Financial authorities plan to lower the interest burden for socially disadvantaged youth utilizing the 'Sunshine Loan Youth' program aimed at supporting low-income youth, and expand the supply channels (banks).
The Financial Services Commission noted that starting from the 9th, when socially disadvantaged youth apply for the Sunshine Loan Youth, the interest rate on loans will be supported at an ultra-low rate of 2% per year through a 1.6 percentage point (p) interest subsidy.
Socially disadvantaged individuals include basic livelihood recipients, nearly poor individuals, self-support workers, recipients of the earned income tax credit, registered disabled persons, single-parent families, grandparent-headed families, multicultural families, and North Korean defectors.
The Sunshine Loan Youth is a policy financial product that supports loans for university (graduate) students, unemployed youth, beginners in the workforce (those employed by small businesses for less than one year), and individual business owners within one year of starting their business, who are under 34 years old and have an annual income of less than 35 million won.
Previously, the bank loan interest rate was at 3.5%, and with the guarantee rate from the Korea Inclusive Finance Agency at 0.1%, it was around 3.6%. However, after the change, it will provide benefits to socially disadvantaged groups at an interest rate of 2% by adding the guarantee rate of 0.1% to a loan interest rate of 1.9%.
Earlier, on March 21, the amendment to the enforcement ordinance of the 'Act on Supporting the Financial Lives of the Common People (Low-Income Financial Act)' allowed the Korea Inclusive Finance Agency to carry out interest subsidy projects targeted at low-income groups and the common people. Subsequently, the Financial Services Commission secured a budget of 640 million won (from the lottery fund) for this year's interest subsidy project through consultations with the Ministry of Economy and Finance.
The scale and channels of supply will be expanded. Through a supplementary budget last month, the Financial Services Commission added 15 billion won to the guarantee resources for the Sunshine Loan Youth, increasing the supply scale from the existing 200 billion won to 300 billion won.
However, since the launch of the Sunshine Loan Youth (January 2020), the increase in benchmark and procurement interest rates has reduced banks' incentive to handle these loans, leading them to limit the number of Sunshine Loan Youth transactions per day and to receive applications on a first-come, first-served basis or to suspend processing.
In response, the Financial Services Commission will raise the loan interest rate applied to youth outside the socially disadvantaged group by 0.5 percentage points to around 4%, while widening the supply channels from 3 existing banks (Corporations, Shinhan, Jeonbuk) to 7 banks. Following Gwangju Bank in April, Toss Bank in May, and Hana Bank this month, Jeju Bank will join in the second half of the year.