United Nations Public Service Awards Case Studies

Conventional markets, called Jaerae-Sijang in Korean, play an important role in distributing various products in South Korea. There are a total of 261 conventional markets in Seoul. They sell diverse items on a small scale at leasehold shops or even on the road, and are generally located nearby residence areas so that people stop by with ease. They are especially important for low-income families as they sell daily groceries at very reasonable prices. Those families have no choice but to shop at conventional markets because department stores sell more expensive items and are often far away from their home. To make it worse, conventional markets’ market share is decreasing due to newly built big-scale shopping malls and department stores. That is the very reason why the governments have to support the operation of those markets.

Merchants in conventional markets work nearly twelve hours a day but they only get a minimum profit for lack of suitable small-loan financing system. Most of them use private loan services at more than 10 times interest rates than established financial institutions offer. They have no choice because they have no credit and cannot afford to pay for mortgage.

Even though conventional market merchants need two thousand dollars (equal to one month’s payment) at most, they can not help financing it from Sache. ?? In the more, each market has merchants’ committee which is sometimes criticized by their members for doing nothing but imposing only a membership fee.

What is the initiative about? (the solution)
The Seoul Metropolitan Government (SMG) started the new financing system Market Loan, called “Jangteo-Ssamjidon,” which provides operating fund to merchants at low interest rate. Thanks to this program, merchants can borrow a small amount of money without credit or mortgage. Three types of conventional markets were selected for the newly introduced Market Loan Project for merchants in need. The merchants committee funded 30 million won from SMG without paying interests for two years. The committee lends ten merchants for half a year 3 million with 4% or 4.5 % of interest rate. The merchants benefitted more than 160,000 won (approximately 116 dollars) of the interest saving per month to each merchant. Actually an individual merchant using private loan service should pay 170,000 won (123 dollars) in a month as an interest in the past but they just pay only 9,000 won (6,5 dollars) if they borrow money through Market Loan. Even though the pilot project is available for only 40 people, they will acquire 7.6 million-won (5,500 dollars) profit per year. Add to the newly funded 10 billion won, 1,400 merchants enjoy interest saving up to 1.4 billion won (1 million dollars) in total. Therefore, this project will prevent the comparatively vulnerable groups of small-scale merchants from being marginalized amid economic crisis. The other important part of benefits falls on the market committee. In stead of public bank, the committee plays a key role in this new financing system. It manages the fund with a small amount of the cost and selects suitable borrowers among the applicants who are also a member of the committee. Then, this new project makes the committee strengthen through activities such as meeting members, selecting recipients, the interest rate and period of lending money. This implicit benefit is hard to calculate but the most significant one to get from the Market Loan Project is motivating the committee itself.

Who proposed the solution, who implemented it and who were the stakeholders?
The core idea of the project originates from YK Kim, the former director of the Market and Consumer Affairs Division of SMG. He suggested the Market Loan Project in a “creative administration idea” competition initiated by the Mayor of Seoul. Mayor Oh selected his idea and implemented a pilot program, providing 130 million won (86,000 dollars) worth of financial support to market merchants in the fiscal year 2008. To study the current status of the market and carry out surveys, three staff members (Choi, Jang and Woo) joined Director Kim’s division. And then, the government-funded Financial Services Commission and the Microfinance Foundation, established in March 2008, also joined the program to provide it nation-widely on the condition that SMG takes a control over the additional project. The Microfinance Foundation sponsored part of the budget of 1 billion won (800,000 dollars). To implement the program, Gu (or District; medium level administration under SMG) members and individual market merchants committees are also important role. Most important part of implementation is possible by the active participation of each committee’s endeavors.

Describe how and when the initiative was implemented by answering these questions
a. What were the strategies used to implement the initiative? In no more than 500 words, provide a summary of the main objectives and strategies of the initiative, how they were established and by whom.
In fact, there are several so called the People’s Banks in Korea; the Maeul Finance Firm and Social Solidarity Bank (a micro-credit NGO). Both of them stand for the low income class by providing petty loans, but the Maeul finance requires adequate credits and official enrollment documents. The SSB also demands considerable management cost for monitoring and controlling the borrower. SMG needs totally different financing system for market merchants on the condition that the new system should avoid official documentations and high management cost. Then, another important idea of the Market Loan Project is motivating the market‘s own organization, the merchants committee. This means the committee plays as a part of quasi-government. The organization can manage the project with efficiency because it is easily monitoring the members at the near hand.

b. What were the key development and implementation steps and the chronology? No more than 500 words
The project started in March 2008 after Director Kim proposed it. In June 2008, 130 million won firstly input to the merchants in need as operating expenses. When the pilot program was implemented at four markets, the media started to pay great attention on its good impacts. Finally, the Cabinet Council of the central government selected the program as one of the ten practical programs for nation in September 2008. And then, the Financial Services Commission backed up the program with 10 billion subsidies in December 2008. Currently, FSC is willing to apply the project throughout the nation.

c. What were the main obstacles encountered? How were they overcome? No more than 500 words
The Korean bank law strictly prohibits any finance business without permits. The permission should be issued only when its criteria, such as adequate capital, main office and several branch condition are satisfied. The merchants committee can not imagine those conditions. Even though the bank law, small and medium Business Cooperate Association Act leaves a possibility of small financing in condition of doing between members. SMG picked up 25 merchants committees established on the base of the Act. The successful implementation of the pilot program at those 25 markets led to expand it to other markets. SNG demanded to amend relative laws to permit finance business in any markets. The government gives new criteria to give a chance of doing business. However, the public servants from autonomous district’s offices hesitated to launch the project for fear of defaulting on a repayment. They argued that market merchants have poor record of the credit and no guarantee to pack back the money. SMG persuaded them, saying the conventional market merchants committees would cover the risk by monitoring the borrower near at hand. SMG also demanded to evaluate implicitly the right to trade so that each merchant have tacit mortgage of 3 million won at least.

d. What resources were used for the initiative and what were its key benefits? In no more than 500 words, specify what were the financial, technical and human resources’ costs associated with this initiative. Describe how resources were mobilized
In general, banking business is so risky and technically complicated that only financial specialist is regarded to manage it. In Market Loan project, SMG simplify the banking business technically through entrusting the committee with an authority of deciding the interest rate and required document. According to borrower’s convenient, the committee decided the repayment method so that the committee does not know amortization skill. SMG thought the conventional market merchant committee is a good substitute for human resources needed to implement the project for two reasons. First, the committee is the well-qualified organization to manage because it is located in the market so that there is little management cost to control borrowers. Second, most of markets have its own “committee” because of permit guideline, but little to do for their members. Therefore it does not have savory reputation. Some merchants criticize it; the only thing the committee to do is collecting member fee. Hence, this project is a good motive for the committee to regain the impaired reputation. At the point of the committee, Market Loan project is an agent to be a good community.

Is the initiative sustainable and transferable?
The borrowers are satisfying that they can have not only operating money but also get a easier and more convenient condition like low interest, convenient pay back system and little documentation. The merchant committee also wanted this project to be expanded so that the committee gives more benefits to their members. The central government decided this project to implement nation-widely to 1,000 conventional markets which are located outside Seoul. Stated the above, the Financial Services Commission and Microfinance Foundation will be in charge of expanding this 2nd project with 10 billion won (8million dollars) as seed money (principal). Furthermore the central government gets to apply other type of small-size merchandise such as milk delivery, newsmagazine delivery and so on. The key idea of this project is giving a chance of small financing on base of implicit credit despite of doing on business on non-enrolled. Thanks to paying back the principal and interest, the project has its own sustainability.

What are the impact of your initiative and the lessons learned?
The program will give significant changes in small finance system in S. Korea. Before this project, Korean banks forbade or hesitated to lend money to low credit, non-mortgage and non-registered business company, even though the amount of fund is only 1 million won at most. The initiative gives the chance of financing a small size businessman to get petty operating money. Another important fact is that conventional market merchant committees, considered as an useless organization for a long time, became an important player.


Institution Name:		Seoul Metropolitan Government
Institution Type:		Government Department
Contact Person:		Yoonkyoo Kim
Title:		Market and Consumer's Division
Telephone/ Fax:
Institution's / Project's Website:
E-mail:		kimyk61@seoul.go.kr
Address:		15,Deoksugung-gil,Jung-gu
Postal Code:
City:		Seoul
State/Province:
Country:

The Problem

Solution and Key Benefits

Actors and Stakeholders

(a) Strategies

(b) Implementation

(c) Overcoming Obstacles

(d) Use of Resources

Sustainability and Transferability

Lessons Learned

Contact Information