President Lee Jae-myung on Monday declared that "inclusive finance is one of the obligations of financial institutions," instructing regulators to devise ways to "institutionally mandate" inclusive finance for low- and mid-credit borrowers. At a cabinet meeting that day, Lee said, "The very notion that financial institutions think making money is everything is itself a problem," echoing Kim Yong-beom, head of the Presidential Office's policy planning, who recently defined financial institutions as "quasi-public entities" on social media. Lee also pressed the Financial Services Commission (FSC), asking, "Is there no way to evaluate how well inclusive finance has been implemented and grant rewards or penalties accordingly?" Having previously criticized banks' differentiated interest rates based on credit ratings as a "financial caste system," the president appears to be pushing hard on the inclusive finance drive.
Discussions on inclusive finance policies, where Lee has shown strong determination, are already underway on multiple fronts. The FSC is set to launch a task force (TF) to overhaul the credit rating system in the near future. The Korea Inclusive Finance Agency and others are expected to launch a Financial Basic Rights Research Group next month and begin full-scale discussions on a "basic loan" program, which would lend 10 million won at low interest rates to the bottom 30 percent of low-credit borrowers to ease financial polarization.
The vicious cycle in which vulnerable borrowers with unstable incomes or low credit scores are excluded from the formal financial system and driven into ultra-high-rate illegal private lending must certainly be broken. Ensuring that all citizens have minimum access to finance and opening the door to recovery is also a government responsibility. However, the government's excessive pressure on the financial sector under the yardstick of "quasi-public entities" could trigger unnecessary controversy over "government-directed finance." Policymakers must also keep in mind that overly prioritizing the ideology of financial "publicness" over market principles—such as artificially lowering loan rates for low-credit borrowers—could produce serious side effects, including moral hazard among debtors and deterioration in the soundness of financial institutions.
The rigid financial structure, in which a single failure leads to exclusion from finance and deprives people of opportunities to rebuild their lives, does need improvement. Yet policies that distort the market and could shake the foundations of the financial system should not be pushed through in the name of protecting vulnerable borrowers. With careful review of potential side effects and meticulous design, we hope that the inclusive finance discussion initiated by President Lee will bear fruit in easing polarization and advancing financial development.
