Small Livelihood Loans, 14.03 Billion KRW to 180,000 People in One Year... Reuse Possible Upon Full Repayment

Financial authorities have supported approximately 180,000 low-credit individuals with about 140 billion KRW through the 'Small Livelihood Expense Loan' over the past year. The authorities plan to operate the system so that those who fully repay the Small Livelihood Expense Loan can use the product again at a lower interest rate in the future.

On the 27th, a small living expense loan product offering up to 1 million won with an annual interest rate of up to 15.9% was launched, and citizens visiting the Jung-gu Central Microfinance Integrated Support Center in Seoul are applying for loans. Photo by Kang Jin-hyung aymsdream@

On the morning of the 12th, the Financial Services Commission held a 1st anniversary meeting on the operation of the Small Livelihood Expense Loan at the Central Integrated Support Center for Low-Income People in Jung-gu, Seoul, chaired by Vice Chairman Kim So-young, and announced this. The Small Livelihood Expense Loan is a policy financial product designed to support low-credit and low-income groups who cannot secure small amounts of living expenses, preventing them from exposure to illegal private loans.

This product provides loans of up to 1 million KRW at a minimum annual interest rate of 9.4% to adults with a credit score in the bottom 20% or lower and an annual income of 35 million KRW or less. The funds were raised through donations from financial companies such as the Korea Asset Management Corporation and banks.

According to the Financial Services Commission, from March last year to last month, over approximately 14 months, a total of 182,655 people (247,519 cases) received the Small Livelihood Expense Loan, with a total support amount of 140.3 billion KRW. The average amount per case was 570,000 KRW, and the delinquency rate as of the end of last month was 20.8%.

Regarding the main characteristics of Small Livelihood Expense Loan users, 79.9% borrowed 500,000 KRW, and 92.7% had credit scores in the bottom 10% or lower. Cases with credit scores exceeding the bottom 10% but below 20% accounted for only 7.3%. Additionally, 32.8% were delinquent borrowers in existing financial institutions.

By age group, those in their 30s accounted for the largest share at 22.4%, followed by those in their 20s (21.2%), 40s (20.8%), 50s (17.7%), 60s (13.3%), and 70s or older (4.7%). By occupation, other job categories such as daily workers, unemployed, students, and special employment types made up 69.1%, followed by wage earners (21.8%) and business income earners (9.1%).

The authorities evaluate that considering the estimated average interest rate of illegal private loans last year (535%), the Small Livelihood Expense Loan system has contributed to alleviating financial difficulties for low-credit and low-income groups needing small urgent funds to some extent. However, due to the nature of support measures targeting vulnerable groups, the delinquency rate sharply increased from 8.0% at the end of the third quarter last year to 20.8% at the end of last month.

Accordingly, the Financial Services Commission plans to further improve the operation of the Small Livelihood Expense Loan in cooperation with the Korea Inclusive Finance Agency. First, from September, the authorities plan to allow re-loans for those who have fully repaid the Small Livelihood Expense Loan. Re-loans will be possible within a 1 million KRW limit (including additional loans), and the number of times will no longer be restricted. When re-loaning, the final interest rate applied to the previous loan (minimum 9.4%) will be applied.

In the fourth quarter, debt adjustment will also be strengthened. Currently, the Small Livelihood Expense Loan product supports maturity extensions of up to five years upon the borrower's application if certain conditions are met. However, in the fourth quarter, a system will be introduced allowing maturity extensions on the condition of partial principal and interest payments if the borrower is judged to have future interest repayment ability, even if the conditions are not met.

Additionally, for multiple debtors among Small Livelihood Expense Loan users, connections to the Credit Recovery Committee will be strengthened to encourage the use of debt adjustment systems. If rehabilitation or bankruptcy through the court is deemed necessary, the Credit Recovery Committee will support the application and related costs.

From the second half of this year, support for improving borrowers' repayment ability will also be provided. Currently, during the screening stage of the Small Livelihood Expense Loan, employment-welfare linkage and illegal private loan damage reporting guidance are supported. Going forward, notifications via text messages or phone consultations will be provided mainly to delinquent borrowers, guiding them to employment-welfare programs such as the National Employment Support System. Additionally, the Korea Inclusive Finance Agency plans to establish a credit and debt consulting program for Small Livelihood Expense Loan users who have defaulted on financial institution loans to assist with debt management.

Vice Chairman Kim said, "The Small Livelihood Expense Loan is a representative win-win finance case supporting the low-income class by utilizing donations from financial companies. Going forward, we will allow diligent repayers to use the Small Livelihood Expense Loan again and enable them to use funds at lower interest rates. At the same time, we will continue efforts to fundamentally improve users' repayment ability through debt adjustment support and financial-employment welfare linkage programs."

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