South Korean public institutions signed a deal to buy some 43 billion won ($40 million) worth of products made by small and medium-sized enterprises this year as part of Seoul's efforts to encourage the growth of smaller companies, the government said.

Six public organizations, including the Korea Land & Housing Corp. and the Korea Electric Power Co., signed a memorandum of understanding with the Ministry of SMEs and Startups to buy new products made by SMEs, the ministry said.

If companies apply to sell their products to the institutions, a separate committee will evaluate the acceptability before the institutions buy the goods, according to the ministry. 

In 2016, public institutions' purchases of products newly developed by smaller firms stood at 3.7 trillion won, accounting for 3.2 percent of the total public procurement market, it said.

"The public procurement market has played little role in encouraging the growth of innovative SMEs so far," Minister of SMEs and Startups Hong Jong-haak said. "I hope the latest deal will lead to a better business environment for SMEs' innovation."

The ministry plans to push for the establishment of a legal basis to expand the system to more public institutions.(Yonhap)