"Move Beyond Formal Microfinance Aid, Shift to Demand-Centered Support"

Shin Jangsik, a member of the National Innovation Party, held a forum on the 22nd at the National Assembly in Yeouido, Seoul, titled "Exploring Improvement Plans for Shifting the Support System for Low-Income Financial Services to a Demand-Centered Approach." Shin evaluated, "Although the Korea Inclusive Finance Agency has been established for 10 years, there are still criticisms that it remains limited to simple consulting and education on policy low-income financial products." Photo by Lee Changhwan

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There have been calls to make support programs for low-income financial services, which have traditionally focused on simple funding, more efficient by emphasizing the recovery and quality of life improvements for financially vulnerable groups. Government-affiliated institutions supporting inclusive finance, such as the Korea Inclusive Finance Agency and the Credit Counseling & Recovery Service, are being urged to move beyond basic institutional support and instead address the root causes of hardship for financially vulnerable populations when designing support policies.

Shin Jangsik, a member of the National Innovation Party, held a forum on September 22 at the National Assembly in Yeouido, Seoul, titled "Exploring Improvement Plans for Shifting the Support System for Low-Income Financial Services to a Demand-Centered Approach." Shin evaluated, "Although the Korea Inclusive Finance Agency has been established for 10 years, it remains limited to simple consulting and education regarding policy-based financial products for low-income individuals." He emphasized, "It is now time to accurately classify financially vulnerable groups and establish a system that provides essential financial support to the right recipients at the right time." Shin added, "To achieve this, close cooperation is needed not only among private financial institutions but also between public agencies such as the Korea Inclusive Finance Agency and the Credit Counseling & Recovery Service."

Lim Sugang, policy advisory committee member at the Korea Labor Institute, delivered the keynote presentation on the theme of a "User-Centered Support System for Inclusive Finance," pointing out, "Although the supply of policy-based financial products for low-income individuals has increased in recent years, it is unclear whether this has actually helped improve users’ real situations." Lim explained, "In practice, it is not uncommon to find cases where financially excluded or vulnerable individuals, after utilizing policy-based financial products, end up taking out additional or repeat loans. This indicates that simply providing loans is not enough to improve the circumstances of the financially excluded."

He further noted, "If the repayment structure does not sufficiently reflect the income patterns of users, a vicious cycle can occur in which shortfalls are once again covered by new debt. In this process, low-interest policy loans may serve as a temporary fix but can also become a stepping stone to further borrowing." Therefore, he suggested, "It is necessary to consider repayment programs closely tied to daily life, such as variable repayments, repayment deferment and reduction, adjustments for peak and off-peak seasons, and early intervention in cases of delinquency."

He stressed, "With the current focus on quantitative performance metrics such as scale and number of cases, it is difficult to assess how much inclusive finance has actually improved the lives of users. To address this, it is necessary to systematize qualitative indicators such as whether support was provided in a timely manner, whether repayments were maintained stably, whether relapses were prevented, and whether illegal private lending was reduced." He added, "It is especially important to move away from a funding-supply-centered approach and establish a user-centered perspective, which should also be clearly reflected in evaluation criteria."

As a panelist, Do Siwoong, deputy branch chief of the Korea Inclusive Finance Agency labor union, pointed out that due to limitations in counseling staff and time, the agency has not been able to move beyond simple funding support work for financially vulnerable individuals. He said, "In practice, bottlenecks in counseling staff and time, as well as the absence of qualitative evaluation modules, have prevented us from properly identifying borrowers’ willingness to repay or their self-sufficiency plans. As a result, although support is provided quickly, the vicious cycle of repeat and additional loans has not been broken."

Do emphasized, "While financially vulnerable households can use the Korea Inclusive Finance Agency to resolve short-term liquidity issues, the link to recovery and self-reliance is weak, leaving a gap in the post-buffering pathway. Therefore, it is necessary to redesign the evaluation of counselors to focus on qualitative outcomes such as repayment maintenance, recovery rates, and pathway suitability, rather than simply the number of approvals."

Another panelist, Jeon Sungin, former professor of economics at Hongik University, argued that in order to support financially vulnerable groups, it is necessary to facilitate debt restructuring at the stage of creditor financial institutions, such as banks. Jeon stated, "Currently, under the Individual Debtor Protection Act, requests for debt restructuring can only be made 'after delinquency occurs.' This should be changed so that restructuring can begin 'when there is a risk of delinquency.' If debt restructuring starts at the creditor financial institution stage when there is a risk of delinquency, the effects of restructuring will be realized more quickly, and the protection of individual debtors will be enhanced."

In his congratulatory remarks, Lee Jaeyeon, president of the Korea Inclusive Finance Agency, stated, "To help financially vulnerable groups live better lives, it is not enough to simply resolve their immediate difficulties. We must identify and address the root causes of their hardships from the user's perspective and encourage and support them to live better lives." He added, "To this end, both the Korea Inclusive Finance Agency and the Credit Counseling & Recovery Service will strive to go beyond their familiar work and seriously consider what is truly needed by users of inclusive finance, while also working to strengthen their capacity to deliver on these needs."

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