The Small and Medium Business Administration (SMBA) and the Korea Credit Guarantee Fund will increase their annual takeover of corporate trade receivable insurance bonds by 500 billion won this year. That brings the total to 17.5 trillion won.
The trade receivable insurance bonds are notes the SMEs sell for their products and services, which are turned over to credit guarantee institutions for protection from default. SMBA can strengthen its roles to control risks for credit sales transactions with support of the credit guarantee funds.
Kodit will cover 80 percent of damages from default on payments for goods and services to prevent creditor firms from going out of business from losses.
They will also allow startup SMEs and the Korea Federation of SMEs to subscribe to insurance policies.
Small and medium-sized enterprises (SMEs) serve as the root of the national economy. However, SMEs suffer from limited access to financing due to high administrative costs of small-scale lending, asymmetric information, high risks attributed to SMEs and deficiency in collateral. In order to alleviate this problem, Korea Credit Guarantee Fund (KODIT) was founded in June 1976 by the Korea Credit Guarantee Fund Act. Its objective is to lead the balanced development of the economy by extending credit guarantees for SMEs that have future prospects, but lack tangible collateral and by stimulating sound credit transactions through the efficient management of credit information.
KODIT is a public financial institution providing comprehensive supports for SMEs. With its capital fund of $3.2 billion, KODIT provides 11 types of general credit guarantees and P-CBO guarantee. As of the end of 2005, the outstanding credit guarantee reached over $31.6 billion. In addition, KODIT operates credit information management, guarantee-combined investment, credit insurance, management consulting and infrastructure credit guarantee services.
Throughout its history, KODIT has actively supported SMEs, thereby promoting economic vitality, easing the inequalities within the economy and instilling the importance of credit. In particular, KODIT played a crucial role in reviving the economy by implementing government policies throughout every financial crisis and helping to stabilize the market. Its contribution was clearly shown in the studies that proved production inducement, economic value added inducement and job creation effect of credit guarantee service.
Upon its 30-year anniversary, KODIT is preparing for the future. Under its new corporate vision "HOPE-KODIT,'' it strives to attain healthy capital structure, optimal SME support policy, professional workforce and ethical operation. Through continuous innovation efforts, KODIT aims to remain as the trustworthy partner of SMEs and contribute to further economic growth of Korea.
The Korean government has invested a significant amount of resources through credit guarantee funds to promote the survival of SMEs, help their performance and boost R&D investment.
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A view of the building in Daegu where KODIT has its offices.(Photos: KODIT)
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