By Kim Jae-won
When Bangladeshi economist Muhammad Yunus introduced the concept of microcredit through the Grameen Bank, he may not have imagined how badly it could be corrupted if altered for different circumstances.
An embezzlement and bribery case at Korea’s state-run microcredit agency illustrates that the great idea ― providing small loans to the underprivileged without collateral ― can become a criminal activity if not carefully supervised.
A Seoul district court sentenced Kim Beom-su, head of two private organizations, to a five-year jail term and fined him 230 million won in June for allegedly embezzling 2.3 billion won of microcredit funds, which he was in charge of on behalf of the Smile Microcredit Foundation, a state-run microcredit agency under the umbrella of the Financial Services Commission (FSC).
Kim is charged with bribing a director of the foundation, surnamed Yang, with hundreds of millions of won to get a license to manage the funds. Yang was given a seven-year jail term and fined 250 million won, showing that Korea’s microcredit agency faces a crisis of credibility.
The agency’s rising delinquency rate remains another obstacle ahead of the program’s future in the country, official data showed.
According to information from the FSC, the rate extended marked 4.7 percent in July, up 2.1 percentage points from a year ago.
In particular, a case involving Sunshine Loan, a microcredit product for low-income and low-credit families, is even worse. The delinquency ratio reached 8.9 percent in July, up more than four times from a year earlier when it posted 2.1 percent.
However, the foundation said that the ratio is quite low compared to its international counterparts.
“We are managing a delinquency ratio in the 4 percent-range, which is much lower than the foreign agencies average ratio of 15 percent,” said Lim Jae-hyung, a director of the Smile Microcredit Foundation.
Lim said that it is inevitable to see some level of delinquency because it lends money to people on low-incomes with low-credit ratings who have no collateral or guarantees though it examines applicants thoroughly.
The foundation was established in December 2009 on the initiative of the Lee Myung-bak administration, which sought to help the underprivileged with social programs.
Major lenders and big companies, including Kookmin Bank, Woori Bank and Hyundai Motor Group, donated billions of won in funds to the agency, which provides small loans to low income families at low interest rates of 2 to 4.5 percent.
Despite the ambitious start, the business is now on the downside because the foundation provided 132.3 billion won of loans in the first half of this year, down 15.2 billion won from a year ago, according to data from the FSC.
Politicians said that the government should overhaul the agency to improve its financial soundness and help more people have access to the funds.
“The authorities should create new rules for the agency with thorough management and supervision,” said Rep. Kim Ki-sik of the main opposition Democratic United Party in a statement.