The government is planning to lessen the financial burden of low-income households by slashing the interest rate on microfinance products.
The Financial Services Commission, the country’s financial regulator, said Monday that it is seeking measures to lower the interest rate on several trademark loan products for young adults and the low-income households, such as Smile Microcredit Program, Sunshine Loan and New Hope Loans.
The plan aims at helping the low-income debtors, who borrowed money from savings banks and nonbanking lenders at high interest rates of up to 34.9 percent, to switch to the government-supported microfinance schemes with interest rates in the 10-percent range. This will enable debtors to repay the principal and get out of debt, according to FSC officials.
In addition, the FSC is mulling ways to expand the eligibility of the microfinance plans, to help debt-laden consumers with affordable loans for urgent expenses.
The plan includes raising the ceiling for borrowers without a delinquency history, as well as allowing them to sign up for credit cards with a 500,000 won limitation.
The financial regulator is also pushing to launch more microfinance options related to employment, housing rent and deposits and saving plans, to bridge the financial products and welfare.
The FSC’s rate-cut plans for microfinance products came shortly after it launched a government-backed loan transfer drive, mostly for the middle class, with floating-rate, interest-only mortgages. The new program has invited public criticism for not helping low-income debtors.
In 2012, the FSC introduced some microfinance schemes to help financially troubled households despite criticism that the government was interfering in the financial sector.
The microfinance drive has been controversial as policymakers seek to balance the lenders’ interest margin and financial stability of the low-income households.
By Chung Joo-won (firstname.lastname@example.org