Gov’t urged to get its act together on cheap loansA control tower is needed to oversee government-oriented low-interest lending programs, which currently fall under the supervision of various government bodies, the Korea Institute of Finance?said yesterday.
The present system prevents the government from being able to roll out quick follow-up measures to help those with low credit ratings survive, it said.
The government runs four low-interest loan programs that are designed to help people with low credit scores, namely, Smile Microcredit, Switch-over Dream, Sunshine and Heemang Holssi (Spores of Hope) loans. But they are controlled by two separate organizations, the Credit Counseling and Recovery Service and the Korea Asset Management Corporation.
Over 810,000 people had taken out 7.3 trillion won ($6.74 billion) worth of government-supported low-interest loans as of last October since they were introduced in 2008.
“The top priority for the government is to create a control tower that can effectively coordinate all the low-interest loan programs,” Koo Jung-han, a research fellow at the Korea Institute of Finance, said at a seminar. “The current system lacks this.”
He suggested the government work to reduce the default ratio among beneficiaries of the programs it supports by checking more thoroughly whether applicants can realistically repay their debt.
“For loan seekers who cannot fulfill this basic obligation, the government needs to support them with better welfare policies rather than government-initiated loans, as it cannot completely exhaust its coffers,” Koo said.
Sunshine loans recorded the highest default ratio of 9.6 percent in the third quarter of last year, up 1.2 percentage point on-quarter. They were followed by Switch-over Dream loans (8.5 percent), Smile Microcredit loans (5.2 percent) and Heemang Holssi loans (2.6 percent).
Koo also urged the government to revise its credit-rating levels as 39 percent of loan seekers who would be able to repay their debt end up heading to loan sharks.
By Kim Mi-ju [firstname.lastname@example.org]
More in Economy
Despite vaccine shot in the arm, credit risk remains in markets
Exports up 11 percent for first 20 days of November
Guffaws as officials offer out-of-touch apartment advice
BOK appoints a deputy governor
Household income grows in Q3, but not for bottom 20%