South Korean small and medium-sized enterprises (SME) will be able to save raw and subsidiary material costs substantially thanks to a guarantee fund worth 60 billion won ($56.5 million) that will be created in the first quarter of this year.

The Korea Federation of SMEs (KBIZ), Korea Credit Guarantee Fund and Industrial Bank of Korea (IBK) on Thursday signed an agreement to launch a 60 billion won fund that will be financed by the KBIZ and IBK and run by Korea Credit Guarantee Fund in March.

The new fund will be used for SMEs’ joint purchasing of raw and subsidiary materials and the Bank of Korea estimated that the group purchasing would cut the cost by 7 percent on average and help local SMEs improve operating profit margin. Joint purchasing is one of the cost-saving strategies for SMEs who have no choice but to buy smaller quantities of raw and subsidiary materials at higher prices compared to their bigger counterparts.

The KBIZ will select a cooperative union that will lead the joint purchasing process to determine the quantity and price. Then Korea Credit Guarantee Fund will give payment guarantee to SMEs that belong to the cooperative union, and IBK will grant financial support. The KBIZ plans to establish a platform that deals with the group buying processes at once including guarantee issue, payment support and final purchase in March.

By Ahn Byung-joon and Choi Mira

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