'Borrow 10 million won and interest falls from 1.25 million to 630,000 won' — Push to expand the budget to support borrowers with mid- to low credit

[Financial News] The Financial Services Commission (FSC) is seeking a budget increase to ease the interest burden on financially vulnerable groups, including borrowers with mid- and low credit, and expand the supply of financial products for ordinary people.
According to documents the FSC submitted to the National Policy Committee of the National Assembly on the 8th, the FSC said the budget for the Sunshine Loan Special Guarantee, a policy-backed financial product for ordinary people, should be increased by 245.5 billion won. The increase would fund the introduction of an interest cashback scheme for borrowers who repay faithfully; the government’s proposal is 82.8 billion won. If the increase is approved, the relevant budget will total 328.3 billion won.
The Sunshine Loan Special Guarantee lends up to 10 million won to low-income, low-credit borrowers at an annual interest rate of 12.5%. If they receive an interest refund, the effective rate they pay falls to around 6.3% per year.
To promote the Stepping-Stone Loan, which helps vulnerable groups gain access to formal financial services, the FSC requested a new allocation of 31.5 billion won for interest subsidies. The product connects borrowers who repay faithfully with banks, which can offer them unsecured loans of up to 30 million won at an annual interest rate of no more than 9%.
The FSC proposed using government funds to subsidize 3 percentage points of the loan interest rate, bringing it down to no more than 6% per year. The FSC estimates that this would lower the average rate to the 4% range.
The FSC conveyed its view that the budget needs to be increased by 100 billion won to expand the supply of the K-Livelihood Guardian Loan, which lends low-credit borrowers 1 million won at an annual interest rate of 4.5% for up to 10 years and connects them with formal financial institutions if they repay faithfully.
The measure reflects the view that a social safety net should be built proactively, as the ongoing high-interest-rate and high-price environment could drive vulnerable groups to turn to illegal private lenders.
The FSC also argued that the budget for the Saechulbal Fund needs to be increased so it can reduce by up to 80% the principal owed by distressed borrowers among small business owners and self-employed people affected by COVID-19, and extend their repayment periods.
This request for a budget increase is part of the support measures for ordinary people’s finances under the government’s “three major livelihood projects,” which include policies on jobs, finance for ordinary people, and housing stability.
In his policy address to the National Assembly on the 2nd, President Lee Jae Myung also stressed, “Groundbreaking, large-scale policies on livelihood-supporting jobs, finance for ordinary people, and housing stability aim to go beyond the social safety net and provide a robust social safety cushion with no blind spots, while laying the foundation for sustainable growth.”
The National Policy Committee plans to hold a budget subcommittee meeting on the 10th and 11th and review the budgets of the FSC and other agencies.
[email protected] Kim Tae-il Reporter