[Exclusive] Moon Government Promotes 'Low-Interest Loan Program for Small Business Owners' Ahead of Local Elections

Ministry of the Interior and Safety selects 20 local governments for national funding
Actual loan scale expected to reach hundreds to thousands of billions of won
Target local governments may start projects as early as next month
Concerns over use of state funds for vote-catching before elections

A closed store in Myeongdong, Seoul, which shut down due to the prolonged COVID-19 pandemic. / Photo by Mun Ho-nam munonam@

The Moon Jae-in administration is pushing forward a financial support policy in the form of low-interest loans targeting small business owners and self-employed individuals with low credit ahead of local elections. Amid recurring controversies over 'populism' by major candidates during election seasons, criticism has arisen that local government heads may exploit public funds to win votes.

On the 22nd, Asia Economy obtained and reviewed the Ministry of the Interior and Safety's plan for the 'Small-scale Financial Support for Low-credit Small Business Owners and Self-employed.' The government plans to select 20 local governments by the end of this month to provide national funding. The scale is 100 million KRW each, totaling 2 billion KRW, to be used for financial support for small business owners with low credit. The Ministry explained the background of the initiative, stating, "Low-credit small business owners and self-employed individuals face strict loan screening and high interest rates," and "they are in a blind spot for financial benefits, such as being denied loans in the formal loan market."

The loan volume to be executed by local governments through this project is expected to reach several hundred billion KRW. To win the project, local governments must contribute at least 50% of the local budget, and the secured funds are encouraged to be used for interest rate subsidies or special guarantees. According to an example provided by the Ministry, 200 million KRW can be used to support a 10 billion KRW loan with a 2% interest rate subsidy or be contributed to a credit guarantee foundation and then lend 2.4 billion KRW (with a guarantee multiplier of 12 times).

Last year, 21 local governments contributed 6.64 billion KRW in local funds to a national project worth 620 million KRW. Through this, 110.7 billion KRW was disbursed to small business owners and the self-employed.

In October, 16 local governments nationwide that conducted related projects will be selected to receive 3 billion KRW in special grants. The top four local governments will each receive an additional 300 million KRW, and 12 excellent local governments will receive an additional 150 million KRW in national funds.

Local governments wishing to receive support must submit the project overview, loan interest rates, credit conditions, and methods for easing loan requirements for low-credit borrowers by today. In particular, they must include plans for applying community cooperation models and focused support for low-credit borrowers.

The project start date has been moved up to April, five months earlier than last year (September). Local governments selected as beneficiaries can start the loan project as early as next month. Regarding the earlier schedule, the Ministry of the Interior and Safety stated, "Last year, it was a temporary project," and "this year, it was formally budgeted and organized." About the selection method, they said, "Since external experts are included, it is not advantageous or disadvantageous to any particular political party."

However, since the project begins ahead of local elections, concerns have been raised that it could be used as a vote-buying policy by local government heads preparing to run. As the election day approaches, criticism is also growing that even local governments with low fiscal independence are launching vote-buying policies. Professor Kim Dae-jong of Sejong University's Department of Business Administration said, "It is true that money flowing before elections influences voter sentiment," adding, "If there is a scheduled election date, policies should be carefully reviewed to avoid unnecessary controversy when implemented."