market is currently more developed in the US where about 80 per cent of this work takes place via capital markets. In Europe, the situation is reversed, where approximately 80 per cent of all lending is performed by commercial banks, suggesting that even a modest change will see a significant rise in business, the association said.

The new loan origination fund product will be structured as a Qualifying Investor Alternative Investment Fund, or QIAIF.

The central bank will permit QIAIFs to lend subject to specific investor protections and risk management safeguards covering credit assessment, diversification, liquidity limitations, investor due diligence, leverage, disclosure, stress testing and reporting.

The new fund product will be introduced via a dedicated section in the Central Bank’s AIF Rulebook and it is thought that the Central Bank intends to begin accepting applications soon.