Chairman Kim Kyu-ok of Korea Technology Finance Corp (KOTEC) has always said the Fund needed to adapt to a company to provide support to technology venture firms from what it is now, which is a policy financial organization.
At a meeting with reporters at a restaurant in Yeouido, Seoul, on Dec. 23, last year, he said it was more appropriate for the Fund to be changed into a corporation to be placed at the Ministry of SMEs and Start-ups and work for SMEs with the ministry exclusively, while the Financial Services Commission focuses on the financial market stability.
Chairman Kim had said he wanted to turn the Fund into a corporation even before he joined it. As he insisted, the Fund was renamed as the Korea Technology Finance Corp. (KOTEC) in June under the reformed Government Organization Law and was transferred to be an affiliate of the SME Ministry.
The credit guarantee system was first institutionalized in 1961 in Korea. Since then, the credit guarantee system has been playing its due part for the overall Small and Medium Enterprises (SMEs) sector to lessen the burden of a lack of financial resources due to banks' prevalent collateral-based lending practice.
Chairman Kim insists that KOTEC should make direct investments in SME projects in addition to providing loans in order to fully support the government plan to push for the growth of the “start-up ecology system.” He said KOTEC has been issuing around 20 trillion won worth of technology guarantees to SMEs, but its direct investments can only be made around 200 billion won on annual average, which is around 10 percent of its capital.
In the 1980s, the necessity to promote technology-driven SMEs separately from general SMEs became a competitive advantage of the overall economy for future growth, and a national consensus was reached.
As a result, KOTEC was founded in 1989 by the Korean government as a non-profit credit guarantee institution under the special enactment, "Financial Assistance to New Technology Businesses Act," which went through a full-scale revision and was newly titled "Korea Technology Finance Corporation Act" in 2016.
KOTEC is now a specialized institution that provides full scale support to SMEs and venture businesses with competitive technology and innovation, and other knowledge-based businesses at all growth stages.
The mission of KOTEC is to take the lead in converting the Korean economy to be creative and innovative.
For SMEs, obtaining lending facilities from commercial banks constitutes an essential part of their growth strategy. However, SMEs in Korea find it difficult to borrow from lending institutions.
The reason SMEs, even those with high growth potential, have limited access to institutional finance are as follows: Lending to SMEs is considered to be risky. The uncertainty facing small industry and their vulnerability to market and economic changes make banks reluctant to deal with them; Banks and financial institutions are biased in favor of lending to large corporate borrowers; And, among other reasons, SMEs seeking loans are unable to provide securities or collateral for the loans.
In an attempt to help SMEs overcome the above difficulties in financing, KOTEC launched its technology guarantee service. Various technology guarantee schemes were set up with the purpose of covering the losses incurred when borrowers default on loans. The purpose of such schemes is also to encourage financial institutions to lend to SMEs with viable projects and good prospects of success but which are unable to provide adequate collateral or which do not have a suitable record of financial transactions to prove that they are creditworthy.
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