A call has emerged for support from the government and businesses for microloan programs, as repayment rates reach 90 percent even when small unsecured credit loans are offered interest-free and without guarantees.
Lee Chang-ho, head of the nonprofit private organization People Living Together, spoke at a breakfast seminar held by the Private Financial Committee at a restaurant in Jung-gu, Seoul, on Thursday. "There are cases where people cannot borrow 500,000 won or 1 million won due to tax delinquencies or overdue payment histories," he said. "Private interest-free loans serve to supply emergency funds in these blind spots and connect people to counseling and welfare services."
People Living Together is a nonprofit incorporated association that provides interest-free, unsecured, and unguaranteed microloans to those who have difficulty accessing institutional finance, including basic livelihood recipients, single-parent and near-poor households, and people who have experienced credit recovery or bankruptcy. Loans start at 100,000 won, and as repayment records accumulate, the limit is raised to a maximum of 3 million won.
Loan funds are raised through donations and contributions from members and borrowers. Since starting the program in 2012, the organization has provided 4.82 billion won to a cumulative total of 10,700 people as of May this year. The repayment rate reaches about 90 percent. "The repayment rate is not simply a recovery rate but an indicator that trust is functioning," Lee stressed.
However, it was pointed out that securing funding is important for such a model to be sustainable. This is because the program relies on donations and small contributions as its funding source and has no interest income, making it difficult to generate its own cash flow. Kim Chang-soo, professor emeritus of business administration at Yonsei University, who attended the meeting, said, "There are aspects where the assets and funds held by public-interest institutions are not being properly used." He suggested, "Inducing public-interest institutions to donate to such private inclusive finance programs through benefits like tax deductions could also be a method."
There were also opinions that government support should be reviewed under conditions that guarantee autonomous operation. Choi Chang-gyu, 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 could be one method." He added, "However, it should be a form of support in which the government does not intervene in operations and guarantees the organization's autonomous operation."
Meanwhile, the Private Financial Committee held its regular meeting that day and elected Kim Ja-bong (pictured), senior research fellow at the Korea Institute of Finance, as its seventh chairman. His two-year term begins on the 5th. The new chairman is a researcher specializing in banking and financial law, with financial regulation and financial education as his main research fields. "I will continue in-depth research and discussion on various issues in financial policy, financial markets, and the financial industry, and actively share inclusive finance and productive finance development plans with society and the policy market," he said.
