Incompleteness of the credit markets in Korea is the main cause for the persistently limited credit availability to small neighborhood businesses(SNBs) and low-income households(LIHs). Although improving credit supply to SNBs and LIHs had been one of the major policy goals of the financial authorities in recent years, policy measures based upon government guarantee programs have so far failed to correct discriminatory credit practices by financial institutions against SNBs and LIHs mainly because such measures were not properly aligned with the incentive structures of the target institutions.
The government should focus more on the revitalization of small financial institutions specializing in extension of credit to sub-prime borrowers(thrifts). Thrifts should become major channels for policy aids to sub-prime borrowers because high risk credit operations contradicts fundamental business models of large financial institutions such as banks. Priority should be put on improving capacity of individual institutions to handle high risk credit operations and establishing long-term growth paths. This requires making government guarantee programs for SNB and LIH loans more dependent on the screening functions of such institutions as well as deregulation of the thrift industry in terms of branch networking and the scope of businesses.
Establishing consistent regulatory framework for the various financial institutions currently operating in the credit markets for SNBs and LIHs should also be an important policy concern. In this regard, the regulatory authorities should focus on three areas . First, single regulatory framework should be established for the non-bank depository institutions including savings banks, credit unions and other mutual credit facilities. Second, regula- tions on credit specialized companies should be reformed so that consumer credit operations of such companies could be more appropriately supervised. Third, commercial money lenders should be properly regulated: large money lenders should be more closely supervised and strong self regulation framework should be adopted for small and midium size money lenders so that consumer protection should not be compromised.
서민금융과 금융시스템(Financial system reform to improve credit availability to small neighborhood businesses and low-income households)
서민금융 공급시스템의 중장기 정책과제
|Series Title; No||KIF 금융리포트|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy|
|Holding||한국금융연구원; KDI 국제정책대학원|