Smile microcredit gains presence

By Kang Seung-woo

“Smile” microcredit banks are gaining momentum this year, as their outstanding loan balance has surpassed 200 billion won, the financial regulator said Friday.

The number of those who used the government-led loan program as of the end of the third quarter rose a sharp 96 percent from a year ago, while its default rate remained at around 3 percent, showing that the lending program for the underprivileged has had a soft landing.

According to the Financial Services Commission (FSC), a total of 36,445 people borrowed 227.2 billion won through the program, breaking its annual target of 200 billion won. The balance is on pace to go beyond 250 billion won.

The third-quarter total was up from 115.9 billion won from 2010.

The microcredit outfit, established in December 2009, is a state-led program that offers unsecured loans to low-income families via partnerships with private institutions including financial players and companies.

In terms of financing the loan program, the members of the Federation of Korean Industries and financial institutions plan to invest 1 trillion won apiece and currently, 1.23 trillion won has been set aside.

Although the program deals with low-income households, its delinquency rate recorded 3.1 percent amid the soaring loans.

“Borrowers from Smile microcredit banks are willing to support themselves and its low-interest rate of 4.5 percent also helps them to pay debts,” said an official of the FSC.

“”Considering the current default rate, Smile microcredit banks seem to have gained footing.”

With the loan program topping the annual target, the government plans to encourage more people to take advantage of it.

It is considering placing outlets at public institutions such as police stations and municipal offices that can help to ease office rental costs.

In addition, beyond just lending money, the government plans to give borrowers the know-how to do business.