Financial Services Commission Seeks Increased Budget for Inclusive Finance

The Financial Services Commission (FSC) has requested an increase in budget from the National Assembly to reduce interest burdens on financially vulnerable groups and expand the supply of policy financial products.

According to materials submitted by the FSC to the National Assembly's Political Affairs Committee on November 8, the commission conveyed its opinion on increasing the budget for inclusive finance projects. This is part of the government's 'three major livelihood projects' aimed at supporting the subprime finance sector.

First, the FSC requested an increase of 2.455 trillion won from the government’s initial proposal of 828 billion won to implement a 'refund system for responsible borrowers' under the Sunshine Loan special guarantee program. The Sunshine Loan special guarantee offers loans of up to 10 million won at an annual interest rate of 12.5% to low-income and low-credit individuals.

The FSC plans to refund 50% of the interest paid at the end of each year to borrowers who have made diligent repayments for over a year, effectively lowering the actual interest burden to around 6.3% annually.

For the Bridge Loan, which assists policy financial users in accessing bank loans, the FSC requested a new budget of 315 billion won for interest subsidies. The Bridge Loan allows users who have responsibly repaid policy financial loans to obtain credit loans of up to 30 million won at an interest rate of 9% or less from banks. However, it has faced criticism for low utilization rates as it operates as a bank product.

The FSC proposed subsidizing 3 percentage points of the loan interest for all borrowers through government finances, aiming to reduce the interest rate to within 6%. If implemented, the average interest rate is expected to drop to around 4% annually.

Additionally, the FSC requested an increase of 100 billion won to expand the supply of the K-Living Support Loan. This loan provides up to 1 million won at an interest rate of 4.5% for low-credit individuals, with a maximum repayment period of 10 years, linking them to formal financial systems upon responsible repayment. This initiative aims to strengthen the social safety net to prevent vulnerable groups from resorting to illegal money lending amid high interest rates and inflation.

The FSC also proposed expanding the budget to support small business owners and self-employed individuals in recovery. They suggested increasing the New Start Fund budget to allow for the reduction of principal by up to 80% for delinquent borrowers among small business owners affected by COVID-19, along with extending repayment periods.

Furthermore, the FSC emphasized the need for comprehensive support for the purchase of long-term delinquent debts from small businesses affected by COVID-19. They also noted the potential surge in demand for debt representation services during periods of rising interest rates, advocating for increased budget support for this area.

The Political Affairs Committee is scheduled to hold a budget subcommittee meeting on November 10-11 to review the budgets of the FSC and other agencies.