No Place for Common People to Borrow Money

“Now, the private loan market is my last resort.”

34 year-old Ms. Kim, owner of a fried chicken shop in Seongbuk-gu, Seoul, dropped to her knees, her voice feeble, after her recent visit to a loan company in Kangnam area. Ms. Kim suffered severe financial difficulties, as bird flu caused a huge loss in sales early this year. She visited every bank, credit card company, and insurance company for loans, however, all of them rejected her applications.

It was because her credit record showed that her debts from cash advance services had been twice overdue and that part of her existing loan had not yet been paid.

With no means to deal with the situation, Ms. Kim went to a loan company; even this company rejected her application, however, after reviewing her credit information.

As each financial company puts restraints on loans to common people, they are having huge difficulty in obtaining money with their low credit ratings. In the end, they are driven to the private loan market with exorbitant interest rates, which even results in family dissolution.

▽ There is no place to borrow money = According to the Financial Supervisory Service and financial institutions on March 28, most savings banks for common people recently put a limit on small credit loans of less than 3 million.

Assets for small credit loans have decreased from 2.82 trillion in late 2002 to 2.56 trillion in late June last year, and finally to 2.38 trillion as of late 2003.

Limits of cash advances, from which citizens can get money for immediate use, have dropped from 101 trillion in late 2002 to 77 trillion in late March of last year, and from 63 trillion in late June to 59 trillion as of late September.

Insurance companies are also headed down the same path. The “Big 3” life insurance companies—Samsung, Korea, and Kyobo Life Insurances—recorded 12.5365 trillion worth of credit loans last month, which reflects a decrease of more than 200 billion, compared to 12.762 trillion as of last year.

Loan companies, often the last resort for citizens before they go to the private loan market, are also following suit. In the middle of last year, the loan approval rate was up to 40 to 50 percent, but it dropped to 10 to 20 percent this year.

▽ Tougher loan approval = The process of loan approval for common people has become tougher. Since March 15, Korea Life Insurance has not made a loan if those who applied for credit loans had borrowed more than one million from the cash advance service of a card company or had inquired of a loan company within the last 6 months about the amount of money they could borrow.

An associate from a loan company said, “Nowadays, even when a customer did not actually get a loan, if he checked out his credit information a lot, we would not make a loan to that person.” “Most companies do not make new loans and just take care of the existing ones,” added he.

Similarly, with the devastating loan market for common people, ordinary financial companies are closing up their businesses, unable to deal with the difficulties of management.

The number of savings banks dropped to 114 last year, less than half of the 231 banks existing in 1997. During the same period, the number of national credit union federations decreased to 1,086 from 1,666.

The number of loan companies that canceled their business registration reached 2,377 last December, 2,707 this January, and 3,058 on February, while only 699 loan companies were closed last June. Through February, only 304 companies were newly registered.

“Last year, the number of victims of usurious interest rates was about 10 per day on average, but recently it increased up to 15 to 20 per day. As these loan companies close up their businesses and turn to the private loan market, it is expected that more victims of the excessive interest rates will surface,” worried a Financial Supervisory Service official.

Keuk-In Bae bae2150@donga.com