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The volume of state-funded financial assistance to low-credit borrowers plunged 1.5 trillion won ($1.04 billion) last year, constrained by a spike in the government's repayment of debt held by vulnerable borrowers, data showed Friday.

This adds to the woes of an increasing number of low-income borrowers facing denied access to low-interest emergency loans for living expenses.

Observers say more financially vulnerable borrowers have been, and will continue to be, pushed to seek high-interest loans and illegal lenders as a result.

According to the Korea Inclusive Finance Agency, a state-run organization under the supervision of the Financial Services Commission, the government-backed financial program for low-income borrowers amounted to 5.64 trillion won last year — a 21 percent decrease, or 1.51 trillion won, compared to the previous year.

Some emergency lending programs aimed at low-income and low-credit borrowers, primarily intended to cover living expenses, saw a drop of more than 36 percent.

Assistance for borrowers burdened with high-interest loans from loan sharks and other illegal lenders also fell by about 34 percent.

The decline in assistance is attributed to the government's debt repayment rate for vulnerable borrowers. It reached 26.8 percent by the end of 2024, a dramatic increase from just 0.01 percent in 2022.

The amount repaid reached up to 10 million won in loans per person for borrowers in the bottom 10 percent of credit scores that earn less than 45 million won a year.

Since its introduction in 2022, the repayment program has covered approximately 100 billion won of debt.

The funding for this year will be significantly reduced, influenced by the main opposition-railroaded budget cut of 4 trillion won at the National Assembly.

The parliamentary National Policy Committee initially planned to increase the budget by 92 billion won from the current 146 billion won.

However, the main opposition Democratic Party of Korea revised the government-drafted budget to exclude the plan, along with funding for disaster response and relief, special activities for investigative agencies and research and development.

According to Bank of Korea (BOK) data Rep. Park Sung-hoon of the ruling People Power Party released, the delinquency rate of low-income self-employed borrowers in the bottom 30 percent came to 1.68 percent as of September last year.

This was the highest level in 10 years and 3 months since the second quarter of 2014 when it hit 1.83 percent.

Similarly, a BOK report on financial stability released in December showed the overall delinquency rate of self-employed borrowers came to 1.7 percent as of September last year.

It was the highest since the first quarter of 2015 when it hit 2.05 percent.

Over the same period, the delinquency rate of self-employed that are either low-income or low-credit with debts from at least two lenders surged to 11.55 percent. This was the highest since the third quarter of 2013 when it was 12.02 percent.