Korea Credit Guarantee Fund and Its Contribution to the Korean Economy

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optimal SME support policy, professional workforce and ethical operation. Through continuousinnovation efforts, KODIT aims to remain as the trustworthy partner of SMEs and contribute tofurther economic growth of Korea.Key words : Credit guarantee system, Small and medium enterprises (SMEs), Korea CreditGuarantee Fund, KODITI. IntroductionCredit guarantee scheme is widely used in various countries, both in underdeveloped anddeveloped countries. It is reported that over 2,250 schemes exist in various forms in almost 100countries (Green, 2003). Credit guarantee also boasts of a long history, which dates back to 3B.C., as it was written in the ancient Mesopotamia clay tablets (KODIT, 1998). Today the creditguarantee system of each country comes in different shapes, reflecting the history and the socioeconomicdevelopment stage of the country. Even countries in a similar stage of economicdevelopment or in geographical proximity may be operating different type of systems. Thus, itis hard to draw a definition of credit guarantee that exists in a wide variety of forms. Yet, it iswidely accepted that credit guarantee system attempts to overcome the credit marketimperfection which disadvantaged groups—notably the small and medium enterprises(SMEs)—are experiencing in getting formal loans, by allowing lenders to shift loan recoveryrisks to the guarantee program (Vogel & Adams,1997). It is generally said that the creditlimitation of SMEs stems from high administrative costs of small-scale lending 1 , asymmetricinformation, the high risk attributed to SMEs and their deficiency in collateral 2 . Such lack ofcredit restricts the growth of SMEs and causes regionally-unbalanced growth, waste ofentrepreneurial resources, under-investment, which ultimately hinders the economic vigor andthe long-term development of the national economy.Many nations have made various efforts to alleviate these problems caused by SMEslimited access to credit, one of them being the credit guarantee system. The Korean governmentfounded Korea Credit Guarantee Fund (KODIT) 3 in June 1976 in order to tackle this problem.1 Generally, the administrative cost of ten USD 10,000 loans is higher than that of one USD 100,000 loan.2 Green Anke, op. cit.3 Upon its 30 th anniversary, Korea Credit Guarantee Fund changed its acronym to KODIT, which comes from KoreaandCredit.98
Korea Credit Guarantee Fund and Its Contribution to the Korean Economypp. 97-126The establishment purpose of KODIT can be found in article 1 of the Korea Credit GuaranteeFund Act, which clearly prescribed that KODIT was established to facilitate the financing ofenterprises by guaranteeing the obligations of business enterprises which lack collateral, and tocontribute to the balanced development of the national economy by establishing sound creditorder through the efficient management and use of credit information. Over the last 30 years,KODIT has provided credit guarantees to promising SMEs, thereby creating more employmentand generating more economic added value. Lately, KODIT played a crucial role in therecovery process after the financial crisis.This article aims to give an overview of KODIT’s services and operation. First, it willreview background behind KODIT’s establishment and its past 30 year history, followed by adescription of present operation of KODIT and its performance. Lastly, it will introduce theinnovation efforts of KODIT and its vision for the future.II. The small and medium enterprises in KoreaThe role of SMEs can be assessed from an economic and a social point of view (Kim, 2006).First, from an economic point of view, SMEs participate in the market and play an importantrole in the operation of market mechanism. SMEs that possess flexibility and innovativenesscan also swiftly respond to the changes in consumption trends in the market, therebystrengthening national competitiveness and facilitating future economic growth. Second, from asocial point of view, SMEs enhance social stability. SMEs account for over 87% of the totalemployment. Furthermore, SMEs alleviate the concentration toward large enterprises within theeconomic structure. And since most of the SMEs are regionally dispersed, they alleviate theinequality among regions.Recognizing their socio-economic importance, the Korean government put unsparingefforts to support SMEs. For the effective implementation of SME policy, the legal definition ofSMEs is indispensable. In Korea, definition of SMEs is made based on the following criteria 4 .- The definition of SMEs is based on the number of employees and capital, or the numberof employees and sales, differentiated by industrial sector.- For instance, a manufacturing company with less than 300 employees or capital less than4 The definition of SMEs is prescribed in the Act on Small and Medium Enterprises and the enforcement regulation. Themost recent definition was revised in November 2005.99
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Korea Credit Guarantee Fund and Its Contribution to the Korean Economy

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