To Avoid Increasing Debt, Inclusive Finance Must Evolve

While walking through my hometown recently, I counted the "For Rent" signs on buildings that had housed businesses for decades. The closure of these shops starkly illustrates the challenges faced by self-employed individuals.

The difficulties in the field are reflected in the numbers. As of the end of last year, six out of ten self-employed individuals who borrowed from financial institutions were found to be multiple debtors, having taken loans from three or more sources. This indicates a reliance on borrowing from various financial sectors to maintain their livelihoods and repay existing debts.

In response, the government has proposed "inclusive finance" as a solution. This initiative aims to expand financial support for vulnerable groups and self-employed individuals, enhancing their access to financial services. The government is also significantly lowering interest rates on policy products such as the New Hope Seed Loan, Sunshine Loan, and Youth Future Connection Loan through the Financial Stability Fund. Discussions are ongoing to improve the credit evaluation system to lower barriers for low- and medium-credit borrowers.

While the expansion of inclusive finance is undoubtedly a necessary policy direction, there is a risk that discussions may focus solely on "increased lending." Currently, the self-employed sector faces not just a lack of liquidity but also structural challenges stemming from decreased consumer spending and rising costs.

In fact, a survey conducted in February by the National Assembly Future Research Institute among 3,088 self-employed individuals revealed that 68.7% reported difficulties due to "raw material and supply costs," while 66.2% cited "intensified competition within the same industry." Additionally, 65.9% indicated that acquiring new customers is challenging. In such a context, if short-term loan supply is repeatedly provided, there is a risk that financial support will serve as a means to maintain existing debt rather than a stepping stone to recovery.

Therefore, inclusive finance must evolve beyond mere loan support to genuinely assist financially vulnerable groups in achieving self-sufficiency. The Financial Services Commission declared a "transformation to inclusive finance" in January, setting the establishment of vulnerable groups within the formal financial system and their self-reliance as core values. For this declaration to lead to tangible results, a structure must be created that facilitates the recovery and resurgence of self-employed individuals and other financially vulnerable groups.

First, policies are needed to help them survive in the changed domestic market and social structure. The focus should not only be on increasing the total amount of loans but also on the actual recovery and resurgence of vulnerable groups. For those diligently repaying their debts, options to reduce interest burdens and swiftly adjust unmanageable debts could be considered. For those unable to continue their businesses, support for transitioning to wage employment or orderly closures may be more effective than pressuring them to extend operations.

Non-financial support is also essential to enhance the survival capacity of self-employed individuals. Training for digital transformation and support for market access should be provided to help them adapt to an environment where delivery platforms and online distribution are predominant. Additionally, vocational training and support for living stability should be examined for those undergoing industry transitions or re-employment. The success of inclusive finance should be evaluated not by how much capital is supplied to the market, but by how many individuals can continue their economic activities. Only then can inclusive finance establish itself as a genuine financial policy.