ABSTRACT
In the Republic of Korea’s economy, small and medium enterprises (SMEs) are regarded as important players in job creation, technological innovation, entrepreneurship, and domestic market expansion. However, one of the biggest challenges they face is limited access to finance due to high administrative costs in small-scale lending, information asymmetry, and the high risk attributed to insufficient collateral. To solve this problem, the Korean government established the Korea Credit Guarantee Fund (KODIT) in June 1976 under the Korea Credit Guarantee Fund Act.
KODIT implements government policies by extending credit guarantees to promising SMEs without tangible collateral so they can secure business capital in a timely manner by receiving loans from banks and ultimately realize their full growth potential. Furthermore, it greatly helps ease credit crunches in the event of a financial crisis by flexibly increasing guarantee supplies.
With more than 40 years of experience, the Republic of Korea’s credit guarantee scheme is recognized as the most effective tool for SME financing. KODIT’s robust legal framework, stable funding source, and systematic risk management are not only key factors in implementing government policies for SME financial market vitalization but also serve as guiding lights for developing countries that benchmarked the Republic of Korea’s fast economic growth pattern.
