The Korea Credit Guarantee Fund is moving to raise the coverage limit on trade credit insurance, which shields small companies from unpaid bills owed by their customers. With the per-policyholder cap frozen for seven years, the fund has concluded that the ceiling needs to catch up with inflation and the growth of the economy.
KODIT is reviewing a plan to lift the maximum coverage per policyholder above the current 10 billion won ($7.2 million), according to financial industry sources on the 23rd. The existing limit was set in June 2019 and has remained unchanged since.
Under the program, a small or midsize company can insure trade receivables owed by its customers and claim a payout if the customer fails to pay. In cases such as the Homeplus crisis, where a buyer becomes unable to settle its bills, the insurance eases the cash squeeze at suppliers and helps prevent a chain of bankruptcies.
The expansion is driven in part by the larger size of the economy. Basic statistics on small and midsize enterprises, released by the Ministry of SMEs and Startups on the 1st, showed 49,727 such companies with revenue above 10 billion won as of 2024, up 11.6% from 44,551 in 2021. Beyond economic growth, sharp increases in raw material prices tied to the COVID-19 pandemic and U.S. tariff measures also played a role, according to the fund. Volatility in crude oil and other commodity prices has continued this year amid instability in the Middle East. KODIT said the safety net for smaller companies exposed to domestic and external economic shocks needs to be widened, and set this year's target for insurance underwriting at 21.7 trillion won, 200 billion won more than last year.
The fund is also considering raising the maximum limit for each buyer, not only for policyholders, who are the sellers. When a buyer purchases goods from multiple companies, KODIT sets a separate limit based on the buyer's credit standing and industry. The aim is to prevent the failure of a single company from exposing the fund to excessive losses.
The insurance program, however, operates on contributions from the Ministry of SMEs and Startups. Raising the ceiling would require consultations with the government and additional funding. An official at KODIT said the fund is reviewing an increase internally but added that talks with the government still need to take place.
KODIT is separately developing an insurance product for merchants selling on e-commerce platforms. Its trade credit insurance covers business-to-business transactions involving a seller and a buyer. For online merchants, however, an intermediary such as NAVER sits between the two parties, making the transactions difficult to cover under the existing product. The fund has been examining ways to protect the receivables of e-commerce merchants since the collapse of Tmon and WeMakePrice.
