More support for the self-employed needed

The vulnerability of the self-employed poses a ticking bomb for the Korean economy grappling with a slump. Many of them who had survived the Covid-19 pandemic and their decreased sale by borrowing money from banks are behind their dues. According to the Bank of Korea, the outstanding loans by the self-employed hit a fresh new high of 1,033.7 trillion won ($790.5 billion) at the end of March, surging 50.9 percent from December 2019 before the outbreak of Covid-19.

The last three years had been excruciatingly painful for self-owned businesses. After a sudden spike in the minimum wage, they had to endure rigid social distancing measures throughout the pandemic period. Many had to give up hires and survive on debt. The number of the self-employed without paid hires which totaled 4.07 million in 2019 jumped to 4.36 million by May. Hardship has worsened due to the sharp rise in interest rates and the deepening economic slump.

The soaring delinquency rate underscores their difficulties. The ratio of overdue loans against the lending to the self-employed hit 1.0 percent in the first quarter, jumping from 0.65 percent in the previous three-month period to reach the highest in eight years. The overdue amount reached 6.3 trillion won, surging 53.7 percent from 4.1 trillion won in the fourth quarter. The delinquency rate in the non-banking sector was 2.52 percent, nearly seven times the 0.37 percent in the banking sector. The delinquency rate in the tertiary savings and loan sector rose to 5.17 percent.

All the data points to the surge in the self-employed who cannot keep up with their debt obligations on time. Borrowers from multiple institutions are the most concerning. Their outstanding loans amount to 737.5 trillion won, taking up 71.3 percent of total loans of the self-employed.

The grace period on debt deferment offered from April 2020 during the Covid-19 period ends in September. But delinquents are on the rise even before their deadline ends in September.

Loan payment deferment can hardly continue in the market economy. But forcing the self-employed to pay their dues during the hard times can be cruel. Lenders must come up with realistic arrangement according to their capital conditions. Authorities must pay closer attention and support so that the hard-up self-employed do not have to rush to illegitimate lenders. The adjustment in the soaring minimum wage also should consider self-employed businesses who are responsible for 20 percent of the country’s working population. The government must have the awareness that the crisis of the self-employed represents the hardship of the working and middle class in our society.