Will the Mutual Growth Finance Index Lower the Increasing Barriers to SME Loans?

Pilot Program Next Year, Full Implementation the Year After
SME Loan Growth Only 40% of Previous Years
Calls for Introduction Grow... Authorities Weigh Details
"Incentives Needed, Such as Preferential Treatment for Fund Deposits"

As the lending threshold for small and medium-sized enterprises (SMEs) continues to rise and securing funds becomes increasingly difficult, attention is focusing on the Win-Win Finance Index, which is set to begin a pilot operation soon. The plan is to evaluate banks' efforts to support SMEs, such as easing loan requirements, and to provide various incentives to those with high scores. Analysts note that the key will be devising effective "carrots" to encourage meaningful participation from banks.

According to the government, the SME sector, and the financial industry on September 10, the Ministry of SMEs and Startups and the Financial Services Commission are accelerating final preparations with the goal of finalizing the details of the Win-Win Finance Index within this year and launching a pilot program in the first half of next year. Currently, a preliminary survey is underway to develop evaluation indicators.

As domestic and international uncertainties intensify, commercial banks have begun to focus on risk management, including capital ratios, which has led to growing criticism that they have effectively closed the door on SME lending. According to the Bank of Korea's report, "Recent Corporate Lending Conditions and Future Prospects," published on September 4, the increase in SME loans from January to July this year was 16.7 trillion won, only 40.5% of the average for 2021-2024 (41.2 trillion won). Of this, specialized banks such as Industrial Bank of Korea accounted for 14.7 trillion won (88.8%). This is seen as evidence that commercial banks are essentially neglecting SME lending.

Industry insiders believe that the evaluation system of the Win-Win Growth Index, currently implemented by the Korea Commission for Corporate Partnership, will be similarly applied to the Win-Win Finance Index. The Win-Win Growth Index is calculated by combining the "Fair Trade Agreement Implementation Evaluation" (100 points) led by the Fair Trade Commission and the "Partner Satisfaction Survey" (100 points) led by the partnership commission, each weighted at 50%.

Likewise, it is highly likely that the Win-Win Finance Index will combine a performance evaluation led by the Financial Services Commission with an SME satisfaction survey led by the Korea Federation of SMEs and the partnership commission, using a certain ratio to calculate the final score. In July, the Korea Federation of SMEs proposed to the National Policy Planning Committee that the final score be calculated by combining the results of a performance evaluation (60%), which examines SME loan volume, the proportion of long-term loans, and efforts to strengthen corporate evaluation capabilities, with an SME satisfaction survey (40%).

An industry official stated, "While the basic framework will be similar to the Win-Win Growth Index for large and small companies, the specific details may differ from the initial proposal by the Korea Federation of SMEs. It is highly likely that the evaluation will include items that allow banks to assess growth potential and future prospects, moving away from the traditional collateral-based assessment."

The key issue appears to be how to design incentives that will encourage banks to participate actively and meaningfully. Currently, the Win-Win Growth Index offers incentives such as exemptions from subcontracting investigations and preferential treatment in public procurement bids to large companies with high scores for cooperative efforts with SMEs. However, since banks are already subject to regulations such as mandatory SME loan ratios, it is argued that voluntary participation will be difficult without additional incentives. An industry official advised, "With various win-win programs already in place, substantial incentives are essential for the system to have a real impact. Preferential treatment when selecting institutions for pension fund deposits or awarding extra points in bank management evaluations could be considered as possible measures."

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