An interest-free lending model in which nonprofit private organizations provide emergency living funds to the financially marginalized—those who cannot clear the thresholds of mainstream and policy finance—is drawing attention. With repayment rates reaching 90% even when lending small amounts without collateral or guarantees, a proposal has emerged to broaden the support base by linking public-interest funds with corporate social contribution money.
According to the financial industry on the 5th, the Private Finance Committee held a breakfast seminar at a location in Jung-gu, central Seoul, the previous day to discuss the interest-free microloan model of Together Living People, a nonprofit incorporated association. Together Living People is an organization that provides interest-free, collateral-free, and guarantee-free microloans to those who find it difficult to access mainstream finance, including basic livelihood recipients, single-parent and near-poor households, and people who have experienced credit recovery or bankruptcy.
Lee Chang-ho, head of Together Living People, said at the seminar, "Because of tax arrears or delinquency records, there are cases where people cannot borrow 500,000 won or 1 million won even if they are eligible for low-income financial support." He added, "Private interest-free loans serve to supply emergency funds in such blind spots and connect borrowers to counseling and welfare services."
Together Living People initially lends small amounts of around 100,000 won, and as a repayment history accumulates, raises the limit to up to 3 million won. The lending funds are raised through donations and capital contributions from members and borrowers. After starting the business in 2012, it had supplied a cumulative 4.82 billion won to 10,700 people as of May this year. The repayment rate is about 90%. Lee stressed, "The repayment rate is not simply a recovery rate but an indicator that trust is working."
However, opinions emerged that a stable funding base is needed for this model to spread. Because it depends on donations and small capital contributions and has no interest income, it is difficult to generate its own cash flow. Kim Chang-soo, professor emeritus of business administration at Yonsei University, said, "There is an aspect in which the assets or funds held by public-interest institutions are not being properly utilized." He added, "Inducing public-interest institutions to donate to private inclusive finance projects through benefits such as tax deductions could also be a method."
There were also points raised that government support should be conducted in a way that does not undermine private-sector autonomy. Choi Chang-kyu, professor emeritus of economics at Myongji University, explained, "Rather than the government forcing financial institutions to support vulnerable groups, adding funds to such a model from a welfare perspective is one method." He added, "However, it should be a method in which the government supports while guaranteeing the organization's autonomous operation, without intervening in its operations."
In the financial industry, there is an assessment that the nonprofit financial support model can serve as a complement to policy finance amid growing demand for emergency funds among low-credit and low-income groups. An official in the financial industry said, "Microloans premised on repayment, rather than simple cash support, are meaningful in that they can serve as a channel to help restore trust and return to the financial system."
