[Reporter’s Notebook] Inclusive Finance: All Stick, No Carrot

Evaluation of Implementation Levels and Penalties Announced
Voluntary Commitments Turn into Government Control

The financial authorities have announced that they will evaluate the level of inclusive finance implementation by banks and impose penalties if it is deemed insufficient. Although the five major financial groups (KB, Shinhan, Hana, Woori, and NH Nonghyup) have voluntarily pledged to invest 70 trillion won in inclusive finance over the next five years, the response has been punitive rather than supportive. What began as a voluntary commitment has turned into a scoring sheet and penalty system, revealing the underlying government control masked by the term "inclusive finance."

The essence of inclusive finance lies in financial institutions fulfilling their social responsibilities by taking on risk. For this system to be sustainable, the government should set the direction, while financial institutions make their own judgments and execute accordingly, creating a virtuous cycle. However, once evaluations and penalties are introduced, "inclusion" becomes an obligation and finance is reduced to something to be managed. The realm of autonomy and guidance is thus transformed into one of supervision and discipline.

The public service costs already borne by the banking sector have reached their limit. Banks are shouldering significant expenses through various funds, such as contributions to the Korea Inclusive Finance Agency and deposit insurance premiums. Recently, even the contribution rate for inclusive finance was raised from 0.06% to 0.1%. As a result, the additional burden on banks will amount to 200 billion won per year. Currently, banks are responsible for 2.473 billion won (56%) of the Korea Inclusive Finance Agency's total annual contributions of 4.348 billion won. If penalties are imposed based on the level of inclusive finance implementation, it would go beyond voluntary responsibility and could be criticized as a de facto "quasi-tax."

Compared to international cases, the approach of Korean authorities is even more striking. Policy finance institutions such as Bpifrance in France and KfW in Germany directly provide policy finance and encourage private banks to participate through incentives, so as not to infringe upon the commercial decision-making rights of the private sector. Japan offers a lesson in this regard. In the past, Japan was the epitome of "convoy system" government-controlled finance, which led to increased insolvency and the proliferation of zombie companies due to excessive government intervention-a painful lesson in financial policy.

The financial authorities explain that they will also offer "incentives" by lowering contribution rates based on evaluation results. However, this is less a genuine reward and more a conditional offer of "reducing penalties for good performance." Rather than a true "carrot," it is an exercise of supervisory authority that merely adjusts the "severity of the stick."

No matter how noble the policy goal, the method cannot be justified solely by its intent. While the term "inclusive" is used, the operational approach is closer to government control. No one denies the value of inclusive finance. However, the moment inclusion is enforced, the vitality of the policy inevitably withers. True inclusion stems not from coercion, but from incentives based on trust-a fact that must not be forgotten.