• 06 / 23 / 2015
  • Plan to Strengthen Mincrofinance Support

  • Plan to Strengthen Microfinance Support

    FSC Chairman Yim Jong-Yong

    June 23, 2015
    Due to slow enonomic recovery and the recent MERS outbreak
    many people, particularly low income families are having hardships.
    So far, the FSC has listened and surveyed opinions from the markets
    and reviewed microfinance policies from the very basic.
    Based on the results, in order to alleviate low income earners’ difficulties,
    we came up with a Plan to Strengthen Microfinance Support
    by coordinating with the relevant government bodies and the political parties.
    I believe the government should put its policy priority
    on lifting vulnerable people’s difficulties related to their financial and welfare status.
    To such backdrop, during the past two years,
    we have been thriving to strengthen microfinance support to lessen their financial burdens.
    We launched the Happiness Fund in March 2013
    and helped more than 2.8 million people who had been suffering
    from the threats financial institutions to pay back debt
    and reduced debt volume of 410,000 borrowers.
    Through Sunshine Loan, New Hope Loan, Microcredit Loan and Refiancing Loans
    we provided policy loans worth 11 trillion won to more than 1.1 million people.
    We shouldn’t be complacent. Microfinance supports should be expanded further.
    Low income earners have relatively less financial access.
    What’s worse, supply of Sunshine Loan and New Hope Loan,
    which take up 88% of the aforementioned four policy loans, are to be terminated at the end of this year.
    Although market interest rates are falling, many financially vulnerable people are
    still suffering from excessively high debt servicing burdens.
    Thus, the direction of microfinace policy should head towards
    increasing the volume of financial support and reducing interest rate burdens at the same time.
    Diligent workers who faithfully repay their debt should receive more benefits.
    Furthermore, the role of microfinance does not end at merely providing financial support
    but providing more detailed and tailored help that can strengthen self-sufficiency.
    Based on such three main policy directions we devised 7 major tasks to strengthen microfinance support.
    I’ll briefly explain the tasks.
    First, we will increase the volume of policy loans for low income borrowers and lower interest rates.
    Sunshine Loan and New Hope Loan scheduled to expire at the end of this year will be extended until 2020.
    Volume of the four major microfinance policy loans will be increased
    from the current 4.5 trillion won to 5.7 trillion won
    and will be provided to more than 600,000 low incomers.
    Moreover, interest rate of Sunshine Loan, New Hope Loan and Mortgage Refinancing Loan will be lowered by up to 1.5p%.
    Interest rate ceiling for private lenders will be reduced by 5%p from the current 34.9% to 29.9%.
    2.7 million borrowers are expected to benefited.
    Second, we will provide more incentives to those who are faithfully repaying policy loans.
    In case of emergent need of money, they will no longer need to borrow at high interest rate.
    The government will provide emergency loan worth up to 5 million won.
    Moreover, they will be issued credit cards with monthly 500,000 won limit.
    Third, to stabilize low income borrowers’ livelihood,
    the government will provide various tailored microfinance products related to housing, education, and retirement.
    All public rental houses nationwide will be eligible for housing rental guarantee loans
    with increased ceiling of 20 million won.
    Borrowers of high interest rate chonsei loans will be able to refinance their loans into low interest rate ones of 3~4%.
    Moreover, we will introduce loans for tuition fee, insurance policies for the aged population over 65,
    and loans for the disabled within the second half of this year to lift their financial burdens.
    Fourth, we will encourage commercial financial institutions to expand supply of microfinance support.
    To enable diligent borrowers to get refinancing right after completing repayment of the previous loan,
    a refinancing loan program will be introduced starting from the second half.
    By encouraging cooperation between commercial banks and savings banks,
    we will facilitate supply of mid-interest rate(10%) loan products.
    Fifth, we will support self sufficiency of low income earners
    by linking microfinance system with employment and welfare systems.
    Employees of microfinance agencies will be dispatched to employment and welfare centers nationwide
    to provide one-stop services ranging from microfinance, job seeking and welfare.
    Moreover, for those who are having temporary difficulties to repay debt,
    we will provide comprehensive services including new financial products to restructure their loan,
    program to help them find jobs, and savings products with special rate.
    Borrowers who have been faithfully repaying microfinance policy loans
    will be able to purchase micro savings products to help them stand up on their own feet.
    Sixth, we will provide assisatance to deliquent borrowers as well.
    Debts of low income earners with relatively weak debt servicing capacity will be reduced up to 60%.
    We will extend debt maturity for those who are deemed to have no capacity to repay loans from the Happiness Fund.
    If they want they can declare bankruptcy and receive necessary services at free of cost.
    Last but not least, in order to ensure that such microfinance programs are effectively reached out
    to the low income borrowers, we will establish Microfinance Center as soon as possible.
    We must secure one-stop support system and integrate all data related to microfinance.
    To support self-sufficiency of low income borrowers,
    I believe a stable system to provide microfinance support is necessary.
    Related bill is submitted to the National Assembly and is scheduled to be put on the table shortly.
    We will make sure that the bill is passed as soon as possible to establish Microfinance Center
    that can provide stable and sustainable services.
    If our plan works out well, we expect microfinance loans worth 22 trillion won will be reached out to
    more than 2.7 million people by 2018.
    Moreover, once interest rates of microfinance loan products are lowered by 1.5p%,
    we anticipate about 80 billion won worth of interest burdens will be alleviated.
    Interest rate for private lenders will also be reduced by 5%p
    which will lessen 2.7 million low income earners’ interest burdens worth 460 billion won.
    Furthermore, we will restructure debts of 620,000 delinquent borrowers by 2018.
    We will make sure that today’s plan to be implemented at the nearest future
    by closely coordinating with the relevant government bodies.
    Microfinance support shouldn’t end in a one-off program.
    If so, low income earners will resort to borrowing money at high interest rate
    and eventually become a delinquent borrower.
    To end such vicious cycle, the whole society must embrace and show continuous support for them.
    In particular, more support and benefit should go to those who are working diligently and faithfully repaying their debt.
    I believe policy measures to support their self-sufficiency should come together
    in line with programs that provide financial assistance.
    The government will be committed to put our policy priority on microfinance
    and will not spare any effort to provide support for low income borrowers.
    Thank you for listening.

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