The Korean Economic Forum
Policy Review on Asset-based Lending as a Tool of SME Capital Provision
Hyunjin Lee (Kim & Chang) and Hyunsoo Joo (Korea Banking Institute)Year 2020Vol. 13No. 1
AbstractSince SMEs holding more movable assets than real estate have experienced incapital raising by banks’ lending, the government initiated asset-based lending(ABL) program by establishing the act on security over movable property,claims, etc in 2012, but negligent until recently. In response, the governmentprovided various policies from 2018 in order to facilitate ABL. We investigate theABL development cases in the U.S. and Japan as a reference, compare thesewith the ABL initiation path in Korea, and evaluate the development path andrelevant polices. Based on the review, we suggest several policies for enhanceABL for SMEs. On valuations of ABL, certifications and fostering of privatesector appraisal companies, and subsidization of appraisal fees to SMEs shouldbe considered. Next, on the collateral issues, accept of all assets includingmovable and real estate ones may be adopted. Also, the banks should managethe movable assets’ collateral ratio based on the value of assets in order to avoidpotential credit risks and loss from liquidations. Lower loan-deposit ratio forABLs, asset securitization, and insurance offered by Korea Credit GuaranteeFund should be considered for reducing banks’ risk and as a incentive toaccelerate ABL growth in the financial markets. In addition, as a tool of loanrecovery for banks, infrastructures such as recovery assistance fund and SME support organization may be established. Furthermore, the liquidation based onMortgage-backed Securitization(MBS) can be considered. Finally, non-bankfinancial institutions should be covered with government’s fostering plan, andDebt-In-Possession finance may adopt ABL in restructuring SMEs that havelegal constraints for providing collaterals.