South Korea’s financial regulator is conducting its first review of banks’ social solidarity finance operations, eight years after the system was introduced.
According to the financial industry on the 25th, the Financial Supervisory Service (FSS) has recently received materials from commercial banks and is reviewing the status of their social solidarity finance operations. “The best practice standards for revitalizing social finance, introduced in 2018, have not been fully established at some banks,” a financial regulatory official said. “We will check whether they are reflected in internal regulations and encourage the revitalization of social solidarity finance.”
Social solidarity finance refers to financing that supplies funds to cooperatives, social enterprises, and social venture firms to support the realization of public values such as job creation and profit sharing, beyond simple profit. The banking sector voluntarily adopted the best practice standards for revitalizing social finance eight years ago, with the aim of ensuring that funds are properly allocated to the activities of social economy enterprises, which have relatively low credit ratings. The standards include classification criteria for social finance, credit management and screening systems, composition of operating committees, and indemnity provisions. Through this review, the FSS plans to confirm whether the institutional mechanisms are functioning properly in the field. This is the first time financial authorities have separately reviewed the status of social solidarity finance.
The move aligns with the government’s recent emphasis on strengthening inclusive finance. Financial authorities view social solidarity finance as in line with inclusive finance, in that it supplies funds to areas insufficiently supported by the government and the market, breaking away from business practices centered on profitability and soundness. At its first social solidarity finance council meeting of the year on the 8th, the Financial Services Commission (FSC) called for active participation from the financial sector, stating that “social solidarity finance, which pursues both profit and value, can be a solution closer to the essence of finance.”
The review is also seen as keeping pace with the ruling party and government’s push to enact the Framework Act on Social Solidarity Economy. The bill, which defines the concept of social solidarity economy, the scope of participation, and the governance system for promoting cooperation, is a key policy task of the Lee Jae-myung administration. It passed the National Assembly’s Legislation and Judiciary Committee last month, and once enacted, it will provide an institutional foundation for systematically promoting fiscal and financial support.
The banking sector has also expressed its willingness to participate. Banks have set a goal of supplying 4.25 trillion won to social solidarity economy organizations over the next three years starting this year, an 18% increase from the previous three years. “Some organizations, such as cooperatives, have limitations in that it is difficult for them to have guarantee structures like ordinary companies,” a commercial bank official said. “However, we plan to actively expand financial support for social economy enterprises.”