Yellow Umbrella Cancellations Decline for Two Consecutive Years... Is It a Sign of Small Business Recovery?

50,611 Early Cancellations from January to October This Year
Down 11.3% Compared to the Same Period Last Year
Two Consecutive Years of Decline After Peaking in 2023
System Reforms Followed, Including Introduction of Low-Interest Loans
"Impact of Enhanced Benefits... Caution Needed Regarding Long-Term Burden"

The number of early cancellations of the Yellow Umbrella Mutual Aid, which had surged due to the impact of COVID-19 and worsening business conditions, has now declined for two consecutive years. This is seen as a positive sign, as it indicates a decrease in the proportion of small business owners forced into urgent situations severe enough to break their hard-earned savings.

However, experts point out that this trend is largely driven by improved product features, such as enhanced benefits for subscribers, rather than fundamental changes in the business environment for small business owners. Given that the challenges facing small business owners persist, there are calls for more active, multifaceted analysis and support to further improve the effectiveness of the system.

Vacant stores caused by closed small business owners line a commercial area densely packed in Sinchon, Seoul. Photo by Jo Yongjun

According to the Korea Federation of SMEs on November 28, the number of early cancellations of the Yellow Umbrella Mutual Aid from January to October this year was 50,611, down 11.3% from the same period last year (57,103 cases). Early cancellation refers to small business owners withdrawing their mutual aid funds in situations that do not meet the legal conditions for cancellation, such as business closure, death, or old age. The number of early cancellations surged from 30,974 in 2022 to a peak of 57,984 in 2023, but has declined for two consecutive years through this year. The total number of subscribers has also continued to grow, reaching 1,848,000 as of October this year, up by 78,000 from 1,770,000 a year earlier.

However, experts say it is difficult to interpret this as a result of improved business conditions for small business owners. In fact, some interpret it as an "optical illusion" created by the government significantly expanding benefits for Yellow Umbrella Mutual Aid subscribers.

For non-statutory early cancellations, all income deduction amounts received during the subscription period are taxed as other income, and only the amount remaining after deducting this from the paid-in mutual aid contributions is returned, resulting in substantial losses. The number of small business owners willing to accept these losses to secure emergency funds increased sharply through 2023. In response, the government dramatically expanded financial benefits and welfare services for subscribers, such as introducing new low-interest loans in partnership with guarantee institutions and increasing interest-free emergency loans.

Jung Eunae, a research fellow at the Korea Small Business Institute, stated, "No recent statistical data suggests that the business environment for small business owners has improved compared to the past. I believe the government's strengthened benefits are having the effect of retaining subscribers."

There are also concerns that retention policies focused on financial benefits could lead to a long-term debt burden for small business owners. According to the Korea Federation of SMEs, the amount of Yellow Umbrella Mutual Aid contract loans executed from January to October this year reached 5.312 trillion won across approximately 373,000 cases. Even considering that this is data as of October, it has already far surpassed last year's total (4.708 trillion won, 348,000 cases). Compared to four years ago in 2021, both the loan amount and the number of cases have increased by 148.5% and 91.2%, respectively.

Kim Jinil, professor of economics at Korea University, commented, "Retention policies that utilize financial benefits such as loans may increase the repayment burden for some small business owners. It is important to design loan limits and interest rate structures more precisely to prevent excessive debt accumulation and to implement support measures that can genuinely improve business conditions in parallel."