This study examines whether the mid-interest lending market can be autonomously activated without government intervention in terms of market failure due to information asymmetry. In this study, information asymmetry refers to a situation in which a financial consumer has more accurate information about the probability of defaulting his or her debt than the financial institution that sells the financial products. Empirical results show that the degree of information asymmetry between the group of loan holders and financial institutions has not been serious enough to disable financial transactions. This means that, at least for the holders of “Saitdol” loans (government guarantee loans) that were issued during the analysis period of July 2016-end-2017, private financial institutions had enough private information to handle their cases if they were accompanied by interest rate adjustments based on average default rates.

The result provide three policy implications. Firstly, a shift is needed in the policy stance, in which loans are guaranteed for fear of market failure due to information asymmetry, to encourage financial institutions to supply private mid-range interest rate products. Secondly, guarantee loans should be made available only for a limited time since the information asymmetry between potential consumer groups who still do not have access to mid-rate credit loans and financial institutions may be excessive compared to those that are currently borrowing. In this case, it would be advisable to lower the guarantee rate to enable financial institutions to become more proactive in ratings. Lastly, considering that one of the policy objectives of “Saitdol” loans is to accumulate the experience in lending medium credit loans and to develop and improve a credit rating model for said loans, we should also consider the policy incentives for financial institutions to expand the target of the “Saitdol” loans. In this regard, the policy stance to ease the recent requirements for “Saitdol” loans seems to be the right direction.

Preface
Executive Summary

Chapter 1 Introduction

Chapter 2 Literature Review

Chapter 3 Current Status of the Mid-Interest Lending Market
　Section 1 Background of Guaranteed Loan Introduction
　Section 2 Current Status of the Mid-Interest Lending Market

Chapter 4 Analysis Methods and Data Overview
　Section 1 Nonparametric and Parametric Estimation of Information Asymmetry
　Section 2 Measuring Information Asymmetry Using a Structural Model
　Section 3 Introduction of Research Hypotheses
　Section 4 Data Overview

Chapter 5 Empirical Analysis and Results
　Section 1 Estimation of Information Asymmetry Using Nonparametric and Parametric Methods
　Section 2 Measuring Information Asymmetry Using a Structural Model
　Section 3 Summary and Conclusion

Chapter 6 Policy Implications
　Section 1 Approach Through Loan-to-Deposit Ratio Adjustment
　Section 2 Adjustment of Guarantee Ratios
　Section 3 Approach Through Easing Support Requirements

Chapter 7 Conclusion

References
Appendix
ABSTRACT