Shedding ‘Loan Shark’ Image

Headlines about loan sharks who charge exorbitant interest rates as highas 1,400 percent a year have prompted the government and financial authorities to introduce a law setting a ceiling on small private loans.

But the private money market is undergoing change. Some lenders are choosing to shed the seedy image of their profession and make the change into a legitimate consumer service. An influx of Japanese capital to the market is also helping to bring about the change.

A branch office of Good Money Credit Inc. in the heart of Seoul has none of the atmosphere of the typical private moneylender's office. The 100-square-meter office is tastefully decorated and brightly lighted, and a sharply dressed employee greets customers.

The Financial Supervisory Service said that more than 30 money lending operations are registered with networks of branch offices. Good Money Credit itself has 35 offices around the country with 160 full-time employees.

Korea Credit, based in Taegu, is another incorporated business with a modest capital of 1 billion won ($776,000). Smaller in scale, Korea Credit concentrates on smaller consumer loans. President Huh Si-ku said, "We plan to move into Seoul within two years, and our ultimate goal is to become listed on the stock market."

The move is seen largely as a reaction to the wave of Japanese capital making inroads in the country. A&O International pronounced itself a professional consumer finance company, and six other incorporated companies currently operate in Korea. A&O International established its operation in 1998 with 18.4 billion won and currently runs 28 branch offices with 230 employees. The Japanese companies said their business is meeting a clearly existing consumer need.

An executive with Good Money Credit said, "We estimate that lenders backed by Japanese capital represent nearly 80 percent of the loans made to smaller borrowers in urgent need." Korea Credit's Mr. Huh said, "Four of the companies with Japanese capital, including A&O, represent 50 percent of the private loan market in Taegu." These companies said they limit their loans to less than 5 million won, with interest up to 8 percent per month, equivalent to an annual rate of 96 percent.

by Suh Kyoung-ho