20100308 Weekly e-Briefing

Progress Report on Smile Microcredit Bank

Hello. Welcome back to Financial Services Commission’s weekly e-Briefing. Hope you had a very good weekend. So far, we have been talking about very heavy topics likewise global economy and Korean government stance. But today let me take you to a rather very soft topic. Throughout two times of global financial crisis, there are people who became low-credit holders involuntary. So naturally those who could not get financial support from conventional financial institutions. Some people just simply think Korean government has been taking very good measures to cope with this global financial crisis on the macro front. But at the same time, we have put prime importance in supporting these kinds of people who became low-credit holders and those who were victimized. So last year, Korea government has developed the idea, ‘it will be better to support these people through commercial programs.’

So there has been a program, so called Smile Microcredit Bank system or foundation. This is the program the Korean government is supporting and closely coordinating with Smile Microcredit Foundation. The foundation helps people who can not get financial support from conventional financial institutions, but at the same time, the program pays special attention to the point that this is not just free money. The program intends to help those people who have viable business plans and who have a will to stand on their own. We help them with consultation and provide financial support. Since it is the first inception of December 15th, so far 27 branches of Smile Microcredit Bank were established throughout the nation. And in terms of applications, precisely speaking, as of February 4th, 15,709 people applied and about 33% of them were qualified. But there seems to be complaint in the market that the program only helped 300 hundred people. In terms of amount, only slightly over KRW 2 billion.

What about other people? I think this is because of misunderstanding. In terms of the nature of the program, unlike conventional financial institutions that they give accesses to people apply for the loan with the given data. But most of the people do not have data, so under the program, they have to visit their worksite and check the reputation and everything. So naturally it takes longer time than conventional and regular loan assessment processes.

There is another fact that slightly over 1,100 people are still under the consultation and already 50 of them have finished their consultation, which means they will be supported financially and they will get proper consultation. In terms of classification of beneficiaries, I think this is very important to know that the program has helped those people who cannot get a loan from conventional financial institutions, which means those people who are running popshops on the street around the corner and who do not have registered license. About 40% of them are existing business owners and 9% of them are those people who start their own business. In terms of interest rate that this program applied to these people, 65% of people are applied by 4.5 insurance rates per annum. But given the fact that Korean government 3-year Treasury bond is slightly over 4% or 4.08%. Recently there are almost zero margins on that. Remaining 35% of them are applied by even lower interest rate of 2%. So in the beginning stage, there were some misunderstandings because of the lack of proper PR, I think. A lot of people applied for the program, but a lot of people were also rejected by this program simply because they could not understand the terms and conditions of the program. So let me elaborate a little bit on the terms and conditions of the program, ‘Who can apply for the program?’ 1) For existing business owners, they should have 2 years of very viable business track record. 2) For those people who start up new business, he or she should have 50% of their own capital and the program support remaining 50% of capital.

And in terms of credit rating, in Korea, everyone is classified by credit ratings from the 1st credit rate to the 10th credit rate. And below 7th credit rate, they can not get a loan or financial support from conventional financial institutions. So we have supported those who have below the 7th rate. Again, the program is not intended to just simply give money, but help them develop the idea and coordinate and closely monitor, support their idea, so they can stand on their own. This is a key difference.

Finally to further develop the program, the program will develop and integrate information system to provide faster and enhanced services. And second, by using outsource, the program will train those people and have better qualified assessment. And the program will develop the Korea model to diversify those people who could be applied by this program. Finally, it is critically important to enhance PR. So sometime in May or June, Smile Microcredit Bank Foundation will host an international seminar. And also at the same time for domestic people, they will enhance PR to let everyone knows terms and conditions precisely.

So far, I have been giving you a kind of program that we have been supporting to low-credit holders. I hope this was pretty much informative to understand to Korean government’s endeavor to help these low-credit holders and low-income families. Thank you very much and see you next week.