Credit score requirements waived for basic livelihood recipients, near-poverty households
Interest rate capped at 12.5% annually; 4.5% rate available upon full repayment and re-borrowing
The Korea Inclusive Finance Agency said Friday it will ease eligibility requirements for its illegal-lending prevention loan program to expand financial access for vulnerable groups currently excluded from formal financial support.
The illegal-lending prevention loan is a policy-based microfinance product designed to quickly provide up to 1 million won ($736) to low-income, low-credit borrowers who need emergency funds for living expenses, shielding them from illegal private lenders. The annual interest rate is 12.5%, reduced to 9.9% for socially disadvantaged borrowers such as basic livelihood recipients and single-parent families. Borrowers who repay in full after using the product for at least six months and then re-borrow qualify for a rate of 4.5%.
Field workers had long raised concerns that some vulnerable individuals with low incomes but relatively high credit scores were falling through the cracks and being left without access to financial services.
In response, the agency revised its eligibility criteria — previously requiring an annual income of 35 million won or less and a credit score in the bottom 20 percent — so that basic livelihood recipients, near-poverty households and earned income tax credit recipients can now apply regardless of their credit score. Applications are also accepted regardless of whether the applicant has overdue debt. The agency expects the change to significantly ease the financial difficulties faced by low-income vulnerable groups who had previously been unable to access the program due to credit score restrictions.
"Access to finance is a basic right that should be guaranteed for everyone, which is why we made this change — so that vulnerable people with low incomes are not shut out of inclusive finance simply because of a credit score," agency President Kim Eun-kyung said. "We will continue to listen to voices from the field and make sure no one who needs inclusive financial support falls through the cracks."
Advisory notice on preventing harm from illegal private lending and excessive debt: Those exposed to illegal private lending can report to the Financial Supervisory Service (☎1332) for assistance. Those struggling with excessive debt can seek help from the Korea Inclusive Finance Agency (☎1397) or the Credit Counseling and Recovery Service (☎1600-5500). Loan contracts with an annual interest rate exceeding 60% are void in their entirety, including both principal and interest.
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