Expiration of Inclusive Finance Contributions Looms... 50 Billion Won Monthly Gap if Legal Revisions Fail

October 8 Deadline for Financial Institutions’ Contribution Obligations

Opposition Proposes Bill to Delay Permanent Fund and Extend Contribution Duty by 5 Years

Discussions on legislating the "Stabilization Fund for Inclusive Finance," aimed at ensuring stable funding for policy finance that supports low-income households, are expected to begin in earnest at the National Assembly next month. The government and ruling party are seeking to pass the original bill that would make financial institutions’ contribution obligations permanent. However, the opposition has proposed an alternative to simply extend the current contribution system for another five years, making the outcome of the debate noteworthy. Should the related legal amendments be delayed, there could be a funding gap of around 50 billion won every month for inclusive finance starting in October.

According to the National Assembly on August 31st, the National Policy Committee plans to discuss revisions to the "Support for Financial Life of Low-Income Households Act" at its subcommittee on legal review next month. The amendment would consolidate the separate supplementary and self-reliance support accounts, currently managed by the Inclusive Finance Agency, into a single statutory fund and have each account operated separately within the fund. It would also make the contribution obligation of financial institutions permanent and raise the fund’s guarantee leverage from the current 15 times to 20 times.

Since the contribution obligation for financial institutions is scheduled to sunset on October 8, swift passage of the bill is urgent. If the fund establishment plan or the extension of the contribution obligation is not enacted and implemented by this date, there will be no legal basis to collect contributions thereafter. Although it is unlikely that the bill will be passed before the government submits its budget proposal, the fund management plan reflected in next year's budget can still be revised during the National Assembly review. If an agreement is reached and enacted before October 8 at the latest, a gap in contributions can be averted.

The key issue lies in negotiations with the People Power Party. The opposition reportedly harbors significant concerns about making the fund permanent. With the recent reshuffle in the Policy Committee following the reconstitution of the Assembly in the second half of the year, Eon Seok Song, a member of the People Power Party, recently proposed an amendment to extend financial institutions' contribution obligation by only five years, until October 2031. The idea is to prevent an immediate funding gap, but to defer any permanent contribution obligation for financial institutions and the fund’s perpetuation until after adequate deliberation.

The Financial Services Commission estimates that if a legal vacuum occurs, there will be a monthly funding gap of around 50 billion won. Based on this year’s increased contribution rate, the annual burden on the financial sector is about 632.1 billion won. Contributions are calculated with reference to each financial institution’s outstanding household loans and must be paid by the end of the following month. As the establishment of the Stabilization Fund for Inclusive Finance is a national policy agenda item, the Financial Services Commission’s policy is to prioritize passing the original bill that makes financial institutions' contribution obligations permanent and transitions to a statutory fund system.

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