Apparently, microfinance in South Korea has failed. The Korea Times, a South Korean daily newspaper, attributes this failure to “lack of private donations and government support.” The South Korean government established the Social Solidarity Bank (SSB), the nation’s first non-governmental microfinance institution, in 2002. Since its inception, SSB attracted corporate donations of 3 billion won (USD $3.15 million), in large part from conglomerate Samsung Group and Kookmin Bank. However, The Korea Times believes this was “a miniscule amount of money and not enough to allow the bank to operate as a financial institution.”
Lim Eun-eui, a SSB public relations officer, blames the bank’s failure on the lack of support from the government and private sector: “We have not been able to live up to our objectives in terms of helping people in need, as there is only so much we can do in the face of the indifference of private companies.’’
Contrary to these accusations, the government has been hard at work, devising new plans to strengthen the microfinance sector. Earlier this year, the Justice Ministry introduced a plan to set an interest rate cap of 40%, in order to prevent credit defaults and the extension of risky loans. However, the plan met resistance from policymakers and the finance industry. The Ministry of Finance and Economy also toyed with the idea of seizing funds from inactive accounts at local banks, an estimated 722.4 billion won (USD $753.6 million) accumulated over the past 5 years. These plans, too, were felled by the self-serving finance industry which balked at the proposed forced donation.
The Korea Times and the SSB may seek to lay the blame elsewhere, but the failure of a state bank is the oldest story in the book.
Additional Resources
1) The Korea Times: “Micro-Credit Provides Little Help for Poor”
2) Bloomberg Currency Calculator
