What private lenders are doing in Korea is not micro-credit.

Micro-credit loans are granted to “sustainable” projects. They are going to people with business plans, however primitive, that are approved by the micro-credit lenders and often are monitored by them as well. The borrowers are not borrowing money to pay off other debts or for some emergency purpose.

This is not what is happening with private lenders in Korea. The money is not necessarily going to fund a business and the private lender has no interest in what it’s going for or how it will be used. The lender just wants to make money on the loan.

“Grameencredit’s thumb-rule is to keep the interest rate as close to the market rate, prevailing in the commercial banking sector, as possible, without sacrificing sustain-ability. In fixing the interest rate market interest rate is taken as the reference rate, rather than the moneylenders’ rate.”

Why would the 100+% guys be outliers? How could they be? If you can get a loan at say 50%, why would you pass that up to get one at 100% interest?

As wjk notes, these guys are referred to as 고리대금업자. There are no 중리대금업자 or 박리대금업자. It’s either bank loans, credit card loans, or private (usurious) lenders.

And that a broker who tried to make a business on such risky loans probably doesn’t have a very sustainable business model?

That’s why I said: look at who’s doing this business. Of course they are getting paid. I do not have the patience to try to look up statistics on this, but it is not farfetched to imagine the following scenario:

Person takes out loan. Person makes several interest payments. Person falters on payments, but does not default entirely. Under threat of physical harm, person gets money from family members to repay loan or surrenders private property to lender.

@wjk: no, bankruptcy is not a criminal offense in Korea. It will of course, be harder to obtain credit post-bankruptcy.

Besides that, they are just some more bums that go around putting stickers up in the neighborhood, helping to make the place look ugly, so maybe I should break *their* legs.

I can’t say if 100%+ rates are outliers, but I had the impression that it was the norm for gori’s.

I’m pretty sure bankruptcy is a crime in South Korea.

http://www.adb.org/Documents/B.....ealing.pdf

It IS a source of growth. It is also a fact that tapping that source of growth by way of providing finance to risk-seeking entrepreneurs involves accepting the expected high rates of default.

I cannot speak to the individual anecdotes above, but wouldn’t you agree that common sense would support the assumption that the 100%-plus rates are likely outliers, and not the norm? And that a broker who tried to make a business on such risky loans probably doesn’t have a very sustainable business model?

I guess I’m sure he spent plenty of time in his private meeting loan requesters, thinking about whether or not he should loan, etc. I guess.

Just bad credit, and that’s it?

No.

I think it’s a crime. I’m pretty sure it is.

Anyone near bankruptcy will take that 360% loan, do whatever you can before you become a criminal in South Korea.

I’ve known someone who is a Ko-ri-dae-gum up ja, and known someone who went bust on his business.

I think the business law is bad and so is the guy charging 360% interest.

I get fuzzy on the details of how collection was enforced or not enforced on the ko-ri-dae-gum up ja’s side of the business.

I think this sort of private loaning business goes on around US Koreans as well. Of course, with high interest. Since, most of these people are involved in businesses like Korean Restaurant #133, competing with the dozens of same style of businesses inside a 10 mile radius. No bank would even consider lending money to them.

People should also think first, before they start these businesses. However, these 1st generation Korean mom and pop stores left deskjobs to run into something they weren’t even suited for to begin with.

My 2 cents.

And look at who is doing the lending.

It is parasitism, not a growth engine.

There’s a reason “advanced economies” do not allow a usurious private lending market (or at least try to clamp down on it) and Korea should be commended for trying to follow that example.