What is KODIT?

The headquarters of KODIT in Mapo, Seoul

Korea Credit Guarantee Fund (KODIT) is a public financial institution established in June 1976 under the provisions of the KODIT Act.

As stipulated in Article 1 of the Act, the main purpose of the fund is to lead a balanced development of the economy by extending credit guarantees for the liabilities of promising small- and medium-sized enterprises (SMEs) which lack tangible collateral.

In an attempt to meet SMEs’ demand for financing services, the state-run agency provides enterprises with credit guarantee services for the repayment of liabilities assumed by business enterprises in transactions with other companies or institutions.

The credit guarantee services by the agency are to facilitate the financing of SMEs through the credit guarantees and stimulate the sound credit transaction through the efficient management of credit information.

KODIT’s capital funds are the financial resources prerequisite for KODIT to maintain its public trust, to provide credit guarantee, to make payment under guarantees and to earn revenue from managing surplus capital funds. The main sources of the capital funds are the contributions from the government, financial institutions and enterprises.

The contribution from the government is subject to change every year depending on the government’s policy on credit guarantees.

On the other hand, according to the KODIT Act, all banks in Korea have to contribute funds to KODIT. These contributions, a main systematic tool for raising capital funds, are calculated on the balances of banks for specific loans at a certain rate not exceeding 0.3 percent per annum.

At the end of 2012, the total capital funds of KODIT reached 6.05 trillion won ($5.43 billion).

The aggregate amount of outstanding credit guarantees cannot exceed more than 20 times the capital funds. As of the end of 2012, the leverage ratio including P-CBO guarantees was 7.5 times.

In terms of credit insurance services, the agency has two kinds — a bill insurance service and a receivables insurance service. KODIT introduced the former in 1997 and the latter in 2004 to protect SMEs from chain reaction bankruptcies arising from dishonored commercial bills or non-payment of receivables for the goods and services that SMEs provided to buyers.

It also introduced Korea Infrastructure Credit Guarantee Fund (KICGF) in 1994. Initially, KICGF was operated by three institutions — Korea Development Bank, Korea Technology Credit Guarantee Fund, and KODIT. It then took over the funds of the other two institutions and became the sole operator of KICGF.

The goal of infrastructure credit guarantee services is to help private investment corporations obtain funds for facility construction. Infrastructure credit guarantee services have played a significant role in securing the financing of private investment corporations that lack the collateral for loans but have acceptable credit standings and strong prospects.