The government supported approximately 210 billion won in interest for small business owners and the self-employed from non-bank loans, but the related arrears rate has reached its highest level in 10 years. Industry experts point out that practical support, such as self-sufficiency or re-employment, is needed more than interest support or debt forgiveness.
According to the Korea SMEs and Startups Agency (KOSME) on the 1st, the government refunded 211.2 billion won in high-interest loan interest costs for small business owners and the self-employed last year. The number of businesses that received refunds was 250,000.
This program reimburses business owners and small businesses using high-interest loans from non-bank sectors by refunding interest rates above a certain level. It returns one year's interest of 0.5 to 1.5 percentage points to sole proprietors and small businesses who have paid interest on loans with rates of 5 to 7% for more than a year. Eligible financial institutions include mutual finance, savings banks, and specialized credit finance companies.
The largest refund amount was 92.4 billion won from NongHyup. It was followed by 39.9 billion won from Saemaul Geumgo and 32 billion won from credit unions.
Despite the government's interest support program, the arrears rate for self-employed individuals in the non-bank sector skyrocketed. According to the Bank of Korea's Financial Stability Report, the arrears rate for loans to self-employed individuals in the non-bank sector reached 3.92% in the first quarter of this year, the highest level in a decade since the end of the third quarter of 2015 (4.60%). The arrears rate for self-employed loans in the non-bank sector rose by 0.83 percentage points from 3.09% in the first quarter of last year.
In a situation where the economic downturn is shrinking self-employed individuals' business activities, simple cash support policies, such as interest expense compensation, are interpreted as having little effectiveness. A person in the financial sector noted, 'Even if interest expenses are supported for self-employed individuals who received high-interest loans from secondary financial institutions because their businesses are not doing well, the funds will only last for a month or two for living expenses or interest. It's a policy that merely delays the closure of their businesses.'
Experts say that policies for income recovery for the self-employed, such as re-employment, should be implemented in conjunction with interest support or debt forgiveness policies for them to be effective.
A Bank of Korea official stated, 'The slow recovery of consumption due to the sluggish service industry restricts the debt repayment capacity of self-employed households' and added, 'It is necessary to strengthen micro-level policies for income recovery, such as debt restructuring and re-employment support.'
Kim Mi-ru, a researcher at the Korea Development Institute (KDI), also stated, 'The fundamental cause of the debt problem among self-employed individuals lies in the phenomenon of self-employment saturation, so institutional measures are needed to convert debt restructuring targets into wage earners.'