[The Trap of Illegal Private Loans]③ Small Livelihood Loans Bring 1.5 Million Disappeared People into the Light

Interview with Kim Mihye, Director of the Korea Inclusive Finance Agency
"Providing consultations with a 500,000 KRW loan incentive for low-credit individuals in blind spots"
Offering solutions for illegal private loans, debt adjustment, welfare, and employment

On the 27th, citizens visiting the Jung-gu Central Microfinance Integrated Support Center in Seoul applied for loans from a small living expense loan product offering up to 1 million won with an annual interest rate of up to 15.9%. Photo by Kang Jin-hyung aymsdream@

Mr. Kim Jung-o (57) works at two places: a cleaning service company and a restaurant. His wife is battling illness, and his daughter is a university student. He barely manages to make ends meet by earning money alone. Earlier this month, Mr. Kim visited the Integrated Support Center for Low-Income Finance to apply for a small living expense loan.

"My credit score is low, and since I already had debts, even the loan companies I was referred to by acquaintances refused to lend me money. I had to pay my daughter's university tuition and monthly rent, so I picked up a business card from a private loan company on the street and contacted them, borrowing 3 million won in four installments. The interest rates were so high that I couldn't repay the money and have only been receiving threats."

When he expressed his troubles at the counter, the counselor granted him a 500,000 won loan for general living expenses. They also helped Mr. Kim register his illegal private loan damage case with the Financial Supervisory Service and guided him to consult with the Korea Legal Aid Corporation.

Encouraging the Bottom 10% Credit Score Holders to Step Outside and Support Their Recovery

Kim Mihye, Head of the Financial Business Department at the Korea Inclusive Finance Agency, is being interviewed on the 12th at the Korea Inclusive Finance Agency in Jung-gu, Seoul. Photo by Kang Jinhyung aymsdream@

The small living expense loan system, launched by the Financial Services Commission on March 27, is playing a role in bringing 1.5 million low-credit and low-income individuals, who have disappeared from the private loan market, into the light. It provides emergency funds of up to 1 million won while also offering counseling to help them recover.

Nine out of ten people who visit the small living expense loan counseling centers belong to the bottom 10% in credit scores. Kim Mi-hye, head of the Financial Business Department at the Korea Inclusive Finance Agency, who is in charge of operations, explained, "Those who are rejected by savings banks and private lenders and end up resorting to private loans usually cannot share their troubles with anyone and suffer alone. The meaning of this system is to offer 500,000 won as an inducement to put out urgent fires for people in blind spots, encouraging them to come out and then providing the necessary support."

This year, the budget for small living expense loans is 100 billion won. From the end of March to the end of June, a total of 63,538 people applied, and 38.9 billion won was disbursed. For those borrowing 500,000 won, the monthly interest is about 6,000 won. Approximately 10% of all applicants have failed to pay this interest.

Especially High Number of Consultations on Illegal Private Loan Damage

Consultations for small living expense loans are divided into welfare guidance, debt adjustment, employment support, and illegal private finance. For those needing nursing care expenses, local government nursing support programs are provided, and for day laborers without lodging fees, job connections are offered.

Consultations related to illegal private finance are particularly numerous. Ms. Kim said, "Most applicants have credit scores below 600, so many are involved in the private loan market. About 1,000 consultations are conducted daily nationwide, and among these, around 350 daily involve cases where applicants have used or intend to use illegal private loans, representing a significant portion."

For these individuals, they are connected with the Korea Legal Aid Corporation to use the debtor representative system, which appoints a lawyer as an agent to protect borrowers from illegal debt collection. They also assist in registering damage cases with the Financial Supervisory Service.

On September 27, it will be six months since the small living expense loan system was established. Those who have paid interest monthly for six months after borrowing can receive an additional 500,000 won loan. If they repay without missing interest payments for one year, the interest rate will be reduced to as low as 9.9%.