MICROCAPITAL BRIEF: Critics Accuse Smile Microcredit Foundation of Heavy-Handed Regulation, Stifling Access to Microfinance in Korea

Despite the increase in microcredit financing in South Korea, many analysts warn that low-income individuals may be unable to access small loans due to various rules and requirements. A case example is the owner of a small clothing shop in Jegi-dong, Seoul who was unable to receive a loan of KRW 40 million (USD 33,700) from Woori Microcredit Bank, a subsidiary of Woori Financial Group and an affiliate of the “Smile Microcredit Foundation,”  a government-led microcredit lending program in Korea. [4] The woman failed to meet a requirement stipulating that business owners must have run his or her shop for at least two years to be eligible for microcredit.

Other requirements stipulate the exclusion of those who have already applied for personal debt rescheduling programs. Critics argue such regulation stifles microcredit access. Others, like Jeong Joong-ho of the Hana Institute of Finance, disagree, arguing that “the bank also should keep regulations in place to filter out bad applicants who want to use the cheap rate interest, even though they can use general financial firms.” [1]

By: Jay Kumar, Research Assistant

About Woori Smile Microcredit Bank:                            

The Woori Smile Microcredit Bank was established on December 17, 2009, by the Woori Financial Group at the Eulji-ro branch of Woori Bank in Seoul. The foundation will provide microcredit to low-credit and low-income individuals. Those who meet the requirements can borrow between KRW 5 million (USD 4,212) and KRW 50 million (USD 42,126) with a 4.5 percent annual interest rate. Rules stipulate a repayment of loans in five years after a six-month to one-year grace period in which late penalties are waived. [2]

Additional Resources:

1.)    Source Article: The Korea Times: “Microcredit Banks Frustrate Poor Koreans,” http://www.koreatimes.co.kr/www/news/biz/2009/12/123_57668.html

2.)    The Korea Times: “Banks Launch Microcredit Business,” http://www.koreatimes.co.kr/www/news/biz/2009/12/123_57468.html

3.)    Woori Financial Group: http://www.woorifg.com/pr/eng/main.jsp

4.)    Miso Microcredit Foundation: https://www.microcapital.org/microcapital-brief-samsung-group-opens-first-branch-of-860m-miso-microcredit-foundation-in-korea/

 

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