This study aims to review empirically the effectiveness of Korea’s policy lending programs for small and medium sized enterprises (SMEs) on helping the companies perform better.
The Korean government began supporting SMEs financing in the 1960s when the Industrial Bank of Korea was established and banks went under a legal obligation to set aside a certain portion of their total lending for SMEs. Korea’s policy lending programs for SMEs were introduced with the establishment of the SME Promotion Fund in the 80s, when there was much debate regarding the disparity and imbalances existing between large corporations and SMEs. The policy lending schemes, however, have been accused of deepening the dependence of SMEs on government assistance for survival, as the funds often went to paying for ordinary activities, thereby discouraging competitive/innovative initiative on the part of SMEs. Although the financing environment for smaller businesses has improved since the foreign exchange crisis, Korea’s SMEs have consistently shown lower levels of performance and rising default rates, attesting to the chronic low profitability of these companies.
This study attempts to identify trends in Korea’s policy lending programs for SMEs by analyzing 50,131 lending cases worth around 16.7 trillion won. Results have found that the beneficiary SMEs have a high reliance on the loans and enjoy relatively low capital costs. Despite the positive effect of policy lending on the profitability of SMEs, a profit margin comparison found that these companies underperformed in 2002 and 2003. An empirical analysis based on the Ashenfelter (1978)’s model, however, found that there was little difference in profit margins between the beneficiaries and non-beneficiaries of SME policy lending. In fact, some cases found the lending policy to have a negative impact on profitability. Furthermore, there was little evidence that lending to SMEs during the earlier stages was more effective than the latter stages.
중소기업 정책금융 지원효과에 관한 연구(Korea’s policy lending programs for SMEs)
재정자금을 이용한 중소기업 정책금융을 중심으로
|Series Title; No||정책포럼 / 2004-05|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Industry and Technology < Entrepreneurship|
|Holding||KDI; KDI School|