New Bill to Legalize 'Jungso-Gieop Factoring' Business... "Low-Interest Funding Without Worrying About Default"

Operating Structure of SME Factoring. Photo by Credit Guarantee Fund

[Asia Economy Reporter Song Seung-seop] The Korea Credit Guarantee Fund (KODIT) announced on the 10th that the partial amendment to the Korea Credit Guarantee Fund Act has passed the National Assembly plenary session, establishing the legal basis for ‘factoring for small and medium enterprises (SMEs)’ without recourse.

Through this legal amendment, the ‘factoring for SMEs’ without recourse, confirmed as KODIT’s exclusive business, is a system introduced for the first time by a public institution to prevent chain bankruptcies and support corporate financing. KODIT purchases accounts receivable from selling companies under non-recourse conditions, provides funds, and collects payments from purchasing companies on the maturity date as a short-term financial service.

Since being designated as a regulatory sandbox (innovative financial service) by the government in April last year, KODIT has been conducting factoring business. This year, non-recourse accounts receivable factoring was recognized for its policy support effect by being selected as a ‘detailed promotion task for the abolition of promissory notes’ at the Emergency Economic Central Countermeasures Headquarters meeting.

In April, Kim Kyung-man, a member of the Democratic Party of Korea, took the lead in proposing a partial amendment to the Korea Credit Guarantee Fund Act to establish a legal basis for stable business promotion. After continuous efforts, the amendment to the KODIT Act was finally passed at this National Assembly plenary session.

Meanwhile, with this legal amendment, KODIT will expand its core business for the fourth time since re-guarantee in 1995, securitization company guarantees in 2009, and guarantee-linked investment in 2013. With the institutional foundation for stable business promotion established, KODIT plans to gradually increase the support amount so that the factoring system can take root as an alternative payment method to promissory notes.

A KODIT official emphasized, “With legalization, we expect SMEs to quickly raise low-interest funds without worrying about bankruptcy and focus on their core business activities,” adding, “We will actively strive to improve collateral-centered lending practices and serve as a catalyst for the domestic factoring market.”

This content was produced with the assistance of AI translation services.