[Viewpoint] A loan program full of uncertainty

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[Viewpoint] A loan program full of uncertainty

At the work site of the country’s largest steelmaker, Posco, there are staff members in work suits embroidered with a logo that says “Poswith” instead of “Posco.” They are in charge of laundry and delivery. Posco invested 8.4 billion won ($7.4 million) to set up a services-work affiliate that hires the underprivileged as well as people with disabilities. Of the 303 staffers, 165 are people with disabilities and 78 are seriously handicapped. Instead of corporate charity, the company chose to provide jobs that the underprivileged can take pride in.

The Seoul Happy School is an institution that runs outsourced afterschool programs for elementary schools in Seoul. It operates affordable afterschool programs taught by 170 contracted teachers. SK Group and Seoul City have set up the nonprofit Happy School Foundation, with the group overseeing management and the city providing teachers, a computer system and administrative assistance.

The aim is to provide stable jobs for educated young people and lessen the burden of private education fees for the working class.

To comply with President Lee Myung-bak’s signature plan for a “fair society,” the government and local government bodies have been struggling to come up with working-class friendly projects and businesses. The corporate sector is also trotting out social and symbiotic programs to work with smaller businesses and society.

On the financial front, large companies and lenders have joined to launch a microcredit scheme to provide financial services to the poor and self-employed who normally do not qualify for traditional loans.

Companies and banks with dormant deposits raised a fund of 800 billion won and put up 115.95 billion won as of December for microfinancing services.

Under the plan, individuals who normally lack access to bank loans because of their poor credit can borrow at low interest rates of 2 percent to 4 percent per annum to start their own businesses.

But we can hardly expect an overwhelming corporate response to a government-led campaign to help the poor.

The financing concept goes against normal credit guidelines by extending highly risky loans at cheap rates without any collateral. They have been experimenting with the scheme for a year now, but if the scale grows, the insolvency rate will likely increase accordingly. This is why the future of the problem is highly questionable.

The government said it was inspired by Noble Prize laureate and microcredit pioneer Muhammad Yunus’ microcredit experiment. But Yunus’ scheme is aimed at making funds available to the poor while charging market rates for the loans. He also argues that the loan system can be sustained if it charges lending rates of 20 percent to 25 percent.

Cheap loans can distort market principles and discourage lenders who faithfully oblige with their credit line. But to apply a stringent credit evaluation, there would be few among the loan applicants who would qualify, which is a dilemma for the microcredit experiment here.

With funding already set aside, it is impossible to scrap the plan now. But to ensure the program’s sustainability, the fund can be reinvented to stimulate responsible start-ups and social enterprises. The credit beneficiaries should be low-income, low-credit and the poor, but with a concrete business outline and management capabilities.

Social enterprises help the self-employed to expand their business scale. They can run sustainable business with financial and mentoring help from companies, government organizations and charity groups.

About 4.94 billion won, or 4.3 percent, of microfinancing funds went to social enterprises last year. The goal of the microcredit effort should shift to breeding social enterprises for the benefit of society.

*The writer is an editorial writer of the JoongAng Ilbo.

By Kim Jong-soo
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