The uniformly high guaranteed rate currently provided by ‘Sunshine Loan’ through non-bank depository institutions does not incentivize the financial institutions to put enough efforts into the preliminary screening or follow-up management. If the policymakers are to enhance the capacity of non-bank depository institutions in dealing with subprime unsecured personal loans (microcredit), they should differentiate the guaranteed rate according to the credit rating, the loan amount, and the number of loan issued to the same person.
- The application of differentiated guaranteed rates is required to motivate nonbank depository institutions to use relationship banking and to step up their efforts in followup management.
- The guarantee credit default rate of Sunshine Loan is 13.5 percent while the default rate of Smile Microcredit is 6.8 percent, and the default rate of New Hope Loan is 3 percent.
- Currently, nonbank financial institutions lend a large amount of money to the borrower at once before collecting detailed information about the borrower. (The rest omitted)
Differentiating the guaranteed rate
A way to improve the sunshine loan program
Sejong-si : Korea Development Institute
|Series Title; No||KDI Focus / 40|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy|
|Holding||KDI; KDI School|