Although South Korea is known for its large scale “Chaebols,” which have dominated much of its political and economic life – less well known is the considerable support that the government has provided to small and medium scale enterprises (SMEs).  As in most countries, Korean SMEs play a pivotal role in the national economy, accounting for 99% of all enterprises (3 million SMEs), over 80% of all employees (10.8 million employees), and almost 48% of total national production.

A main policy tool for supporting Korean SMEs has been Korea’s Credit Guarantee Agency (KODIT), which is one of the largest credit guarantee schemes (CGSs) in the world – guaranteeing a portfolio of around $44 billion.
I visited Seoul in May this year to give a Key Note Address at KODIT’s 40^th anniversary. The visit was timely as credit guarantee schemes are capturing increasing interest around the world as bank lending to SMEs struggles to return to pre-2007 crisis levels. By contrast, according to the OECD, Korea has experienced a healthy growth in SME lending since 2007 – boosted by the support provided by credit guarantees.  The two graphs below from the OECD’s “2015 Score Board” show the high sustained levels of SME lending in Korea – as well as the significant overall size of KODIT.

Unlike many SME support schemes that governments are now keen to push – including directed lending programs, subsidized interest rate schemes, or central bank breaks on reserve requirement holdings for commercial banks – credit guarantee schemes are considered more market friendly as they combine a subsidy element with market-based arrangements for credit allocation.  The best of these credit guarantee schemes are designed to increase overall levels of lending to SMEs, reduce their collateral requirements, and reduce the interest rate charged on such loans.