Rep. Kim Byung-wook Introduces Basic Loan Act for Financially Marginalized Groups
[Asia Economy Reporter Park Sun-mi] A Basic Loan Act, which provides loans of up to 10 million KRW at an annual interest rate below 3% once to young people aged 19 to 34, has been proposed in the National Assembly.
On the 2nd, Kim Byung-wook, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, officially proposed the Basic Loan Act, which requires the Korea Inclusive Finance Agency to provide credit guarantees for financially marginalized groups and to compensate for the interest difference on credit loans provided to these groups, thereby promoting loan activation.
The financially marginalized groups mentioned here include young people aged 19 to 34 based on the Youth Basic Act. Considering the realism of budget and execution, the first phase of the basic loan targets young people aged 19 to 34, with plans to expand the target group depending on budget conditions after implementation.
The bill is designed to provide loans of up to 10 million KRW at a low interest rate of 3% or less to young people once. In this case (assuming a 10% delinquency rate), if a 20-year-old youth takes out a loan once, for the first five years after implementation, the guarantee cost due to delinquency will amount to an average annual budget of 800 billion KRW, and the interest differential compensation will be about 300 billion KRW. After five years of loan implementation, the guarantee cost will decrease to an average annual 250 billion KRW, and the interest differential compensation will reduce to 105 billion KRW, enabling stable financial support.
It was judged that financial support is necessary because young people with low credit ratings and no guaranteed fixed income often resort to high-interest loan companies to cover urgent living expenses. Although the government operates credit guarantee programs such as the Sunshine Loan, those with low credit scores and no steady income cannot benefit, and the lower the credit score, the higher the interest rate (5-10%) they must bear, making alternative financial support policies urgently needed.
Along with this, Representative Kim also proposed the “Regional Credit Guarantee Act Amendment” to allow metropolitan local governments like Gyeonggi-do to provide credit guarantees to individuals. The existing Regional Credit Guarantee Act bases guarantees on property and income, but through this amendment, regional credit guarantee foundations will be able to guarantee individual debts regardless of property and income. If this bill passes, credit guarantee foundations in metropolitan local governments will be able to more actively carry out the basic loan project.
Representative Kim said, “Financially marginalized groups have no choice but to use high-interest loan products exceeding 15-20% when they urgently need funds. While this can put out the immediate fire, the snowballing interest becomes unbearable, worsening their economic situation,” adding, “To resolve this situation and to stabilize the struggling economy of ordinary people, which has become even more difficult due to COVID-19, and to promote balanced economic development, I have proposed the Basic Loan Act.”
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