Anyone who has paid attention to what Financial Services Commission is recently doing must have heard about Smile Microcredit Bank, at least the name of it. The overall concept and how it is operated is explained in detail in previous articles and FSC Weekly E-Briefing.
Fin Pol articles on Smile Microcredit Bank
Weekly E-Briefing on Smile Microcredit Bank
As elaborated in those articles, Smile Micro Credit system is operated by two main bodies, the Smile Microcredit Bank and Corporate-run Microcredit Banks. Smile Microcredit Bank, which is a government subordinate agency, seems quite reasonable in a sense that government always endeavors to come up with better services to promote national welfare. But does it make sense that companies, whose primary goal is known to be making profits, are doing such works? And news articles these days often mention that there are not that many beneficiaries from the Smile Microcredit system. This prejudice and the articles altogether are enough to raise questions among people for the companies’ eligibility for taking part in such system. However, all these questions were answered with just one visit to one of the Company Smile Microcredit branches. Now, through the interview, let’s see what are the real facts and rumors and how Corporate-run Microcredit Bank is actually operated.
As for interviewees, Director.Jung Min-Young and Deputy Chief.Kim Ju-Yoel of Woori Smile Microcredit Bank, which is widely known as a successful example of Corporate-run Microcredit Bank, kindly answered questions and gave additional explanations on Corporate-run Microcredit Bank.
Entering the administrative office, Director.Jung Min-Young and Deputy Chief.Kim Ju-Yoel, who had smiley faces, were the first to be seen. Unlike usual bank personnel who are dressed in formal suites with ties, they were wearing casual jumpers, so it gave the impression that their appearance well represented the purpose of Smile Microcredit Bank.
Q: How does Corporate-run Microcredit Bank systematically work?
A: Companies taking part in Smile Microcredit Bank financially support the system in three ways: consolidated funds from insolvent obligation, unclaimed money donation, and specially assigned money from the bank. The first two types of money go to Smile Microcredit Bank to fund regional branches of Smile Microcredit Bank. And the third fund is the money specially set aside for the operation of Corporate-run Microcredit Bank branches. So with the third fund, Corporate-run Microcredit Bank branches provide loans and consulting services. With no financial support or incentives from the government, companies consider those funds as a means of Corporate Social Responsibility (CSR). To give you the exact amount, Woori Bank has assigned for Woori Smile Microcredit Bank 10,000,000,000 won a year for five years, so it is 50,000,000,000 won in total.
As for organizational structure, Corporate-run Microcredit Bank is a totally separate entity from any governmental agencies, so there is no interception or regulations to its operations, which allows companies to run the system with consistency. For example, whether to approve the loan is up to the companies. And because the Corporate-run Microcredit Bank branches are more aware of that region and have more personnel skilled in loans and consulting, they can come up with the most suitable solution for the applicants.
A: The most significant difference is shown in risk management. There are two kinds of risks. One is the risk in the loan itself, and the other is from management such as the organization itself, human resources management, the flow of tasks, etc. In order to manage the risks in loan itself, Woori Smile Microcredit Bank is mainly composed of Woori Bank personnel, who are experienced in such tasks. As for the managerial risks, Woori Bank’s know-how’s in organizational structure are applied to make the Bank more stable. Therefore we are pretty confident that in those two risk managements we have more competence than Smile Microcredit Bank, whose branches are newly organized.
Q: As expressed in many news articles and other media, there are too many concerns on profit rate or return rate of the loan. According to statistical data in such articles, it is estimated that Smile Microcredit system will inevitably have a deficit soon. Wouldn’t it be a hindrance for the operation of Smile Microcredit Bank?
A: I would first like to say that questioning profit rate in Smile Microcredit Bank is rather absurd. If the companies were concerned with the profit rate at the first place, why would they have started it? Corporate-run Microcredit Banks and normal loan companies should not be compared; they are different from the beginning. While normal loan companies focus on their profit rate on their own perspective, we focus on the borrowers’ profit rate. We try to think in customers’ view. What are the financial difficulties they are going through and how we can advise them in making their business more prosperous are the issues that we try to deal with, not the money. As for the interest rates we set currently, we could have set it 0% if we just considered the original purpose of Smile Microcredit Bank. But the reason why we are not doing so is just that those interest rates are to prevent moral hazards and to partially compensate the cost for Corporate-run Microcredit Banks at the minimum level, so that the money earned from the interest can be used to give loans to other customers. Speaking of the cost, we take every measure to minimize the cost because then we can provide more services to more people with money saved. For instance, to save money for lease, we made Smile Microcredit Bank office and counseling counters in this second floor, which was formerly used for Woori Bank offices. And employees independently hired from Woori Smile Microcredit Bank, work at about 1/4 salary of normal employees.
Q: How are the personnel organized here?
A: Personnel here are either dispatched from Woori Bank’s Low Income Household Support Team, or independently hired from Woori Smile Microcredit Bank. Those who work in Low Income Household Support Team are not only specialized in overall financial matters but also committed in Low Income Household Finance. Among independently hired personnel, there are Woori Bank retirees with long experience in bank. And the rest are also financially well-trained with experiences in similar fields. The pay for those hired from Woori Smile Bank is about 1/4 of that of normal bank employees. Despite the difference in salary, these two groups of personnel have the same compassion for low-income people’s financial difficulties and passion to help them through this Smile Microcredit Bank system. Let me tell you some examples. On the third floor of this building there is a securities business company, and one day a man just came here and said that he wanted 5,000,000. He just thought that Smile Microcredit Bank gives money to the poor. Because he just had lost 10,000,000 in stock exchange, he was mad and would not listen to our explanation on Smile Microcredit. But instead of just driving him out we tried and tried to make him understand, and after four hours of explanation, he was finally persuaded and went back. For another example, sometimes we went out to a nearby conventional market and visited stores to explain Smile Microcredit Bank. As you can see from these examples, we really try to help them, because this bank is not for us, but for them.
Q: So far how many beneficiaries are there from Woori Smile Microcredit Bank?
A: Established in December 17th 2009 as the first Corporate-run Microcredit Bank, we have got 9,114 calls and 1,635 visits for consultation. And among them, 40 customers got Smile Microcredit loans, 3,040,000 in terms of amount. Considering that it has been only three months since the start of this system, this figure is relatively encouraging. And during March, Woori Bank is planning to open two more Woori Smile Microcredit branches in other regions, so the number of beneficiaries is expected to grow. Although the number itself is important in a sense that more people were benefited from the system, we try to focus more on how each beneficiary are getting along with their businesses because the ultimate purpose of Smile Microcredit Bank is to give them a smiles.
Q: Is there anything more to tell us about Smile Microcredit?
A: I know there are many opinions questioning Smile Microcredit system’s success in Korea. But even for Grameen bank, which is considered to be the successful case of Microcredit Bank, it took 20 years until it really made some achievements and thus to be as a successful microcredit model. Also, in financial business field, it takes about 2 years to come up with a descriptive model. Compared to these periods, Smile Microcredit Bank system is now in the beginning stage, so now it is early to discuss its success. Someday later when this system gets more stable in operation, then we can have some discussion. Therefore, for now, please patiently watch us. We are doing our best to give smiles to our customers.