New Start Fund Faces Ongoing Moral Hazard Controversy Amid Poor Performance

[Asia Economy Reporter Song Hwajeong] The New Start Fund, a debt adjustment program for small business owners and self-employed individuals, has passed one month since its implementation, but its performance remains poor and concerns about moral hazard persist.

According to data submitted by the Korea Asset Management Corporation (KAMCO) to Choi Seung-jae, a member of the National Assembly's Political Affairs Committee from the People Power Party, the number of applicants for the New Start Fund increased by only 2,500, from 7,513 as of September 13, the first week after the fund's launch, to 9,931 as of October 7. The government initially expected the number of beneficiaries to reach up to 400,000.

This contrasts with the significant increase in consultation cases. During the same period, online platform visitors rose from 455,000 to 890,000, and call center connections increased from 56,000 to 93,000. This shows that unlike the number of consultations, the actual number of applications submitted is not high.

The cumulative debt amount for adjustment applications increased by about 300 billion won, from 1.1 trillion won to 1.4 trillion won during the same period. This is only 5% of the New Start Fund's 30 trillion won resources. Considering that the debt adjustment amount surpassed 1 trillion won within three days of launch, the growth rate has significantly slowed since then.

Looking at the proportion of applicants by credit score range, 95.9% were low to medium credit borrowers with scores below 800, but concerns about moral hazard remain. An analysis of the top 50 debt adjustment applications as of October 7 showed that 57% were secured debts, 28% guaranteed debts, and 15% unsecured debts, indicating that most applicants had secured or guaranteed debts. In particular, there were suspicious cases where borrowers appeared to have deliberately lowered their credit scores, such as an applicant who requested 1.49 billion won out of the 1.5 billion won debt adjustment limit, with secured debt amounting to 910 million won but a credit score in the 200s, or another with 1.25 billion won in debt adjustment requests including 940 million won in secured debt but also a credit score in the 200s.

The simultaneous implementation of policies such as maturity extension, repayment deferral, refinancing loans, and refinancing guarantees is cited as a reason for the low number of New Start Fund applications. Previously, the government extended the maturity extension and repayment deferral measures for small business owners and self-employed individuals affected by COVID-19, which were scheduled to end in late September. Unlike previous six-month extensions, this time maturity extensions were extended up to three years and repayment deferrals up to one year. The New Start Fund was originally prepared as a support measure to coincide with the end of these extensions. However, with the extension of maturity extension and repayment deferral measures, the burden of principal and interest repayment has been postponed, reducing the incentive to choose debt adjustment, which involves disadvantages such as credit card usage restrictions.

Representative Choi said, "Given that the New Start Fund has not received as much response as expected, it is necessary to reconsider whether its design was inadequate," and added, "Especially since concerns about moral hazard have persisted since its launch, I hope the policy authorities thoroughly manage and supervise to prevent abuse of the New Start Fund."