Lord Smith urges lenders to resurrect ICFC venture capital body

BRITAIN'S banks should resurrect the Industrial Commercial and Finance Corporation, the post-war venture capital body which spawned a generation of entrepreneurs, according to one of Scotland's most influential businessmen.

• Lord Smith: seeking quick action

Lord Smith of Kelvin, chairman of Weir Group, Scottish & Southern Energy and the Glasgow 2014 Commonwealth Games, has urged the banks to go one step further than the recently established Business Growth Fund and recreate the ICFC, which supported small, local companies and had branches on most high streets.

The ICFC was founded by the Bank of England in 1945 to rapidly expand Britain's depleted private sector following the Second World War. It later transformed into private equity group 3i, which today backs far larger buyouts. Some public money was contributed to the venture but it was principally funded by the major banks and insurance companies which were pressured into supporting small and medium-sized companies post-war.

Although this month six of the country's biggest banks set up a Dragons' Den-style Business Growth Fund for SMEs, Lord Smith said a far larger and more accessible scheme along the lines of ICFC would deliver rapid growth in the small business sector - which accounts for the lion's share of Scotland's firms.

Talk of creating a second ICFC emerged at the height of the banking crisis, but Lord Smith - who worked for ICFC for 14 years - said he has seen no let up in the funding drought that is starving Britain's army of SMEs.

He said firms are failing to capitalise on growth opportunities due to a lack of cash. "If you start taking orders on, you need capital and you need lending. It's almost on an upturn that a lot of these companies find it quite difficult. They take on work but they can't finance it.

"If the banks are setting up (this equity fund] and if it really works, they could put something together like ICFC. There was a social purpose to it as well as making money.

"I wouldn't want to see a government agency taking equity - it really needs to be a private sector thing but you may need government to put some money in. Around 15 per cent of ICFC capital was put in by the Bank of England and it then went round the clearing banks and insurance companies and beat them up a bit. It certainly worked in the old days but it's got to be done really quite quickly."

However, he added that equity funding should not entirely replace debt.

Colin Borland of the Federation of Small Businesses in Scotland welcomed the idea but warned the banks should not see it as a way of replacing SME loans and other credit facilities.

"While we agree with all of the initiatives we also have to sound a note of caution. We know equity funding is very fashionable but we don't believe it's very realistic for it to replace debt finance."

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