The views expressed in this presentation are the views of the author and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.

Contents

Overview of KODIT

SMEs & Credit Guarantees in Rep. of Korea

Performances of KODIT

Summary

Knowledge Sharing Program app

1

SMEs & Credit Guarantees in Republic of Korea

2

Criteria : 1) No. of Employees + Capital 2) No. of Employees + Sales

Industries No. of employees Capital Sales

Manufacturing < 300 KRW 8 Billion

Mining, construction and transportation < 300 KRW 3 Billion

Publication, broadcast, IT etc < 300 KRW 30 Billion

Whole sale & retail, agriculture, utility, financial service, etc. < 200 KRW 20 Billion

Environmental service, education, etc. < 100 KRW 10 Billion

Real estate service < 50 KRW 5 Billion

3

Unit : USD billion

Numbers in GDP Contribution and Value added are only for the enterprises of manufacturing industry with employees of 5 or more

3,234,687 14,534,230 1,458

No. of Enterprises No. of Employees GDP Contribution Value Added

SMEs

LEs

Total

3,231,634 12,626,746 679 222

3,053 1,907,484 779 246

468

SMEs

Major sources of employment

Main sources of continued job creation

Sources of innovation and entrepreneurship

Condition for sustained growth of large enterprises

Basis of national competitiveness

4

Access to formal financing

SMEs Banks

Guarantee Institution

Eliminating Credit Risk

Credit Evaluation

Supply loans

Popular policy tool throughout the world - Over 2,250 institutions in more than 100 countries

- Aims at changing the attitude of participants

5

Enforced The Credit Guarantee Reserve System

Enacted 8.3 Presidential Emergency Decree

Enacted The Credit Guarantee Fund Act

Founded Republic of Korea Credit Guarantee Fund (KODIT)

Founded Republic of Korea Credit Technology Guarantee Fund

(KIBO)

Enacted The Regional Credit Guarantee Foundation Act

Founded Korean Fed. of Credit Guarantee Foundation

61

72

76

89

99

00

74

6

7

Institutions Target Business Sources of Fund Market Share (Yr 2013)

KODIT (1976~ )

General SMEs

Central Government Banks

55.0%

KIBO (1989~ )

Tech-Oriented Venture Companies

Central Government Banks

25.7%

16 CGFs (1999~ )

Small & Micro Companies

Local Government Banks

19.3%

KODIT, KIBO, and 16 CGFs are 3 axes of the Korean guarantee system

Each institution operates in separated target markets.

8

9

2011 2012 2013 2014.6

KODIT 38.4 39.3 40.6 41.3

KIBO 17 17.7 18.9 25.7

CGFs 13.6 13.5 14.3 14.7

Total(A) 69 70.5 73.8 75.1

SME Loans(B) 441.3 461.3 488.9 508.8

A/B 15.6% 15.3% 15.1% 14.8%

Unit : KRW trillion

Overview of KODIT

10

KRW 6.0 trillion (USD 5.8 billion)

(Head Office) 4 Divisions, 13 Dept., 4 Offices (Branch) 9 Local Headquarters, 102 Branches

2,150

Not-for-profit organization Legal Status

June 1976

KRW 47.4 trillion (USD 45.6 billion) Number of customers : 223,081

Establishment

Capital Fund

Outstanding Guarantees

Organization

Employee

[ As of end of the Yr 2013 ]

Exchange rate $1=\1,039 11

Infrastructure Credit Guarantee

Credit Guarantee

Credit Insurance

Consulting

Consulting for SMEs

Insurance for SMEs Account Receivables

Guarantee for for-profit companies investing in SOC

Guarantee for SMEs

12

Government (irregular)

Banks (regular)

Others (irregular)

Mandatory donation in proportion to monthly balance of outstanding commercial loans (Total 0.380%)

Contribution Rate

Contribution

Occasional contributions from large enterprises and others

Subject to governments annual budget

KODIT 0.225% KIBO 0.135%, CGFs 0.020%

13

14

486 280 280

121 86

1,849

- - - 65.5

426

286 501

648 718

1,266

789 954

797 771

-

2

- 0 10

10

1 38

18 60

-

500

1,000

1,500

2,000

2,500

3,000

3,500

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Others

Banks

Gov't

Unit : USD million

Government contributions tend to increase during the crises and decrease during the stable economic conditions

15

16

Apply &

Interview

SMEs application

Eligibility check-up by

interviewer of KODIT

Credit Analysis &

On-site Visit

Evaluation &

Approval

Issuance of Guarantee

Letter

Document submitted

& reviewed

On-site visit by

analyst of KODIT

Evaluation of credit

rating

Decision-making on

guarantee approval

Sign the contract

Guarantee fee

17

Adopts negative list system

All for-profit entities are eligible except for

Classification Restrictions

Restriction by Law Enterprise subrogated by KIBO or CGFs

Restricted Industries Industries such as extravagant goods, adult entertaining, Liquor & Cigarettes, Gambling

Risk management

Enterprise not in operation, having overdue loan or tax

Defaulted enterprise

Enterprise with poor financial status or low credit rating

18

KRW 3 billion($ 2.8 million) per enterprise Ceiling can be reduced according to the credit rating

of the firm KRW 1.5 billion($ 1.4 million) per enterprise whose comprehensive credit rating is below certain grade(K12)

General Ceiling

KRW 7 billion($ 6.5 million) per enterprise (Only applied to special loans and companies) - Guarantee for Knowledge based industries - Guarantee for Export Financing - Guarantee for Green Growth Industries , etc.

Special Ceiling

19

20

Basis Adjustment

APR 0.5 ~ 2.5% by

Credit Rating

(+) Long-term & Large-amount User 0.1 ~ 0.4% Large Enterprise 0.5%

(-) Policy oriented guarantee 0.1 ~ 0.3% (i.e. start-up, exporting, innovative SMEs)

Basis rates differentiated by the credit rating of a firm : APR 0.5~2.5%

Adjustment : added or subtracted by policy purposes

Average guarantee fee rate of 2013 : 1.24%

21

Performances of KODIT

22

Unit : KRW billion

Set by the approval of Financial Services Commission

Outstanding guarantee and new guarantee supply will be determined by the yearly trend and macro economic plan of the government

39,000

8,000

10,600

Newly set goal

Newly set goal

Newly set goal

39,500

8,000

11,100

3,000

5,600

3,600

O/S Guarantee(Gen.)

Export

Start-Ups

Creative Sector

New Growth Engine

Facility Investment

Target Goal (2013)

Goal (2014)

23

Category 2009 2010 2011 2012 2013

General Scheme

No. of Customers(A) 218,744 229,748 233,827 230,252 223,075

Outstanding Guarantees(B)

(USD million) 36,644 36,207 35,880 36,674 37,891

CG per customer(B/A) (USD thousand)

168 158 153 159 170

P-CBO Scheme, etc

Outstanding Guarantees

(USD million) 7,156 8,125 6,588 5,759 6,401

24

25

Unit : KRW billion

2010 2011 2012 2013 Contributions(Banks)(A) 846 1,063 856 888 Contributions(Gov)(B) - - -350 50 Guarantee fees 467 463 467 483 Other revenue 334 367 334 308 Total Revenue(C) 801 830 801 791 Payment under guarantee 1,109 1,268 1,304 1,373 Reserves for guarantees 15 279 242 157 Other expense 286 313 332 317 Total expenses(D) 1,410 1,860 1,878 1,847 Net income(A+C-D) 237 33 -221 -168

As a government sponsored organization, KODIT is monitored and assessed by related authorities

Ministry of Strategy and Finance

Financial Services

Commission

Small and Medium Business

Administration

National Assembly

Board of Audit and Inspection

Budget Planning

Approval of Annual

Performance Goals

Decision of Governments

Contribution to KODIT

Parliamentary Inspection

Inspection

Business Performance Assessment

Fund Management Assessment

Assessment on the Maintenance or Abolition of the Fund

CEO Performance Assessment

26

27

Classification Details

Applicable Act Act on the management of public institutions

Criteria

Performance assessment for last 1 year 3 criteria based on PDCA* : Leadership Major businesses Management efficiency

Period Every year

Follow-up Measures

Increase or decrease of performance-related salary Increase or decrease of expense budget (1%) Warning, firing CEO, and draw up performance enhancement plans

Note : Deming Cycle (Plan, Do, Check, Act)

Expansion of guarantees helped economic recoveries

GDP Outstanding CG

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

-

200.0

400.0

600.0

800.0

1,000.0

1,200.0

76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

Asian Currency Crisis

Bond Market Crisis

Global Financial Crisis

Unit: KRW Trillion Unit: US Billion

28

Category 1975

Amount %

LEs 1.1 64.3%

SMEs 0.7 35.7%

Total 1.8 100.0%

Unit : billion USD

2013

Amount %

158.3 25.8%

455.3 74.2%

613.6 100.0%

Since establishment of KODIT, SME loans have been increased * Core policies : Credit guarantee, SME banks, SME loan guideline, etc.

29

Risk weight for guaranteed loans : 0%

Banks can exploit the capacity spared

from the reduced capital requirement

CG helps the Stability of Financial Institutions

30

Summary

31

CG is - Powerful policy tools for governments

- Efficient way of distributing financial resources ex) subsidy(10), direct loan(11), CG(1more than 1)

- Changes the attitudes of participants

However it can be expensive.

32

Moral Hazards - Guaranteed Companies - Banks - Guarantee Institutions

Funding

Market Distortion

When Designing a Credit Guarantee Scheme..

33

Knowledge Sharing Program app.

34

Partner countries under KSP

Ethiopia

Aims at assisting in enhancing development capacities of the partner countries by sharing Republic of Koreas experiences

35

KSP Homepage: www.ksp.go.kr

How can your country get involved in a KSP Project?

36

Under KSP, KODIT offers policy consultation regarding Introduction and Establishment of Credit Guarantee System

Viet Nam (2007~ ) : For the vitalization of credit guarantee system

Cambodia (2010) : Establish the credit guarantee system

Kazakhstan (2011~ ) : Establish the credit guarantee system

Ghana (2012~ ) : Establish the credit guarantee system

Mongolia (2013~ ) : For the vitalization of credit guarantee system

Indonesia (2013) : For the vitalization of PPP(public-private partnership) 37

file.

Website : www.kodit.co.kr

E-mail: intl@kodit.co.kr

38

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