More legislation, coordination needed, say experts
Grameen Bank founder and president Muhammad Yunus was chosen for the Nobel Peace Prize this year, and in a timely visit found his way to Korea on October 18. Because of his international honor, his system of microcredit has drawn renewed international interest. That being said, the Korean microcredit enterprise still remains in its birth stages a full seven years after its launch, with specialists and activists asserting that government and civil society alike must make greater efforts to buoy it. Joyfulunion and the Social Solidarity Bank are often picked as being the representative Korean microcredit institutions. However, with limited financial resources and throngs of loan applicants, the share divvied out per petitioner is quite meager. From the year 2000 until September of this year, unsecured loans have been given out in 800 cases, the sum of which totals a little more than 7.2 billion won (US$7.5 million). Thus, on average, 9 million won has been given to each applicant. Yet, this is a sum insufficient to provide a foundation for self-support to the recipient. Another problem is that at the focus of the microcredit loans is they are not being used enough to fuel new business enterprises. A trustee of the Social Solidarity Bank, Lee Jong-su, said "we must pay more attention to helping with training, marketing, and other post-business inauguration management, as competition in Korea is fierce." Mr. Park, 47, who began a four-person food preparation business in an agricultural village in Gyeonggi Province, said that "aid organizations and the government’s support in marketing and cultivation of a retail outlet is vital." Compared to developed countries, there is a low level of understanding regarding credit management in Korea, and the unconditional association of it with being some sort of welfare policy is also a stumbling block.Gang Myeong-sun, chairman of the Social Solidarity Bank’s Board of Directors said "the essence of microcredit is in providing for self-sufficiency through credit lending," and that "those accustomed to receiving recklessly awarded loans as well as the government’s attitude of throwing microcredit lending in with welfare expenditures are both problems." Korea’s larger banks are increasingly turning their efforts towards charitable microcredit lending, but they lack the power to significantly bolster microcredit financing. One official at Shinhan Bank confided the difficulty of such financing, stating that "fundamentally, these are credit loans fraught with risk in regard to regaining the principal along with interest, so it is difficult to rashly increase the scale of aid." The Credit Counseling and Recovery Service announced that they would start in November a new microcredit enterprise with 2 billion won gathered from seven financial organizations, but there was a cool response from preexisting microcredit institutions. Im Eun-ui, Deputy Manager of the Social Solidarity Bank said that "in America’s case, microcredit lending’s adaptation was largely a product of the Community Reinvestment Act, which established a fixed a ratio of lending to be distributed by financial institutions for regional community development and allotment to the lower income class." Recently, American financial institutions have been required to donate 1 percent of the profits from their Socially Responsible Investing Funds to microcredit institutions, and tax benefits are also afforded to those institutions that supply microcredit institutions with low-interest loans. Professor of Finance at Geunguk University O Sye-gyeong said that "as microcredit institutions are dependent on donations and external support, in the end, the only way to develop microcredit lending is for banks to take a greater role." He continued, "we should consider creating a government matching fund for privately raised money for the purpose of establishing a bank with this specialized purpose." Trustee Lee Jong-su described the linking of established financial institutions as a necessary precondition for success. He emphasized, "it is important that established financial institutions acknowledge the performance of those applicants who repay their debts and afterwards work to ensure that subsequent loan requests are granted to such people." Chairman Gang Myeong-sun said, "It is unrealistic to expect microcredit institutions to oversee all financial support subsequent to a company’s establishment, and so the government must strive to form a coordinated network between the 200-some finance institutions aiming to promote self-supporting companies." This article was written by Choi U-seong and Ang Chang-hyeon and translated by Daniel Rakove
