MICROCAPITAL BRIEF: South Korean Government Launches Sunshine Microfinance Loan Program under Smile Microcredit Bank for Low-income Households

The South Korean government has launched “Sunshine Loans,” a new offering under Smile Microcredit Bank – a state-run microfinance program established in 2009 to provide unsecured loans to low-income households through partnerships with the private sector. Over the next five years, the program is slated to extend KRW 10 trillion (USD 8.45 billion) to low-income households. The program will be implemented by a variety of financial institutions, including the National Agricultural Cooperative Foundation, the National Federation of Fisheries Cooperative, the National Credit Union Federation of Korea, the Korean Foundation of Community Credit Cooperatives and several unnamed private mutual savings banks. The program offers three tiers: a maximum loan size of KRW 50 million (USD 42,000) to help low-income households start businesses; up to KRW 20 million (USD 17,000) to provide operating capital for current small business; and up to KRW 10 million (USD 8,400) to support urgent living expense needs. The interest rates will be set by each financial institution, however, a ceiling has been put in place – for financial cooperatives the interest rate ceiling is 10.6 percent per year, while mutual savings banks face a ceiling of 13.1 percent.

Some market analysts, including Han Sang-wan at the Hyundai Research Institute, are critical of the government’s efforts. According to Mr Sang-wan, “The Sunshine loans have a good purpose and should help people for now, but there are concerns that it will eventually result in increasing debts. The effectiveness of this loan product is highly questionable, especially in a situation where mounting household debts are becoming an issue.”

By Conner Brannen, Research Assistant

About Smile Microcredit Bank:

Established in December 2008, the Smile Microcredit Bank (SMB) is a South Korean state-led program that provides unsecured loans to low-income households through partnerships with the private sector. By the end of 2009, Smile Microcredit Bank had loaned KRW 59.7 billion (USD 48.5 million) to approximately 16,000 people.

Sources and Additional Resources:

JoonAng Daily: “Sunshine loans launched to help the poor,” July 27, 2010: http://joongangdaily.joins.com/article/view.asp?aid=2923755

Korea.net: “Sunshine Loans for low-income households,” July 21, 2010: http://www.korea.net/news.do?mode=detail&guid=48538

Cash1: More from our partner on unsecured loans to low-income customers in parts of the US.

MICROCAPITAL BRIEF: South Korea Unification Ministry, Smile Microcredit Bank to Provide Microfinance Loans to North Korean Refugees, July 14, 2010: https://www.microcapital.org/microcapital-brief-south-korea-unification-ministry-smile-microcredit-bank-to-provide-microfinance-loans-to-north-korean-refugees/

MICROCAPITAL BRIEF: South Korean Smile Microcredit Bank (SMB) Successfully Lobbies for Regulation Changes and Alters Loan Practices, May 21, 2010: https://www.microcapital.org/microcapital-brief-south-korean-smile-microcredit-bank-smb-successfully-lobbies-for-regulation-changes-and-alters-loan-practices/

MICROCAPITAL BRIEF: Conglomerates Enter the Microfinance Industry in South Korea Via the Government-Inspired Miso (Smile) Microcredit Foundation, January 6, 2010: https://www.microcapital.org/microcapital-brief-conglomerates-enter-the-microfinance-industry-in-south-korea-via-the-government-inspired-miso-smile-microcredit-foundation/

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