NEWS WIRE: Korea: World Savings Banks Institute Chief Advises Korea to Boost Microfinance

Original article available here.

SEOUL, May 21 – Korea should make further efforts to bolster microfinance by supporting local savings banks in order to ensure sustainable economic development, according to the head of world savings banks institute.

In a written interview with The Korea Times ahead of the 14the Asia/Pacific regional group meeting of the World Savings Banks Institute (WSBI) slated for May 22-23, President Jose Antonio Olavarrieta said that Korea should give more attention to the importance of this for sustainable economic development.

“As proximity and socially committed retail banks, Korean savings banks should play an active and critical role to reactivate or revitalize microfinance in Korea,” Olavarrieta said.

Microfinancing is a type of banking service that provides small loans to unemployed or low-income individuals who would otherwise have no other means of gaining financial services.

“To that end, Korea should share its best practices with members of the WSBI networks to define what would be the most appropriate and adapted microfinance institutions’ (MFI) model for Korean savings banks,” he added.

He stressed that once an appropriate model is found, it is essential to ensure the sustainability and profitability of the model.

“Providing microfinance in Korea should be achieved based on the business sustainability,” he said. “Microfinance with higher risk should be set off by innovation, financial infrastructure, corporate governance and risk management.”

Olavarrieta explained that Korean savings banks, on the basis of their double bottom-line model, can improve the development of this as well as seeking to fulfill a social role and acting as profitable commercial entities.

These activities in Korea have slumped over recent years, mainly due to the shrunken function of institutions credit risk and policy issues.

Explaining the state and prospect about the world market, Olavarrieta said that development of links between institutions and banks will gain momentum down the road.

“Partnerships between banks and microfinance institutions should be encouraged to enlarge further the offer of adapted services. Closer linkages would be mutually beneficial,” he said.

He pointed out that MFIs could rely on banks for a variety of services, including deposit facilities, liquidity management services, and in some cases, emergency credit lines to cover cash shortfalls.

For banks, the benefits would be the opportunity to expand their client base through the institutions, and their operations through the MFI network, including in the rural sector, he added.

The linkages between MFIs and banks would also help broadly tie up the activities in the formal and informal sectors of the economy and provide opportunities for small entrepreneurs to graduate from micro credit to conventional bank loans, he stressed.

Touching on WSBI members’ involvement in microfinance activities in the region, Olavarrieta said that members are strong actors due mainly to their strong physical presence and their successful models to minimize conditions to open bank accounts and attracting low income clients.

WSBI is the global voice of retail and savings banking and represents 109 banking organizations from 92 countries. As of the beginning of 2006, combined assets of member banks amounted to more than 8,081 billion euro, with operations through more than 191,000 branches and outlets.

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