About 160,000 ultra-high earners with annual income above 100 million won are among the eligible recipients of "K-Livelihood Protection Loan," a policy finance product due to launch next year. With the income requirement removed, the total eligible population swells to 20.04 million, nearly three times the 6.73 million of the existing "Illegal Private Loan Prevention Loan."
In its "Analysis Report on the Budget Bill by Committee," the National Assembly Budget Office classified about 160,000 of the people in the bottom 50% by KCB credit score as ultra-high earners with annual income above 100 million won. According to the Financial Services Commission on the 3rd, 300 billion won was newly earmarked for this program in the commission's budget bill for next year submitted to the National Assembly. The commission plans to supply a total of 600 billion won in loans next year by combining government funds and private capital.
The new product lends 1 million won for the first time at an interest rate of 4.5% and a 10-year maturity to people in the bottom 50% or lower by credit score, without regard to income. Both the threshold and the terms are looser than the existing product, which lent 1 million won at a 12.5% rate with a two-year maturity to people with annual income of 35 million won or less and in the bottom 20% or lower by credit score. The aim of the program is to provide minimal emergency funds to ordinary people and financially vulnerable people who have been shut out of the formal financial system and struggle to raise living expenses at reasonable rates, helping them lead normal lives.
The eligible base grew sharply because the income requirement was scrapped (35 million won or less to none) and the credit requirement was eased (bottom 20% to bottom 50%) at the same time. If only the credit requirement were widened to the bottom 50% and the income criterion kept at 35 million won or less, the number of eligible people would be expected to fall to about 15.04 million.
The National Assembly Budget Office assessed: "Given that there are quite a few relatively high earners among the bottom 50% by credit score, fully abolishing the income requirement could scatter policy funds that should be concentrated on low-income people and undermine the achievement of policy goals. In particular, there is something somewhat unnecessary and inappropriate about including even ultra-high earners with annual income above 100 million won as recipients of support meant to prevent the use of illegal private lending."
Concerns are also raised that if higher earners, whose living-cost burdens are relatively lighter, apply for loans attracted by the low rate and long maturity, the supply left for low earners who actually need support urgently could shrink.
It is also pointed out that this design runs counter to the stance of President Lee Jae Myung, who has called for bold financial support for vulnerable groups. At a Cabinet meeting on Oct. 27, after being briefed by Shin Jin-chang, vice chairman of the Financial Services Commission, on the 1 million won, 10-year maturity loan plan, the president said, "Considering the national capacity and fiscal capacity of the Republic of Korea, it is too weak," and instructed officials to craft the policy with in mind the desperate situation of people who seek urgent cash even if they must pay hundreds of percent in interest.
As a direction for improvement, the National Assembly Budget Office recommended: "During the National Assembly's review of the budget bill, a careful reexamination seems necessary that takes into account the distribution of the bottom 50% by credit score across income brackets, the status of illegal private loan users by income bracket, the need to focus support on low earners, and the possibility that supporting high earners will dilute fiscal capacity."