Niche Market Eyed By Money Lenders

Competition for "grey loans" is intensifying between mutual savings and finance companies and finance companies.

The market is small loans to both merchants and individuals who have had difficulties in borrowing money from banks due to their low credit rating, even though they are not delinquent on current loans. Homegrown usurers and Japanese lenders allegedly with gang ties, who have dominated the small loan market, are keeping a low profile to avoid probes by the National Tax Service and the prosecution. That, banking analysts say, gives legitimate small financial institutions room to jump into a market that has been called a "gray credit area."

Mutual savings and finance companies lending has been depressed: only about 70 percent of their deposits have been recycled into loans recently.

In turning to the small loan market, these financial institutions are hiring agents on a contract basis to supplement their relatively small number of branches. "I bet the legal market for emergency loans will continue to grow if the government tightens the rules on private money lenders," said an agent working in the Seocho district of southern Seoul.

New products are being introduced one by one. Donbu Mutual Saving and Finance Co. said it raised the cap on loans available for indivoduals from 1 million won to 5 million won on April 3, and uses flexible annual interest rates on loans, from 17.9 percent to 24 percent.

Samsung Capital has a popular product which automatically extends the period of debt repayment if 10 percent of the principal is repaid. It also introduced various loan products with 10 to 15 percent interest rates, which helped the company record 1.2 trillion won in small loans outstanding.

Hyundai Capital also jumped in in January with a new loan scheme and is trying to expand its customer base through the Internet.

"Finance companies are expected to record 2 trillion won in credit loans," said an official from Hyundai Capital.

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'I bet the market will grow as Seoul tightens the rules on private money lenders,' said an agent in Seoul.

by Choi Hyeon-chul