South Korea's parliament will begin discussions as financial companies approach the end of their duty to contribute to policy low-income finance.

The National Assembly's Political Affairs Committee will hold a bill review subcommittee meeting that day to discuss amendments to the Act on Support for the Financial Lives of the Underprivileged, known as the Inclusive Finance Act, covering financial companies' contributions and the creation of a low-income finance stability fund, according to the financial industry and political circles on Tuesday. The committee is also scheduled to hold a plenary meeting on Sept. 3.

Under the current law, financial companies' obligation to contribute to the Korea Inclusive Finance Agency is valid only through Oct. 8. It will not be extended automatically without a separate legal revision.

The current system requires banks, insurers, mutual finance institutions, savings banks and specialised credit finance companies to contribute a certain share of loans and other items to the agency. The reasons given for the proposed amendments also state that the current contribution obligation is set to lose effect after Oct. 8, 2026.

The contributions have become a main source of funding for policy low-income finance. With this year's increase in the contribution rate, annual contributions from the financial sector are expected to reach about 632.1 billion won.

Even if the mandatory contributions end, existing policy low-income finance products will not stop immediately. But unless the government fills the gap with other sources such as fiscal spending, capacity to supply policy low-income finance could shrink because a key funding source worth hundreds of billions of won would be cut off. The National Assembly Budget Office also pointed to the possibility that the supply scale of policy low-income finance could be sharply reduced if the current rules lose effect.

◆ Funding stability and financial sector burden at issue

There are two main directions under discussion in parliament. The low-income finance stability fund plan pursued by the government and the ruling party would set up a separate fund at the Korea Inclusive Finance Agency and incorporate existing supplementary and self-reliance support accounts into the fund to secure standing funding for policy low-income finance. The aim is to build a stable funding structure through the fund instead of extending the current time-limited contribution system.

The People Power Party, by contrast, has proposed extending the current obligation for financial companies to contribute for another 5 years rather than rushing to set up a fund. A revision bill proposed last month by People Power Party lawmaker Eon-seok Song (송언석) would extend the validity period of the obligation from the current 5 years to 10 years. Song cited the need for further discussion on a mid- to long-term funding system while comprehensively considering the level of burden on the financial sector, fiscal conditions and the sustainability of policy low-income finance.

From the financial sector's perspective, the two options differ in nature. A 5-year extension would keep the current burden structure for a set period before the system is reviewed again, while a fund would mean financial companies' contributions become a standing source for policy low-income finance.

The fund's sustainability is also an issue. Disagreements continued in the committee's bill review subcommittee in the first half of this year over setting up the fund and how to run it. The opposition has raised concerns that making contributions permanent without sufficient review of loss-management measures could entrench the burden on the private financial sector.

The key question is how far the ruling and opposition parties can narrow differences at the subcommittee meeting that day. Even if they fail to agree on setting up a fund, passing a 5-year extension would avoid an immediate situation in which the legal basis for contributions disappears after October. But if they reach no conclusion on either a permanent fund or a 5-year extension, discussions will continue again at future subcommittee meetings. If Oct. 8 arrives without a legal revision, the current rules on mandatory contributions will lose effect.

Some in the banking sector cautiously say both options are burdensome but that the 5-year extension, which maintains the current contribution system, is relatively preferable. A financial sector official said, "It is true that both are burdensome from the financial companies' perspective. If we have to choose one, then given that the contribution rate has already been raised, the 5-year extension that maintains the current system and prevents a funding gap is relatively better than a fund plan that would also make the obligation permanent." The official added, "Whether to make the fund permanent needs further discussion over time, but since it is the position of the government and the ruling party, we think the likelihood of it passing is also high."