[2021 National Audit] Joint Guarantees Hindering Reattempts Total 120.5 Trillion Won... Increasing Every Year

Assemblyman Kim Kyung-man "We Must Start Progressive Discussions on Abolishing Private Joint Guarantees"

[Asia Economy Reporter Kwangho Lee] As part of the national agenda to establish an infrastructure for re-challenge for entrepreneurs who have failed once, the government has been gradually abolishing joint guarantees by five policy financial institutions (Korea Credit Guarantee Fund, Korea Technology Finance Corporation, Regional Credit Guarantee Foundation, Small and Medium Business Corporation, and Small Enterprise and Market Service) since 2018. Amid this, claims have been raised that expanding the abolition of joint guarantees to the private financial sector is necessary to proactively build a re-challenge ecosystem after COVID-19.

According to data submitted by the Financial Supervisory Service to Kim Kyung-man, a member of the National Assembly’s Industry, Trade, Energy, Small and Medium Enterprises Committee from the Democratic Party of Korea, as of the end of last year, the scale of joint guarantee liabilities by domestic banks was recorded at 161,000 cases, amounting to 120.5 trillion KRW.

While the number of cases decreased from 170,000 in 2017 to 161,000 in 2020, the amount increased from 82.6 trillion KRW in 2017 to 120.5 trillion KRW in 2020.

Along with the abolition of joint guarantees by policy financial institutions, the private financial sector currently prohibits third-party joint guarantees for loan-type products in principle. However, in the case of corporate loans, unlimited partners and major shareholders can still be required to provide guarantees. Because of this, entrepreneurs hoping to restart their businesses in the field say that the government’s re-challenge policy is unlikely to be effective with only the abolition of joint guarantees by policy financial institutions.

In fact, a survey on public perception of the abolition of joint guarantees by policy financial institutions conducted by the Small and Medium Business Corporation in May last year showed that 46% of respondents answered that expansion of joint guarantee abolition to the private sector is necessary.

Assemblyman Kim said, "Although joint guarantees by policy financial institutions are being phased out, joint guarantees in the private financial sector are still tying the hands of entrepreneurs hoping to restart their businesses. Since more than 80% of SME funding comes from private financial institutions, abolishing joint guarantees in the private financial sector is urgently needed for the fundamental establishment of a re-challenge ecosystem."

He added, "Along with the abolition of joint guarantees, we need to start proactive discussions to explore ways to expand the abolition to the private sector, including enhancing the responsible management evaluation system being introduced by policy financial institutions so that it can be accepted by the private financial sector."