Just 0.2 Pct. of Applicants Qualify for Microcredit

Ten former street vendors visited Hana Micro Credit Foundation in central Seoul to apply for small loans. They had lost their jobs due to a crackdown limiting or eliminating their livelihoods.

They each applied for a loan of 2.8 million won (2,484 U.S. dollars) to buy a cart from which to sell goods, a legal practice. The government had said even the self-employed with low credit ratings can receive financing.

The loan applicants waited for 20 minutes, after which a credit representative said, “Credit delinquents and those who filed for personal bankruptcy do not qualify for loans.”

That eliminated three of the applicants. Five more were disqualified for having too much debt after their documents were reviewed.

The remaining two were also ineligible because their credit ratings were too high, as those with a credit rating of seven or lower can get micro financing only.

One of the two finalists said, “We came here because we didn’t have 2.8 million won, but our credit ratings are too high. What the hell is this?

The dream of the 10 loan applicants to start over ended in under an hour.

The micro financing program was started last month, but has lent little money to its intended targets. Just 24 people, or just 0.2 percent of 13,400 microcredit applicants, have gotten loans. Even at large lenders frequented by those with low credit ratings, 35 to 40 percent of those who apply for loans qualify.

This has prompted complaints from low-income earners, who had high expectations for the microcredit program.

The government and the foundation said microcredit is an unsecured loan, so imposing tight eligibility conditions is the only way to reduce the chance of default.

Experts, however, said the system is failing to serve its original purpose of helping the working class stand on their own two feet.

The Financial Services Commission and the foundation said 13,400 microloan applicants visited 21 foundation branches nationwide over a month. Among them, 5,300 could not apply for credit because of loan defaults or personal bankruptcy.

Of the 8,100 who applied, 5,660 were disqualified due to either low credit ratings or insufficient assets.

Of the 2,440 who passed screening, just 24 people had borrowed a combined 118 million won (104,700 dollars) as of Friday.

weappon@donga.com