Mutual Finance to Strengthen 'Inclusive Finance'... Incentives for Outstanding Cooperatives

The financial authorities are easing regulations on mutual finance to expand inclusive finance. They will assign greater weight to loans provided to local communities and low-income individuals and offer additional incentives to cooperatives that actively engage in inclusive finance.

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The Financial Services Commission announced on April 30 that it held a kickoff meeting for the "Mutual Finance System Improvement Task Force" on April 29, where it discussed measures to strengthen inclusive finance, including the details above. The purpose of this meeting was to explore ways for mutual finance institutions to restore their identity as local and community-based financial institutions and to reinforce their role in inclusive finance.

First, the authorities plan to review incentive measures to encourage mutual finance cooperatives to engage more actively in inclusive finance. For example, they are considering adjusting the weighting of loans to local communities and low-income individuals when calculating regulatory ratios such as the non-member loan ratio and the loan-to-deposit ratio. The measures may also include further easing of regulations for cooperatives that actively practice inclusive finance.

Additionally, to promote social solidarity finance, the authorities are considering revising relevant laws and systems, such as amending the "Credit Union Act" to allow credit unions to invest in other companies.

A system in which cooperatives and their central federations jointly share the risks arising from the expansion of inclusive finance will also be established. The authorities are reviewing a structure in which the central federation supports the profitability and liquidity of inclusive cooperatives to ensure that their soundness and profitability are not undermined by the expansion of inclusive finance and regulatory easing. To this end, improvements to the central federation's asset management and capital regulations will also be pursued.

Measures being discussed include allocating additional returns from the central federation's surplus funds to inclusive cooperatives, offering preferential interest rates, and expanding the ratio of credit deposit collateralized loans.

Furthermore, the authorities will establish infrastructure to ensure a stable supply of inclusive finance. They plan to enhance credit evaluation capabilities by advancing their own credit scoring models (CSS), and are also considering reflecting the mutual finance sector's performance in inclusive finance in management evaluations and awards.

Kim Jinhong, Director General of the Financial Industry Bureau at the Financial Services Commission, stated, "In addition to soundness, inclusiveness is a key pillar in restoring trust in the mutual finance sector. Since mutual finance institutions have the advantage of personal ties among members, I urge you to leverage this strength and actively participate in the expansion of inclusive finance."

Beginning with this meeting, the task force will proceed with working-level meetings and gather input from experts and stakeholders, aiming to prepare the "Measures to Strengthen the Role of Mutual Finance in Inclusive Finance (tentative title)" by June. After consultations with relevant agencies, the final plan will be announced in July through forums such as the "Mutual Finance Policy Council."

The Financial Services Commission and related agencies stated that they will thoroughly implement follow-up measures to the system improvement plan and continuously strengthen the soundness management of the mutual finance sector.

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