'Smile' microcredit banks give little smile for the needy

2009-12-28

News Focus

'Smile' microcredit banks give little smile for the needy

By Kim Yoon-mi

The government-led "smile microcredit banks" that opened this month to help low-income people get access to cheap loans are turning out to be of little help to the needy, industry sources said yesterday.
Their insufficiency is mainly due to strict requirements and the concentration of bank locations in the Seoul metropolitan area.
According to data by the Financial Services Commission, more than 4,000 people visited eight microcredit banks, launched by conglomerates and local lenders this month under the state-led microcredit lending program Smile Microcredit Bank.
The visitors included those who seek loans for business startups, business operation funds, facility improvement funds and funds for unregistered small businesses.
Data showed that only 400 of the 1,600 people who applied for the program from Dec. 16-18 were eligible for it. Most of the applicants were unaware of eligibility requirements set by the SMB, according to FSC officials.
To be eligible for microcredit, one's credit rating should be seventh grade or lower out of the 10 grades set by one of the three credit rating agencies -- National Information & Credit Evaluation, Korea Information Service and Korea Credit Bureau.
Among them, those whose debts are overdue for more than three months are screened out.
Those whose combined assets -- including real estate, savings deposits, securities and automobiles -- exceed 135 million won ($114,800) are also ineligible if they live in the Seoul metropolitan area. Outside that area, the limit is 85 million won.
Even if their combined assets are less than 135 million won, they cannot get the cheap interest rate microcredit lending if their combined liabilities exceed 50 percent of the combined assets, with an exception that their liabilities do not exceed 10 million won, according to the SMB.
The requirements mentioned are disclosed on the website of the SMB but other details are not known to the applicants.
For example, those who want to seek a business operation fund, which is available up to 10 million won, should prove that they have run their business for more than two years.
To apply for a startup fund which can be extended up to 50 million won per person, the applicant should already hold the same amount of money with the desired amount of loan, according to FSC officials.
Professor Kang Kyeong-hoon of Dongguk University was quoted by local media as saying that the requirements are too strict because they ask a lower credit rating of seventh grade without much assets and without overdue payment records are.
"The requirements should be eased, on the condition that the authorities conduct more strict and fair screening process," he said.
Concentration of microcredit banks in the Seoul metropolitan area is being cited as another major hurdle for the low-income people.
From Dec. 15-24, conglomerates including Samsung, LG, Hyundai Motor and POSCO and commercial banks like Kookmin and Woori Bank opened a total of nine microcredit banks.
Of the nine, Kookmin Bank's unit is located in Daejeon but the rest are all in the Seoul metropolitan area. Lotte and the Industrial Bank of Korea are scheduled to open their microfinance units within this month, and also in the Seoul metropolitan area.
Sources said many low-income people living in provincial areas had come to Seoul to get microfinance but returned home without it because they were told to wait until the government sets up units in provincial areas.
According to the FSC, the SMB, conglomerates and commercial banks plan to open 50 microcredit banks across the nation by late-May.
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