[Editorial] Emphasizing Finance’s Public Role Should Not Lead to Government-Led Finance

The Inclusive Finance Promotion Task Force, created to strengthen finance’s public role, is set to launch later this month. The task force aims to drive sweeping changes at the level of a fundamental redesign of the existing financial order. Items expected to be discussed include reforms to the credit evaluation system, expanded lending to borrowers with mid- to low-level credit scores, and a review of the original purpose behind internet-only banks.
The government also says it will boldly reshape the existing financial order to achieve inclusive finance. Lee Jae Myung criticized financial institutions for lacking public responsibility, and the Chief Presidential Secretary for Policy at Cheong Wa Dae has also joined in, calling financial institutions quasi-public entities. That suggests the government will push ahead aggressively.
The direction of inclusive finance is correct. Its core principle is that vulnerable groups, including those with unstable incomes or low creditworthiness, should not be excluded from the formal financial system. If banks refuse to deal with them, they may ultimately be pushed into illegal private lending with extremely high interest rates. Improving access to finance is both central to inclusive finance and a responsibility of the state. Beyond welfare, inclusive finance can also energize the economy.
However, it must be recognized that side effects can emerge in the financial market when inclusive finance is pursued too far in the name of an ideal. Previous administrations also introduced financial policies that reflected the spirit of inclusive finance, even if they used different names. But after briefly drawing attention, they often faded away. It is worth examining why that happened.
If inclusive finance policies are pushed too hard, they could clash with the existing financial system. Forcing a sharp increase in lending to borrowers with mid- to low-level credit scores would raise banks’ delinquency rates. In the end, the weakness of financial institutions would be passed on to all other financial consumers in one form or another. A policy may look good at first, but if it becomes a burden on society as a whole over time, the overall social benefit is effectively reduced.
Debate also continues over interest-rate differentiation based on the current credit rating system. Policymakers must also consider how to dispel concerns that preferential rates or debt relief for low-credit borrowers could encourage moral hazard.
Moreover, the variables affecting finance are not limited to domestic conditions. Financial systems are extremely sensitive to external shocks such as global interest-rate trends, exchange-rate fluctuations, and overseas credit crunches. The soundness of financial institutions is directly linked to the country’s credit standing. If policymakers impose a quasi-public standard and force public interest over profitability, they could damage financial stability.
For inclusive finance policies to produce good results, they must be carefully designed from the outset with these issues in mind. The ripple effects of credit-rating reform on the broader financial market should be thoroughly analyzed, and the beneficiaries and cost bearers of the policy should be clearly identified first.
In this process, care must be taken to ensure that inclusive finance does not turn into government-led finance. Historically, state-led intervention in finance has often been driven by short-term effects and ended up as little more than a showpiece.
The Inclusive Finance Promotion Task Force is expected to include a range of stakeholders and open a public discussion on inclusive finance. There are concerns that, in the process, the debate over finance’s public role could overwhelm voices calling for soundness. We hope the policy direction for inclusive finance will be adjusted through sufficient public discussion and consensus-building.