The Current Status of Sunshine Loan Program and Smile Microcredit Program

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The disastrous financial crisis that swept the world economy through 2007~2008 had a detrimental effect on household economy,especially on households with low or middle income level. It became increasingly difficult to get a loan from financial firms that tightened up to stabilize their financial status. The walls for loan getting higher day by day, slowdown in consumption was evident.

The Korean government carried out set of measures aimed at alleviating the situation. It introduced various finance programs including Sunshine Loan and Smile Microcredit. This edition is intended to give a comprehensive analysis of the two finance programs Sunshine Loan and Smile Microcredit through two separate articles that explains and analyzes ①the characteristics and current status of the programs and ②the government’s amendment plans for the programs.

Smile Microcredit Logo
Smile Microcredit Logo
Sunshine Loan Logo
Sunshine Loan Logo

The Sunshine Loan program was initiated in July, 2010. The numerical goal of the program was, for five years, to form a 2,000-billion-won guarantee fund jointly – the government with financial firms – and to lend out 1 trillion won to people at the interest rate of 11~14%. Since the beginning of the program to the end of this year’s June, total of 283.1 billion won had been formed as the guarantee fund. The source of the fund includes central government, local governments and financial firms (Nonghyup, Suhyup, Saemaeul Bank, Shinhyup and Savings Banks). A total of 183,144 people were provided with 1700 billion won of loan. Also,
big proportion of the people benefiting from this program is of credit levels 6 and 7 (These people make up 58 percent of the total loan).

The increase in amount of loans taken out is slowing down after a sharp increase in early phase of the program as the evaluation for redemption ability became stricter (October, 2010). The daily average amount of loan was 21.2 billion won between
July, 2010 and September, 2010 while it was 3.6 billion won between October, 2010 and June, 2011. If this trend were to continue, about 1750 billion won will be lent out, meaning that the actual amount of loan will fall behind the annual goal of 2000 billion won. It would be necessary to arrange plans to invigorate loan take-outs and call for collaboration between offices.

Smile Microcredit program is a quite different program. Its goal is to provide people with chances to get a loan for establishing business. For 10 years, 2200 billion won will be raised from donations and dormant deposits to lend out loans with the interest rate of 2~4.5%. Smile Microcredit program is carried out in various places including companies, banks and local foundations. At the end of June, 2011, a total of 1,000 million won had been gathered. Since January, 2010 –the month this program was initiated- until June, 2011, a total of 263.5 billion won had been lent to 28,728 people. Similar to Sunshine Loan program, people of relatively low credit levels were main beneficiaries of this program. 62.5% of the people who took out loan with the help of the program were of credit levels 7 and 8. Having witnessed 148.1 billion won being lent in the first half of the year, it is estimated this year that the actual amount of loan will outrun the annual goal, which is 200 billion won. The default rate is stagnant near the number 2.5 but is expected to increase.

The program has been successful in that people could have widened chances of getting loans. Cases of successful establishment are being reported. Yet, the fact that collective measures between the local community and loan program were not sufficient needs amendment. Also, as the main purpose of the program is to help people establish a concrete economic basis (i.e. business or ventures), there needs to be additional measures – such as business consulting – to facilitate the program in Korean society.

In the next article, there will be detailed accounts of the government’s plans for efficiently operating Sunshine Loan program and Smile Microcredit program.

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One thought on “The Current Status of Sunshine Loan Program and Smile Microcredit Program

  1. Gayle White

    [Your statement] – The Sunshine Loan program was initiated in July, 2010.

    If this is the case, then how did Sunshine Loans give a no hope a loan of $3,000 [to buy a bike for $1000 and then to drink/gamble the rest with in the week?]
    and to date, no one has taken the bike off him and he hasn’t paid the loan back?
    This person has had the Salvation Army pay for a roadworthy and registration for the bike as he is on $800 a fortnight and drinks/smokes it..so he has no money.
    He pays no electricity account, has a prepaid mobile of $30 a f/n and rarely pays his rent. So much to the fact that he got a $1000 advance from centrelink[ to pay his rent that was overdue] then didn’t pay it [as he drank it] then left the caravan park owing $3,000 in rent
    He has now moved on to another caravan park with no qualms on what he continues to do to others/agencies/business’s….
    If i don’t pay my loans i would be held accountable and i would have a bad name.
    if i didn’t pay my electricity, it would be turned off.
    If i didn’t pay my rent i would be evicted..
    If i cant afford anything then that’s just tough on my part, get over it
    So some one please tell me..how do alcoholics get away with this and have every agency pay everything for them?
    Is there an agency out there that will pay for my bills and give me free rent?

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