By Kim Jae-won
Staff Reporter
Local banks and businesses launched microcredit businesses last week but many cash-strapped, low-income individuals and families are becoming frustrated as they are unable to access small loans due to heavy-handed rules and requirements.
Some analysts said that without modifying such rules, the government-initiated microcredit financing will do little to help those in the low-income bracket, stressing that the government should not use the move for political purposes.
A woman in her 40s, who asked to be identified by her surname Kim, runs a small clothing shop in Jegi-dong, Seoul. She dropped by the Euljiro branch of Woori Smile Microcredit Bank Friday to take out 40 million won in loans to relocate her shop.
However, the single mom of two kids could not get the loan because she did not meet a relevant requirement stipulating that business owners must have run his or her shop for at least two years. She has run the shop for 19 months.
“She wept and left. I was sorry to say her that she cannot get the loan. I just said that she should try waiting for five more months,” Jung Min-young, a director of the branch told The Korea Times.
“I told the Smile Microcredit Bank center about what happened. I hope such regulations will be changed to give more benefits to the needy,” the 57-year-old former director of the Incheon Airport center of Woori Bank said.
However, the bank said the two-year requirement is the basic standard for such a loan.
“We are approaching this with a financial mind, not a welfare mind. We support people who can support themselves with the loan. The two-year requirement is a minimum standard suggesting that owners should have experience and the ability to run his or her shop,” Cha Jae-ho, a manager at Smile Microcredit Bank, said.
The microcredit bank also excludes those who have already applied for personal debt rescheduling programs. However, some of those who have engaged in such programs say they need seed money to exit them.
“A senior customer dropped by our branch Friday. He was upset that he is not eligible because he already applied for debt rescheduling. He raised his voice and said, ‘Who made such a regulation? I need money to complete the program,’” Jung said.
Analysts say that the microcredit bank should ease some regulations, although it is essential to have some in order to filter out bad applicants.
“I agree that the bank needs to change some of its regulations, such as the two years of business experience. However, the bank also should keep regulations in place to filter out bad applicants who want to use the cheap rate interest, even though they can use general financial firms,” said Jeong Joong-ho, a researcher at Hana Institute of Finance.
Others claim that the government made the microcredit bank too quickly, for political purposes.
“The government wants to show that they are making efforts to support economic minorities. But, it is still hard to get the benefit,” a customer of the bank said.
Microcredit is a financial innovation that originated with the Grameen Bank in Bangladesh. The country has successfully enabled its low-income population to engage in self-employment projects that allow them to generate income. The Grameen Bank and its founder, Professor Muhammad Yunus, received the Nobel Peace Prize in 2006.
Many traditional large finance organizations worldwide are mulling microcredit projects as a source of future growth. The United Nations declared 2005 the International Year of Microcredit.