Self-employed individuals to benefit from debt scheme

Financial Services Commission Chairman Kim Joo-hyun [Photo by Yonhap]

The South Korean government and the ruling People Power Party (PPP) finalized the details of a fourth credit recovery scheme that will delete the overdue debt records of borrowers, both individual and small businesses, during the COVID-19 period if they make full payments until the end of May 2024. The beneficiaries could total up to 290 million borrowers, the largest number in the schemes to date.

The government and the PPP announced related details about the scheme in a meeting held on Thursday. Eligible beneficiaries include those delinquent on loans no larger than 20 million won ($15,157) from September 2021 to January 2024.

In the latest scheme, 370,000 borrowers delinquent on financial loans and telephone bills also become eligible for debt restructuring, as they are likely to be marginal borrowers with financial difficulties.

This is the fourth edition of the government’s credit recovery scheme for vulnerable borrowers, with two that took place in 2000 and 2001 during the International Monetary Fund (IMF) foreign exchange crisis and one in August 2021 during the peak of the COVID-19 pandemic.

But critics are concerned about the risk of moral hazards that the scheme could trigger. “The thing is that those vulnerable borrowers ended up in delinquency not because of their moral issues but for unexpected reasons during a period of financial crisis,” Financial Services Commission Chairman Kim Joo-hyun said.

“Our economy is currently on the path towards recovery, with expectations for rate cuts later in 2024. I believe this is the right timing for those marginal borrowers.”