Revised Rules on Microfinance Support Expected to Increase Availability of Funds for Inclusive Finance

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Revised Rules on Microfinance Support Expected to Increase Availability of Funds for Inclusive Finance Sep 24, 2024

The Financial Services Commission announced that a revision bill for the Enforcement Decree of the Microfinance Support Act was approved by the government at the cabinet meeting held on September 24.

This revision bill is aimed at ensuring stable foundations for supplying microfinance assistance to vulnerable groups as the need to provide policy-based microloan products has been growing against the backdrop of the continuation of challenging economic conditions, such as high interest rates and high prices. In this regard, the revised rules will temporarily (a) increase the common rate of microfinance contributions financial companies are required to make, while (b) offering an incentive of reduction in the differential contribution amounts (which are determined by financial companies’ subrogation rates) to those making active efforts in supplying policy-based microloan products.

First, the common rate of microfinance contributions financial companies make in relation to the size of their household loans, which currently stands at 0.03 percent, will be increased by 0.005 percentage points for banks to 0.035 percent and by 0.015 percentage points for insurance companies, mutual finance businesses, specialized credit finance businesses, and savings banks to 0.045 percent. The increased common contribution rates will be in place until December 31, 2025. This is expected to help expand the availability of funds for guarantees intended to supply policy-based microfinance assistance.

Second, financial companies that are making active efforts in supplying policy-based microloan products will be eligible to receive a reduction in the amount of microfinance contributions they are required to make in relation to their subrogation rates (differential contribution rates) on a temporary basis until December 31, 2025. It aims to lower financial companies’ burden of differential contribution amounts, which are determined by their subrogation rates, for those with outstanding records in supplying policy-based microloan products. The Korea Inclusive Finance Agency (KINFA) will evaluate financial companies’ performance in supplying policy-based microloan products and select the ones that are eligible to receive a reduction in differential contribution rates.

This revision bill is expected to help establish stable foundations for supplying policy-based microfinance assistance by securing additional funds of about KRW103.9 billion for guarantees and providing financial companies with an incentive to more actively supply policy-based microloan products.

The revised Enforcement Decree of the Microfinance Support Act will take effect from the day of promulgation.

• Please refer to the attached PDF for details.

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