Self-employed individuals in South Korea are facing an unsustainable level of debt. According to data submitted by the Bank of Korea to the National Assembly, the total outstanding loans for self-employed individuals reached approximately 1,095.5 trillion won by the end of the first quarter of this year. The delinquent amount hit a record high of 22.3 trillion won, with the delinquency rate climbing to 2.04%, the highest level in nearly 10 years since the second quarter of 2015. Notably, the delinquency rate for middle-income self-employed individuals reached 3.64%, while low-income self-employed individuals saw a rate of 2.13%, the highest in over a decade. The prolonged impact of sluggish domestic demand and high interest rates is weighing heavily on the self-employed sector.
The issues faced by self-employed individuals extend beyond personal debt; they signal a broader warning about the stability of South Korea's domestic economy and employment safety net. Self-employed workers are responsible for their own livelihoods as well as a significant portion of temporary jobs. If they fail to sustain their businesses, closures will increase, local economies will suffer, and the health of the financial sector will deteriorate. The rising delinquency among self-employed loans represents a crisis for local businesses and a potential risk to the financial system.
A major concern is the lack of a clear path to recovery. Many self-employed individuals who relied on loans during the COVID-19 pandemic now face the combined challenges of high interest rates, rising costs of living, increased labor expenses, and a slowdown in consumer spending. While sales have not sufficiently rebounded, the burden of interest payments has grown. Although measures such as loan repayment deferrals and extensions have provided temporary relief, underlying issues are now manifesting as delinquencies. Those unable to secure loans from banks may be forced to turn to more expensive options like credit loans, savings banks, and private lenders.
In response, the government and financial institutions have introduced various support measures, including debt restructuring, refinancing, interest refunds, and policy financing. However, the tangible effects of these initiatives have been limited. Providing new loans to borrowers who have already lost their repayment capacity is not a fundamental solution. Policies that rely on borrowing to cover existing debts can buy time but do not reduce the underlying issues. Uniform support that does not differentiate between businesses with potential for recovery and those that are structurally unsustainable has clear limitations.
What is now needed is not unconditional extensions of loan maturities but rather targeted selection and restructuring. For self-employed individuals with a chance of recovery, support should include low-interest refinancing, relief from rent and labor costs, and assistance with digital transformation. Conversely, for those unable to continue operations, consulting on business closures, debt restructuring, and reemployment support should be provided. Treating business closures solely as failures and leaving individuals to struggle under debt will only exacerbate the problem.
The financial sector must also acknowledge its responsibilities. It is essential to reassess the practice of increasing loans based on collateral and guarantees. If loans were extended without a proper understanding of self-employed individuals' revenue flows, industry outlooks, and changes in local markets, the blame for delinquencies cannot rest solely on borrowers. Banks should not wait until delinquencies occur to pursue collections; instead, they should implement early warning systems and tailored debt restructuring to prevent the spread of financial distress. Regulatory authorities must also manage risks more closely based on industry, income, and multiple debts.
The crisis among self-employed individuals is intertwined with structural issues in the South Korean economy. Individuals pushed out of the wage labor market often turn to entrepreneurship for survival, leading to fierce competition in oversaturated industries and reliance on debt. The record high delinquency among self-employed loans signals that this structure has reached its limits. Short-term financial support alone will not resolve the issue. Recovery of domestic demand, a safety net in the labor market, restructuring of local economies, and support for business closures must all be pursued in tandem.
What is needed now is not yet another temporary fix but the courage to acknowledge and address the underlying problems. Continuously deferring unpayable debts only increases risks for self-employed individuals, financial institutions, and the economy as a whole. The warning of record high delinquency among self-employed loans must not be ignored. Realistic measures must be implemented to save viable businesses and properly manage those that need to close before it is too late.
* This article has been translated by AI.
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