Korea Credit Guarantee Fund and Its Contribution to the Korean Economy

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Table 16Guarantee fee system6. Coverage ratioAs discussed in the previous chapter, KODIT introduced a partial guarantee system in1998. KODIT revised its partial guarantee system in January 2006, under which the coverageratio for an applicant is tied to the credit rating. One noticeable feature is that when the creditrating goes up, the coverage ratio diminishes. This is because KODIT’s new partial coveragesystem aims to encourage the credit lending of private financial institutions by sending them thesignal that an enterprise with lower coverage ratio has a higher rating.Table 17Standard coverage ratio by credit rating* If an enterprise is not able to accept the standard coverage ratio, it is required to pay additionalguarantee fee of 0.2% p p.a. per 5% p of coverage ratio116
Korea Credit Guarantee Fund and Its Contribution to the Korean Economypp. 97-126B. Management of credit informationThe importance of Credit information cannot be emphasized too much, especially in themodern economy. KODIT, since its foundation, has accumulated and managed its creditinformation data collected in the process of credit investigation. It successfully launched thecredit information service called CRETOP in 1992 using its largest database of creditinformation on Korean SMEs. With this service, enterprises and financial institutions couldobtain crucial credit information on their trading partners and clients. KODIT had acted as acredit bureau until Korea Enterprise Data (KED) was spun off in May 2005, it. In 2005, KODITconducted 47,311 cases of credit investigations and possesses 741 thousand credit informationon Korean SMEs as of the end of 2005.C. Guarantee combined investmentIn March 2005, KODIT launched guarantee combined investment service through which itprovides venture companies with capital by purchasing shares or underwriting bonds. Thisservice serves both parties interest because invested companies can obtain long-term capitalwhile KODIT can expect extra capital gains from the investment. Eligible enterprises for thisservice are innovative companies in digital broadcasting, next-generation battery,semiconductor industries that have great potential to lead the Korean economy to a higher stage.As of the end of June 2006, KODIT invested KRW 8.5 billion in 10 companies.D. Credit insuranceKODIT introduced credit insurance service exclusively for SMEs in March 2004. Thisservice is designed to provide SMEs with protection against the risk which comes from thefailure of buyers to pay their trade receivable. It covers 80% of the non-payment of receivablesin case the buyer cannot fulfill its obligations toward the supplier (insurant) due to insolvencyor default. The maximum amount for each insurant is KRW 1 billion while the total amount oftrade receivables from a single buyer should not exceed KRW 7 billion. The credit insuranceservice also helps SMEs (insurants) enhance their risk management ability with KODITconstant monitoring of credit status of suppliers. The service has been popular among SMEssince its inception. In 2004, the initial year of service, KODIT provided KRW 1.3 billion andKRW 1.7 billion of credit insurance in 2005.117
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Korea Credit Guarantee Fund and Its Contribution to the Korean Economy

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