[Asia Exclusive] Jo Seongmok, Director of the Seomin Financial Research Institute, "We Must Create a Customized 'Household Economy Doctor' for Ordinary People"

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Josungmok, President of the Institute for Inclusive Finance, is being interviewed by Asia Economy on the 5th at an office in Mapo-gu, Seoul. Photo by Hyunmin Kim kimhyun81@

[Interview = Asia Economy Lee Chohee, Head of Finance Department; Organized by = Asia Economy Reporter Kim Minyoung] “The problem with Korea’s microfinance lies in its focus on financial support. It is essential to first conduct an accurate diagnosis on whether to provide funds through personalized counseling or prioritize settling existing debts. We need to establish a system like a ‘Family Economic Doctor’ that can offer practical help to low-income individuals burdened by debt.”

On the 5th, at the office of the Korea Financial Planning Standards Board (FPSB) located in Mapo-gu, Seoul, Cho Seongmok, Director of the Microfinance Research Institute (59), repeatedly emphasized the importance of microfinance throughout the interview with Asia Economy. Cho, who also serves as Vice Chairman of Korea FPSB, which administers the domestic AFPK (Associate Financial Planner Korea) certification exam, is the person who coined the term ‘microfinance’ during his tenure at the Financial Supervisory Service. Having led efforts to realize finance for the underprivileged, he is now embarking on a new challenge: running as a proportional representative candidate in the 21st National Assembly to properly establish policies and a financial welfare system supporting low-income people. His goal is to create a financial environment that genuinely helps as a microfinance expert. Coincidentally, the interview day marked the 41st anniversary of his first job at the Bank of Korea.

Director Cho emphasized the need to introduce a personalized counseling system in microfinance as well. As a solution, he proposed utilizing retired financial public officials or bankers who hold credit counseling certifications. This approach would create jobs and provide debt and financial counseling to those struggling with debt, resulting in a win-win situation.

Josungmok, President of the Institute for Basic Finance, is being interviewed by Asia Economy at an office in Mapo-gu, Seoul on the 5th. Photo by Hyunmin Kim kimhyun81@

- What role does the Microfinance Research Institute play?

▲ Throughout my public service career, I felt the need for a specialized research institution in the microfinance field, and right after retiring from the Financial Supervisory Service in 2017, I established the Microfinance Research Institute with about 20 experts. We consider individuals with a credit rating of 6 or below and an annual income under 35 million KRW as microfinance beneficiaries. The institute is a nonprofit corporation that researches whether low-income people can engage in financial transactions under better conditions and settle existing debts. Currently, we have about 140 individual members, including financial institution owners, CEOs, current and former executives, and professors, as well as 60 corporate members from financial institutions and social organizations. As Korea’s first microfinance research organization, our goal is to develop effective measures and create a helpful financial environment. One initiative we created is the Family Economic Doctor program, which combines individual financial counseling with psychological counseling, focusing on family recovery. We have currently trained 100 doctors.

- There is high interest in microfinance, but criticisms remain regarding insufficient policy considerations. What are the problems with Korea’s microfinance system?

▲ Over the past 11 years, 49 trillion KRW has been invested in microfinance. However, its effectiveness is questionable. The answer lies in the field. Prescribing treatment without proper diagnosis is like telling someone with stomach pain to just take digestive medicine. If the diagnosis is wrong, the treatment will inevitably be ineffective. We need to establish a system where counseling is prioritized first through internationally certified financial planners (CFP), nationally certified credit counselors, and Family Economic Doctors. The Microfinance Promotion Agency, which oversees microfinance, was created to provide one-stop services to low-income people. However, the microfinance delivery system is very complicated. It is not easy for busy low-income individuals to understand. We need to make it easier to find customized support suitable for low-income groups such as self-employed and small business owners. The premise is, again, that analysis through counseling comes first.

- Low-income people burdened by debt often use loan sharks. The government’s lowering of the legal maximum interest rate has led to tighter regulations on loan shark lending.

▲ Large loan shark companies should be classified and managed as credit specialized institutions under financial authorities’ supervision. Currently, if 100 people apply for loans at loan shark companies, only about 12 get approved. People who urgently need money will borrow from anywhere, so it is problematic to simply label ‘loan sharks = usury’ without considering this. It is the government’s role to promote free competition in the market. This is why caution is needed when lowering the legal maximum interest rate (currently 24% per annum). If loan shark companies’ funding channels are eased, interest rate competition will arise, helping to lower rates.

There is also pressure on savings banks to stop offering high-interest loans above 20% per annum. There is no policy that can beat the market. When problems are difficult to solve, we must return to basics. The basic principle is that prices are determined by supply and demand. If banks are forced to lend at low interest rates, all secondary financial institutions will disappear. We must acknowledge that each financial sector has a different role.

Josungmok, President of the Institute for Financial Inclusion, is being interviewed by Asia Economy on the 5th at an office in Mapo-gu, Seoul. Photo by Hyunmin Kim kimhyun81@

- What are the future plans for the Microfinance Research Institute?

▲ We plan to specialize the institute as a research organization based on voices from the field. Recently, we conducted a survey of about 22,000 people currently using or having experience with loan sharks and private lenders. The results will be announced soon. It is heartbreaking that hundreds of thousands of people enter the private lending market every year. I hope to rescue low-income people and create a society where everyone prospers together. For a Korea where low-income people can smile, I intend to work closely with institute members to brainstorm, deliberate, and propose alternatives.