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Effect of consulting on microcredit repayment in Korea

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Frame of Image Effect of Consulting on Microcredit Repayment in Korea† By YOONHAEOH* This study examines the effect of a one-on-one outsourced pre-lending consulting service on the repayment behavior of microcredit borrowers in Korea with administrative data from the Smile Microcredit Bank. A random change in the cut-off loan amount for mandatory consulting is utilized as an identification strategy. This three-day pre-lending business consulting service is effective in encouraging repayment behavior of existing businesses but it has no significant effect on start-up loans. The effectiveness of the consulting service in deterring delinquency with regard to existing loans is greater among male borrowers than among females. Key Word: Microcredit, Non-financial Service, Consulting, Loan, Repayment, Arrear JEL Code: D1, G21, J1, L3, N25 I. Introduction S i nce Muhammad Yunus initiated the Grameen Bank in Bangladesh in 1976, several developed countries have introduced microcredit businesses as well to ease financial exclusion in their countries. In Korea, microcredit programs were started around the year 2000 by small non-governmental organizations such as the Joyful Union and the Social Solidarity Bank. After the global financial crisis, around 2010, the Korean government launched various political microcredit products,1 including the Smile Microcredit Bank (SMB). The SMB provides low-interest loans ranging from 2% to 4.5% to people with poor credit ratings2 (grades 7-10) or to * Fellow, Korea D


Full Text
Title Effect of consulting on microcredit repayment in Korea
Similar Titles
Material Type Article
Author(English)

Oh, Yoonhae

Publisher

[Sejong] : Korean Development Institute
Date 2015
Journal Title; Vol./Issue KDI Journal of Economic Policy:vol. 37(no. 3)
Pages 21
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Financial Policy
Holding Korean Development Institute; KDI School
License

Abstract

This study examines the effect of a one-on-one outsourced pre-lending consulting service on the repayment behavior of microcredit borrowers in Korea with administrative data from the Smile Microcredit Bank. A random change in the cut-off loan amount for mandatory consulting is utilized as an identification strategy. This three-day pre-lending business consulting service is effective in encouraging repayment behavior of existing businesses but it has no significant effect on start-up loans. The effectiveness of the consulting service in deterring delinquency with regard to existing loans is greater among male borrowers than among females.