Expansion of Small Business 'Guarantee Funds'... Legal Contribution Rate Raised to 0.04%

Ministry of SMEs and Startups
Enforcement Decree of the Regional Credit Guarantee Foundation Act

[Asia Economy Reporter Kim Daeseop] The Ministry of SMEs and Startups announced on the 28th that it has revised the Enforcement Decree of the Regional Credit Guarantee Foundation Act to raise the statutory contribution rate of financial companies to the Regional Credit Guarantee Foundation and the Korea Credit Guarantee Fund from the previous 0.02% to 0.04%.

This increase in the statutory contribution rate was prepared to expand the guarantee funds of the Regional Credit Guarantee Foundation and the Korea Credit Guarantee Fund, which are responsible for credit guarantees for small business owners and small enterprises with insufficient collateral. The partial amendment to the Enforcement Decree of the Regional Credit Guarantee Foundation Act containing this content was approved at the Cabinet meeting held at the Government Complex Seoul on the same day.

Statutory contribution is a system in which financial institutions contribute a certain percentage (contribution rate) of loans with the nature of corporate loans (working capital) among their loan amounts to guarantee institutions every month. Until now, the Regional Credit Guarantee Foundation had a relatively low statutory contribution rate compared to other guarantee institutions such as the Korea Credit Guarantee Fund and the Korea Technology Finance Corporation in relation to guarantee balances.

As of the end of June this year, the guarantee balances of the Korea Credit Guarantee Fund and the Korea Technology Finance Corporation were 50 trillion won and 22.8 trillion won, respectively. The statutory contribution rates were approximately 0.225% and 0.135%, respectively. With the increase in the contribution rate relative to the guarantee balance of the Regional Credit Guarantee Foundation this time, it is expected that fairness with other guarantee institutions will also be enhanced.

The Ministry of SMEs and Startups plans to manage the increased operating multiplier at an appropriate level due to the expanded guarantee supply in response to the recent COVID-19 pandemic, so that stable guarantee supply for small business owners and small enterprises can be ensured.

The guarantee balance of the Regional Credit Guarantee Foundation recorded 19.6 trillion won in 2018, 22.1 trillion won in 2019, and 37.7 trillion won as of the end of June this year. The operating multiplier, which refers to the ratio of the guarantee balance to the basic assets (including carried-over profits) of the Regional Credit Guarantee Foundation, increased from 6.1, 6.5, to 9.9 during the same period.

Separately from expanding the guarantee funds of the Regional Credit Guarantee Foundation through the increase of the statutory contribution rate, the Ministry of SMEs and Startups plans to induce active contributions from local governments. Using 80 billion won secured through the third supplementary budget, a 20% incentive will be provided for local governments’ contributions to the Regional Credit Guarantee Foundation. Through this, stable guarantee supply of the Regional Credit Guarantee Foundation will be supported.

Byun Taeseop, Director of the SME Policy Office at the Ministry of SMEs and Startups, said, "As the COVID-19 pandemic continues, it is expected that the supply of funds to small business owners and small enterprises will become increasingly difficult. At this time, guarantee supply through the Regional Credit Guarantee Foundation will become even more important," adding, "We plan to continuously support small business owners and small enterprises through stable guarantee supply via the Regional Credit Guarantee Foundation."