Interest limit causes drop in number of lenders

The number of licensed money lenders in Korea fell sharply last year, as tighter rules by the government crippled their businesses, data showed yesterday.

The number of money lenders registered with municipalities reached 11,702 at the end of June, down 12.5 percent from 13,384 the previous year, according to the data by the Financial Services Commission (FSC).

Compared with two years ago, the figure slid 23.9 percent from 15,380, FSC data showed.

The steep fall came as the government decision to lower the legal limit on interest rates money lenders can charge dealt a blow to their businesses.

The country brought down the interest rate ceiling twice over the last two years, to the current 39 percent from 49 percent in July 2010, as part of an effort to stem excessive lending against possible defaults.

Since stiffer rules took effect, many licensed money lenders shut down their operations due to widening losses.

Experts have voiced concerns the stiffer rules on money lenders could lead some borrowers with low credit to seek out private loan sharks. According to FSC data, 47.5 percent of the loans taken out from licensed money lenders were used for living expenses.

A surge in the loan delinquency rate has stoked worries that borrowers’ ability to repay debt is waning. It came in at 9.0 percent as of June last year, up from 6.5 percent two years ago.

The FSC said it will make sure loans made to the low-rated group are kept in check, while continuing to crack down on unlicensed players in a joint effort with the Ministry of Public Administration and Security. Yonhap