Korea, Republic of: Loan-sharking, including reports of violence against borrowers and the state's response
Overview
The Financial Services Commission of the Republic of Korea (South Korea), "established for the purpose of protecting the integration of Korea’s financial markets by promoting sound credit system and fair business practices" (Republic of Korea n.d.b), states that due to the global financial crisis, low-income households in South Korea are increasingly turning to private money-lenders for loans that they cannot obtain from financial institutions (ibid. 20 July 2010). However, private money-lenders have been accused of engaging in illegal debt-collection practices (AsianCorrespondent.com 15 Dec. 2008; The Korea Times 7 Sept. 2011) and loan-sharking (ibid. 28 Apr. 2009; Reuters 8 Sept. 2009; AsianCorrespondent.com 15 Dec. 2008). They have been described as an emerging social problem in South Korea (The Korea Times 27 Apr. 2010). A loan shark is defined by The Korea Times as "a person or body that offers loans at usury rates to individuals, often backed by blackmail or threats of violence" (13 Dec. 2009).
The legal maximum interest rate for loans in South Korea is 39 percent (The Korea Herald 5 Aug. 2011; Maeil Business Newspaper 29 June 2011). However, various sources have reported incidents of money-lenders charging much higher interest rates: for example, an average rate of 78 percent (The Chosun Ilbo 15 Oct. 2008); instances of rates of 136 to 190 percent (AsianCorrespondent.com 15 Dec. 2008); "upwards of 200 percent" (Lim 2008, 34); a young female student being charged almost 350 percent (Reuters 8 Sept. 2009; The Korea Times 28 Apr. 2009); and from 133 to 2,889 percent (Joins.com 27 July 2010).
Loan sharks in South Korea "attract vulnerable individuals," including people with bad credit ratings who are denied loans by banks (The Korea Times 27 Apr. 2010), other "high-risk" borrowers (The Korea Herald 5 Aug. 2011), people from low-income households (The Korea Times 28 Apr. 2009), employees in the adult entertainment industry (Joins.com 27 July 2010; AsianCorrespondent.com 15 Dec. 2008), and students (The Korea Herald 5 Aug. 2011; Korea JoongAng Daily 5 Aug. 2011). The Korea Herald reported in 2011 that university students were "borrowing dramatically" to meet living expenses and pay high tuition fees (5 Aug. 2011).
The Korea Times reports illegal money-lending to be worth 10 trillion South Korean won (15 Apr. 2009) (about 901 million Canadian dollars [XE 25 Nov. 2011]). Reuters notes that only about five percent of South Koreans borrow from private money-lenders; however, these borrowers make up 85 percent of the country's debt defaulters (8 Sept. 2009). Other sources estimate the number of borrowers from unregistered loan sharks at 1.8 million people (The Chosun Ilbo 15 Oct. 2008; The Korea Times 15 Apr. 2009). Media reports indicate that, in June 2011, the Financial Supervisory Service of South Korea, which supervises and monitors financial institutions (Republic of Korea n.d.a), estimated that 48,000 students had borrowed 80 billion won from private money lenders (The Korea Herald 5 Aug. 2011; Korea JoongAng Daily 5 Aug. 2011).
Illegal lending and collection methods, including violence and harassment
A media report published by Reuters indicates that "‘snowballing’" is the "most common illegal tactic" used by loan sharks: when borrowers cannot repay the entire loan on time, it is refinanced, adding the interest of the original loan to the principal of the new one (8 Sept. 2009). The Korea Times reports that private money-lenders frequently apply to courts to seize and cancel the health and life insurance policies of loan defaulters in order to collect the money that is refunded upon cancellation (7 Sept. 2011). The money-lenders reportedly took the insurance payments of 40,646 debtors in 2011 (The Korea Times 7 Sept. 2011).
Media sources have reported on the various methods used by loan sharks to collect debts, including persistent phone calls and text messages (Joins.com 27 July 2010; Reuters 8 Sept. 2009), threats (Joins.com 27 July 2010; AsianCorrespondent.com 15 Dec. 2008), harassment of family members, breaking and entering the debtor's home (Reuters 8 Sept. 2009), and physical (The Chosun Ilbo 15 Oct. 2008; AsianCorrespondent.com 15 Dec. 2008) and sexual violence (ibid.). Additionally, Timothy Lim, a professor of political science at California State University in Los Angeles, in a 2008 study on the trafficking of South Korean women to the United States, indicates that loan sharks affiliated with organized crime use debt as a method of recruiting women for prostitution in South Korea and abroad (17, 34). Media sources have also reported on women being forced into prostitution to pay their debts (Reuters 8 Sept. 2009; The Korea Times 30 Mar. 2011; AsianCorrespondent.com 15 Dec. 2008). In one report, police were investigating the trafficking of 70 women to Japan for prostitution to repay their debts (The Korea Times 30 Mar. 2011).
State response
The Financial Supervisory Service was reported to have issued guidelines for private money-lenders on reducing interest rates in June 2011, and to have stated that it would monitor the implementation of borrowing rate reductions (Maeil Business Newspaper 29 June 2011). According to The Korea Times, in July 2011, the government banned money-lenders from seizing and cancelling the insurance policies of debt defaulters in order to recoup funds (7 Sept. 2011).
In July 2010, the Government of South Korea introduced the "Sunshine Loan" program, through which individuals with low credit ratings or small-business owners with low incomes (less than 20 million won in annual income) could borrow money to start businesses, to use as operating capital or to pay urgent living expenses (Republic of Korea 20 July 2010, 1; The Korea Times 24 Sept. 2010). Approximately 10 trillion won was allocated over a period of five years for loans (Republic of Korea 20 July 2010, 1). Interest rates are set by financial institutions but with a ceiling (ibid.). The Korea Times reports that interest was 10.2 percent in the first month of the program (24 Sept. 2010). The Financial Services Commission stated that individuals who had defaulted on, were behind in paying, or were unable to repay their loans were ineligible for the program (Republic of Korea 20 July 2010, 2). In September 2010, the criteria for borrowing were reported to have been narrowed: individuals with poor credit and earning more than 40 million won were no longer eligible, and borrowers were allowed to apply for Sunshine Loans only "in their residential area or adjoining area" (The Korea Times 24 Sept. 2010).
Reuters reports that, in April 2009, the Financial Services Commission launched a crackdown against loan sharks that closed 1,000 money-lending businesses but did not end the criminality (8 Sept. 2009). Corroborating information could not be found among the sources consulted by the Research Directorate.
This Response was prepared after researching publicly accessible information currently available to the Research Directorate within time constraints. This Response is not, and does not purport to be, conclusive as to the merit of any particular claim for refugee protection. Please find below the list of sources consulted in researching this Information Request.
References
AsianCorrespondent.com [New York]. 15 December 2008. "Chosun Ilbo Explores World of Korean Loansharks." <http://asiancorrespondent.com/23084/chosun-ilbo-explores-world-of-korean-loansharks/> [Accessed 28 Oct. 2011]
The Chosun Ilbo [Seoul]. 15 October 2008. "Loan Sharks Face Crackdown." <http://english.chosun.com/site/data/html_dir/2008/10/15/2008101561010.html> [Accessed 28 Oct. 2011]
Joins.com. 27 July 2010. "Indebted Hostesses Commit Suicide." (Factiva)
The Korea Herald [Seoul]. 5 August 2011. Shin Hyon-hee. "Students Borrow More from Private Lenders." (Factiva)
Korea JoongAng Daily [Seoul]. 5 August 2011. "College Kids Turning to Loan Sharks for Tuitions." <http://koreajoongangdaily.joinsmsn.com/news/article/article.aspx?aid=2939837> [Accessed 28 Oct. 2011]
The Korea Times [Seoul]. 7 September 2011. "Financial Firms Merciless on Debtors." (Factiva)
_____. 30 March 2011. "Koreans Forced into Prostitution in Japan." <http://www.koreatimes.co.kr/www/news/nation/2011/03/113_84190.html> [Accessed 28 Oct. 2011]
_____. 24 September 2010. Kang Seung-woo. "'Sunshine Loan' Headache for Policymakers.” (Factiva)
_____. 27 April 2010. Kang Seung-woo. "Private Lenders' TV Ads to Be Banned." (Factiva)
_____. 13 December 2009. Kim Jae-won. "Japanese Loan Sharks Rush to Local Market." <http://www.koreatimes.co.kr/www/news/nation/2009/12/123_57200.html> [Accessed 28 Oct. 2011]
_____. 28 April 2009. Kim Tae-gyu. "Korea to Crack Down on Loan Sharks." <http://www.koreatimes.co.kr/www/news/biz/2010/04/123_44009.html> [Accessed 28 Oct. 2011]
_____. 15 April 2009. "Trap of Usury." <http://www.koreatimes.co.kr/www/news/opinon/2010/08/202_43226.html> [Accessed 28 Oct. 2011]
Lim, Timothy C. 2008. The Dynamics of Trafficking, Smuggling and Prostitution: An Analysis of Korean Women in the U.S. Commercial Sex Industry. <http://instructional1.calstatela.edu/tclim/articles/Final_report_Lim2.pdf> [Accessed 28 Oct. 2011]
Maeil Business Newspaper [Seoul]. 29 June 2011. "S. Korea's Financial Watchdog Guides Money Lenders to Lower Borrowing Rates." (Factiva)
Republic of Korea. 20 July 2010. Financial Services Commission. '"Sunshine Loans' for Low-Income Households." <http://www.fsc.go.kr/eng/roadahead/sub03/sub03_read.jsp?bbsid=BBS0116&page=2&no=2075> [Accessed 28 Oct. 2011]
_____. N.d.a. Financial Supervisory Service. "Overview." <http://english.fss.or.kr/fss/en/eabu/int/est.jsp> [Accessed 24 Nov. 2011]
_____. N.d.b. Financial Services Commission. "Establishment." <http://www.fsc.go.kr/eng/ab/ab0301.jsp> [Accessed 24 Nov. 2011]
Reuters. 8 September 2009. "South Korea Tries to Take Teeth out of Loan Sharks." <http://news.asiaone.com/News/Latest%2BNews/Business/Story/A1Story20090908-166436.html> [Accessed 28 Oct. 2011]
XE. 25 November 2011. "Currency Converter Widget." <http://www.xe.com/ucc/convert/?Amount=1000000000000&From=KRW&To=CAD> [Accessed 25 Nov. 2011]
Additional Sources Consulted
Oral sources: Professors at California State University and Western Illinois University were unable to provide information for this Response.
Internet sites, including: Abyznwelinks.com, Anti-Corruption and Civil Rights Commission of Korea, Australia Refugee Review Tribunal, Criminal Justice Abstracts Database, Donga Ilbo, The Economist, Korea Focus, Korean Association of Criminology, Korean Institute of Criminology, Ministry of Justice of Korea, National Police Agency of Korea, Peterson Institute, Statistics Korea.