MICROCAPITAL STORY: South Korean Microfinance Sector Receives Public Subsidies while Citibank Funds $139K to Joyful Union to Create a ‘Sustainable Microcredit Model’

In the wake of the financial crisis in South Korea, funds have been allocated towards microfinance from both the public and private sectors.  First, Citibank Korea announced that it would grant USD 139,000 and continue its partnership with microfinance institution (MFI) Joyful Union in a project called “Creating a sustainable microcredit model in Korea.”  Then the Government of Korea announced that it too would increase its support of low-income businesses by subsidizing loans and credit guarantees to self employed street vendors and shop owners. 

Citibank’s support of Joyful Union dates back 1999, shortly after the Asian Financial Crisis of the late nineties, when it extended a USD 50,000 loan to finance the launch of Korea’s first MFI.  With Citibank sponsorship, Joyful Union received training and financial support from the Grameen Trust, a sister organization of MFI Grameen Bank in Bangladesh.  Grameen Trust provides technical and financial support to MFIs around the world.  Joyful Union repaid their loan to Citibank in 2005, and now runs on government and corporate funding.  No further financial information is available, as Joyful Union does not report to the Mix Market, the microfinance information clearinghouse.

Citibank’s most recent grant to Joyful Union has been directed towards the research and development project, ‘Creating a sustainable microcredit model in Korea,’ which runs from 2007 to 2009.  The funds support field research, case studies, community consulting, and analysis of Joyful Union´s ten years of experience.  A news article released by Citibank Korea says that through the project, “…the organization will continue to develop sustainable models that are feasible and easily implemented by applying and improving the research results to the actual business management environment.”  As pointed out by Kang Myung-soon, founder and executive director of Joyful Union, “About 3-4 million people live on government subsidies, and they want to make a living on their own… They all can be customers for the micro credit business.”

Shortly after Citibank’s announcement, JooAng Daily released an article describing the government’s strategy to subsidise the microfinance industry in Korea.  The plans were outlined by the Finance Ministry, the Welfare Ministry, the Financial Services Commission and the Small and Medium Business Administration.  The government will guarantee loans for shop owners to borrow up to USD 3,710 and for street vendors to borrow up to USD 2,190.  The loans will be backed by sixteen credit guarantee foundations run by local governments.  To receive the loan, borrowers will be required to pay guarantee fees totaling 1 percent of the principle.  It is expected that the government will earmark USD 730,000 for this purpose.

Beyond the government guaranteeing loans, the Welfare Ministry will also extend small loans that do not require collateral. Loans of up to USD 7,300 will be extended at an annual interest rate of 2 percent.  For individuals who are wishing to launch a new business and who have shut down a previous enterprise in the last two years, loans of up to USD 36,500 will be provided over a maximum period of five years at an annual interest rate of 4.74 percent.  The Welfare Ministry plans to allocate a nonprofit organization to carry out the business in February, and hopes that loans will be provided in March.  No further information is available on the structure of the government loan program or which organization will distribute the loans.

JooAng Daily reports that in the last year the government´s budget for subsidized microcredit has grown from USD 1.5 million to USD 9.5 million.  It is not clear what effect these subsidized low interest loans will have on Joyful Union´s hopes of developing a sustainable microcredit business.

By Ryan Hogarth, Research Assistant

Additional Resources:

NewsWire: “Citi-Joyful Union Hold signing ceremony to support ‘Creating a Sustainable Microcredit Model in Korea'”

JoongAng Daily: “More Low-Income Help on the Way”, by Seo Ji-eun 

Joyful Union: “Joyful Union founder says mini banks are more than charities”, by Ko Kyoung-tae

 

Similar Posts: