By Kim Jae-won
Staff Reporter

Smile Microcredit Bank (SMB) has provided financial services for low-credit and low-income families since December on the back of government, local banks and corporations, but a well-known research center said Thursday that the running expenses of the lender may exceed its operating profit from interest.

According to a 124-page report released by the Korea Institute of Finance (KIF), the running expenses of the lender will amount to between 100 billion won and 110 billion won a year, while the income from interest payment is estimated to be around 100 billion won.

Salaries for human resources will occupy most of the expenses as they are estimated to be from 60 billion to 70 billion won, the report said.

Expenses for running branch offices will also cost 40 billion won every year, it added.

However, the profit from the micro-loans will be about 100 billion won a year. This was calculated on the assumption that the bank will lend 2 trillion won on average, at an annual interest of 5 percent.

``These programs deteriorate credit practices in the subprime lending market even further, not only by discouraging private financial institutions' efforts to cultivate competent credit practices, but also due to its financially-weak customer base,'' the report said.

A representative of SMB said Thursday that they are checking out the issues mentioned in the report, and will decide their position soon.

``We are discussing the issue now. We will soon announce our official statement,'' said Yang Chang-yeop, head of the bank's strategy planning team.

However, some analysts say that there are many cases worldwide where microcredit banks made profits and enlarged their size.

For example, Grameen Bank, which was established in the late '70s by Muhammad Yunus, a pioneer of microfinance, has successfully developed itself into a global operation to fanfares from around the world.

The bank made its first loan of $27 to 42 women in the village of Jobra, Bangladesh in 1976. Since then, it claims to have changed the lives of more than 40 million people in that nation alone by making small loans to more than 8 million people.

According to the 2009 Microcredit Summit Report, 3,552 microcredit institutions reported to have more than 154 million clients worldwide as of December 2007, and for 70% of them it was their first loan.

shosta@koreatimes.co.kr