South Korea’s startup credit ecosystem faces growing pressure after revelations that KRW 4.8 billion (~ USD 3.5 million) in guaranteed loans from the Korea Technology Finance Corporation (KIBO, also known as KOTEC) were misused for unauthorized purposes. The discovery of KIBO’s loan misuse cases highlights how the nation’s key technology financing institution is struggling with internal oversight, limited personnel, and a rapidly expanding portfolio of startups relying on public guarantee funds.

Loan Misuse Raises Oversight Concerns for KIBO

Recent data submitted by Democratic Party lawmaker Lee Jae-kwan to the National Assembly’s Industry, Trade, and SMEs Committee revealed 26 confirmed cases of loan misuse between 2016 and 2025, totaling KRW 4.82 billion.

These findings further highlight long-standing weaknesses in financial oversight across public institutions, following multiple past incidents of fund misuse within agencies under the Ministry of SMEs and Startups (MSS).

Within Korea’s government-backed startup financing system under Korea Technology Finance Corporation (KIBO), the misuse cases included personal use of funds by company representatives (6 cases), loans to affiliated firms or repayment of shareholder debts (7 cases), stock or treasury share purchases (3 cases), and other violations such as embezzlement or irregular consulting payments (10 cases).

One company was even found to have diverted KRW 100 million (~ USD 74,000) into a CEO’s personal account before declaring bankruptcy. Meanwhile, another lent funds to an affiliate despite guarantee restrictions. A third used KRW 1 billion (~ USD 740,000) of its loan to repurchase shares and subsequently lost its KIBO guarantee.

Of the total funds misused, only 35 percent (KRW 1.69 billion) has been recovered. Some companies involved are currently under rehabilitation programs or the government’s New  Start Fund debt relief framework.

As a response, KIBO stated that such cases represent “a very small fraction compared to over 20,000 guarantees issued annually” and often stem from “temporary liquidity difficulties rather than deliberate fraud.”

Oversight Gaps Despite Safeguards

KIBO, a government-backed institution established to help technology-driven SMEs secure financing, introduced a dedicated loan-use account system in 2018 to prevent misuse. All non-collateralized guarantee loans are required to pass through these exclusive accounts, with six months of post-disbursement monitoring.

However, even after the reform, 20 new misuse cases worth KRW 4.67 billion (~ USD 3.4 million) occurred between 2019 and 2024. Critics argue that while policy mechanisms exist, the implementation remains reactive and dependent on branch-level manual monitoring.

KIBO’s internal structure shows the scale of strain: as of September 2025, 326 officers are responsible for managing 81,975 guaranteed firms, meaning that one officer must handle an average of 252 companies.

The organization claims that field staff “best understand their clients’ financial realities.” However, policymakers still question: can such workloads allow for effective supervision?

Calls for Stronger Governance for Korea’s Policy Finance

Rep. Lee Jae-kwan emphasized that KIBO’s oversight gaps could weaken public trust in Korea’s policy finance institutions:

“As a policy finance agency supporting technology-based SMEs, KIBO must reinforce its management system to ensure guaranteed loans are used strictly for their intended purposes. Clear guidance should be given from the application stage, and continuous post-monitoring must be institutionalized.”

Industry analysts also note that repeated misuse cases risk undermining the integrity of Korea’s broader startup credit ecosystem, particularly as more high-risk deep-tech ventures depend on guarantee-based financing rather than direct equity investment.

Policy Finance Under Strain: Lessons from the KIBO Case

The KIBO case underscores a structural challenge in Korea’s innovation finance model. As public guarantee programs expand to cover a rising number of early-stage tech ventures, limited human oversight capacity and fragmented monitoring systems leave significant room for governance lapses.

This issue carries implications beyond KIBO. Korea’s broader policy finance network, including the Small and Medium Business Corporation (SBC) and Korea Credit Guarantee Fund (KODIT), faces similar challenges in maintaining transparency and accountability as the number of supported startups grows.

If left unaddressed, such oversight gaps could weaken investor confidence in Korea’s startup support framework, undermining the nation’s drive to achieve its Third Venture Boom and its broader goal of becoming an innovation-driven financial hub and one of the world’s top four venture powerhouses.

A Smarter, Transparent Future for Korea’s Policy Finance

Eventually, along with the previous incidents from MSS agencies, KIBO’s loan misuse revelations further point to the vital need for digital oversight frameworks, including AI-based fund tracking and integrated data sharing among financial regulators. Strengthening transparency and accountability will be crucial for sustaining the credibility of Korea’s public funding ecosystem.

As Korea moves deeper into its Startup Korea and Digital Finance strategies, ensuring that every guaranteed won is used for innovation—not misuse—will determine how effectively the country’s policy finance system can support its next generation of startups.

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