[News Today] SMALL LOAN APPLICATIONS SURGE

[LEAD]
Lending thresholds are tightening, driving more people to apply for small personal loans capped at one million won. As financial institutions enforce stricter debt management, the demand for these 'emergency loans' is set to increase. The challenge now is securing sustainable funding sources.

[REPORT]
This working woman in her 50s has decided to receive a small personal loan because she urgently needs several million won, or several thousand dollars.

Working woman / (VOICE MODIFIED)
I took out a card loan easily. But my credit rating dropped, banks wouldn't lend, and my revolving debt piled up to KRW 7 mn(USD 5,200).

In just over a year since its launch, more than 270,000 people have used the small personal loan program, borrowing up to 1 million won, or approximately 750 dollars, at annual interest rates of 9 to 15%.

Last year's target amount of 100 billion won, or some 75 million dollars, was almost depleted. This year, over 60 billion won, or around 45 million dollars, have been loaned out.

Because of the prolonged high interest rates and slow recovery in domestic demand, more people are in need of emergency funds, but few places can offer help.

Mid-range interest rate loans for medium to low-credit borrowers at savings banks have been declining for three years, with last year's loan volume dropping 43% on year.

To help low-income earners solve their financial woes, the government plans to expand small personal loans.

However, about half of the funds rely on donations from the financial sector, meaning securing funds continuously could be an issue.

Prof. Seo Ji-yong / Sangmyung University
Financial support for ordinary people relies on policy financing, leading to a cycle
where the informed get help and the uninformed miss out.

Some watchers say that rather than providing loans directly from the government, it is more important to enhance the credit profiles of people with low credit ratings and help them use private finance.