Improvement of Excellent Microfinance Loan System...Reducing Side Effects of Maximum Interest Rate Reduction

Exceptional Reasons for Loan Business Will Be Reflected in Maintenance Review, Selection Cancellation Deferred

[Asia Economy Reporter Sim Nayoung] The Financial Services Commission announced on the 17th that it will promote system improvements to achieve the original purpose of the excellent microfinance lending system, which is to "expand credit supply to low-income groups." First, it plans to simplify the maintenance requirements, which consist of two conditions: balance requirement and ratio requirement, and prepare supplementary measures such as increasing the balance maintenance standard according to the scale of credit loan balance expansion.

Last year, when the maximum interest rate was lowered (24 → 20%), the Financial Services Commission introduced the "Excellent Microfinance Lender" to induce the expansion of credit supply to low-income groups. An excellent lender can be selected if the balance of personal credit loans to low-credit borrowers is 10 billion KRW or more, or if the ratio to the loan balance is 70% or more, and incentives are provided to reduce funding costs (such as bank funding and permission for loan product brokerage services on online platforms).

As of June, the 21 excellent lenders supplied 2.6 trillion KRW in personal credit loans to low-credit borrowers, accounting for 83.7% of the lending sector (Financial Services Commission-registered lenders).

The Financial Services Commission stated, "In the recent continuous high-interest rate situation, there are concerns that loans to low-credit borrowers may shrink and illegal private loans may increase due to rising loan costs in the lending sector," and added, "We will promote revisions to supervisory regulations for lenders to achieve the original purpose of inducing excellent lenders to expand credit supply to low-credit groups."

The Financial Services Commission also said, "There are cases where, during the review of maintenance requirements for excellent lenders, the decrease in loan balances to low-credit groups due to COVID-19 credit recovery measures is considered a disadvantage in the review because there is no explicit clause to defer cancellation of selection," and added, "We have reflected unavoidable reasons such as debt adjustment or bond sales according to low-credit support policies during maintenance reviews and established grounds for deferring cancellation of selection."

It also announced plans to supplement related forms and procedures, such as requiring periodic reports to the Financial Supervisory Service on the scale and use of bank funding and the status of loan brokerage through online loan comparison platforms.

The Financial Services Commission explained, "The amendment to supervisory regulations for lenders is scheduled to be implemented after the Financial Services Commission's resolution in January next year following a notice of regulatory changes," and added, "The revised maintenance standards will apply from the semi-annual reports submitted after the regulation takes effect, and failure to meet the requirements for two consecutive times will result in cancellation."

Furthermore, it stated, "In difficult economic conditions such as continued high interest rates, if loans in the lending sector significantly decrease, there is a concern that illegal private loans may expand, causing difficulties for low-income groups in accessing funds," and added, "We will closely monitor the credit supply status to low-income groups, expand policy microfinance supply, and support victims of illegal private loans through the debtor representative system."

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