Just how important is KoFC’s role in supporting small and medium- size enterprises (SMEs)?
One of KoFC’s main purposes, as stipulated in the KoFC Act, is to contribute to the creation of jobs by strengthening national competitiveness and intensifying economic growth potential. The act (Article 21) explicitly mandates us to encourage the development of SMEs by providing funding through on-lending loans, for instance, as well as helping to finance growth and green industries and improving social infrastructure.
Last year, support for SMEs accounted for a little more than half of KoFC’s overall financing, compared with 19.1% for large companies. Loans to SMEs made up 92% of our on-lending and the remaining 8% was to medium-sized firms. KoFC also supports SMEs through indirect investments by setting up SME-focused venture capital funds that can invest in high tech or high growth firms. At the end of the first half of 2012, we had 40 funds, with a commitment of W1.131 trillion ($1 billion) and drawdown of W483 billion.
Finally, KoFC helps SMEs by investing in asset-backed securities derived from privately placed bonds by SMEs and guaranteed by Korea Technology Finance Corporation.
Support for large companies is mostly limited to ones that are involved in green and “new growth engine” industries.
Are KoFC’s disbursement decisions independently reached or directed by the government?
KoFC’s management operates at its own discretion for its day-to-day businesses within the boundaries authorised by the relevant laws and regulations. We prepare a business plan, which includes the total project amount of funding disbursements for each year and submit it to the Financial Services Commission for negotiation and approval. It also includes our guidelines for the specific sectors and industries we intend to support. This year we agreed to raise W23.3 trillion — mostly in the domestic market — and provide W12 trillion of financing.
Are loans made at concessionary interest rates?
No explicit concessions are given, but, the cost of KoFC funds is competitive enough to persuade intermediaries to fully utilise our financing.
Does KoFC provide lending in partnership with commercial banks?
KoFC has been providing on-lending loans via Industrial Bank of Korea and Korea Development Bank and regional banks since 2009, and then signed MoUs with eight commercial banks in 2010 and 2011. As of the end of September 2012, we were working with 17 banks for our on-lending operations.
Does KoFC also provide nonmonetary support — for instance, managerial expertise and strategic planning?
No, we are not providing non-monetary support at the moment.
Which industry sectors is KoFC targeting?
Given that we were set up to contribute to Korea’s economic growth, what we do is highly in tune with the government’s policy direction. And those policy directions are reflected in our business plan every year.
KoFC is backing the country’s new growth engine industries. These are enterprises and industries that can bring about the creation of new jobs and enhance the nation’s quality of life. Specific sectors include high-tech industries, with 17 new growth engine industries designated by the national science and technology commission and others identified by the ministry of knowledge and economy.
In addition, following the passing of the basic act on low carbon green growth, Korea’s transition to a green economy is in full swing. As the government’s major policy arm, KoFC has taken the lead in supplying necessary funds to foster the country’s green industry sectors.
Going forward, KoFC will take into consideration external factors such as Korea’s national economic policies and coordination among policy finance institutions in order to fulfil its establishment purpose.
The figures for financing and funding we need for the 2013 business plan have yet to be negotiated and approved by the Financial Services Commission.
However, we do expect a slight increase in both.
This story first appeared in the November issue of FinanceAsia magazine