Local sources indicate that the company
managers and presidents of North Korean state factory enterprises have become
reliant on private financing. After being cut off from state funds, the
companies have been forced to provide their own financial backing in order to
keep production going. Loan sharks charging a high interest make a handsome
profit by taking advantage of management personnel.
“It isn’t just the donju (new merchant
class) that go to loan sharks these days for money, leaders of state-run
enterprises also have a need for fast cash. Normally, those hoping to borrow
from the loan sharks need to be introduced by a friend or show up with proof
that they represent a somewhat large and functional operation. But the state
factory managers are putting down the factory equipment as collateral for the
deals,” a source in South Pyongan Province said in a phone interview with Daily
NK on September 8th.
“In the past, loan sharking was illegal, so
you would hear episodes of state factory owners borrowing money from the loan
sharks and then reporting them to state prosecutors to avoid having to pay them
back. But now that financing has been restructured and even the state factories
have been left out in the cold, the state enterprise bosses are seeking out the
loan sharks as a continuing source of capital funds.”
This information was crosschecked with an additional source in North Pyongan Province.
She added that loan sharking remains
illegal and that “it’s particularly illegal to put the state equipment down as
collateral.” If news of this makes its way to the leadership, the
state-enterprise cadres who sought out the loan sharks undoubtedly “feel the
consequences,” in the source’s words.
Even the Ministry of People’s Security
[MPS], North Korea’s equivalent of a police force and known for
enthusiastically cracking down on infractions, is encouraging said parties to
resolve disputes on their own.
“If the cadres running the factories fail
to repay the loan on time, the loan sharks are given permission to use factory
equipment and products of a value equal to the original loan plus the interest.
When taking out the loan, the cadres tethered to a given enterprise sign a
contract to that effect,” she said.
According to the source, when traders and
wholesale operators deal with the loan sharks, they typically put down property
such as land or housing as collateral. When the debtor fails to fulfill his
payback obligations, loan sharks have been known to sell off portions of their
property in order to recover the principle.
“These days the loan sharks are partnering
with area mobsters and gangsters to collect on delinquent payments. This gives
them an edge and makes it difficult to control them through legal means. They
also give kickbacks to legal authorities in order to protect themselves.
Through intimidation and bribery, they’ve made themselves a powerful part of
society,” the source explained.
When asked about interest rates, she said,
“It depends on the region and the loan shark, but standard rates are about 10%,
and the loan usually has a one to three month term.”
On what ordinary residents are saying about the loan shark problem, she said that most have pointed out the
obvious, stating, “If the state bank’s system for loans and interest was
functioning properly, we’d never be in this mess. If the state finances were in
order and the donju could save their money in a bank, we could avoid this
unhealthy dependency on high interest loans from criminal elements. The
shocking truth is that gangsters do more to protect the availability of liquid
cash than the law does.”
As more and more individual operators move
into the business sector, the need for loan sharks is spreading like wildfire.
An additional source from South Pyongan
Province said, “Pyongyang and other regions across the country each have
private lenders who work out of ‘Money Houses.’ They have been able to amass
quite a fortune in this line of work. When they are looking to turn a fast
profit, they sometimes raise the interest by up to 50~60%.”
According to this source, most banks lack
the funds to disburse loans. While factory managers do have some access to bank
loans, banks have difficult and strict application procedures, so most of the
managers avoid going to the banks for money.
“The private lenders have gone so far as to
work with the prosecutor’s office and the MPS in order to get protection. That
is what gives them the right to change the interest rate at any time. The
factory owners may not like the hike in fees, but when they’re in a bind, they
have nowhere else to turn for fast cash,” he said, adding that the big traders
and the public company managers go running to the loan sharks, who aggressively
raise the interest rates.
“Without someone to introduce you, the loan
sharks will have no way to know your reliability as a lender, so they will turn
you away. They require hefty securities and guarantees in order to enter into
business with them. This has caused the emergence of an entirely new player in
the game of private finance: middlemen who stake their reputation by providing
you with entry into contract with the money houses for a fee,” he asserted.
According to these sources, money lenders
do not deal with North Korean Won, instead preferring American Dollars, Chinese
Yuan, and Japanese Yen. The source also indicated that the loan sharks have
close relationships with partners in the MPS and at the prosecutor’s office,
who offer them protection—for a price, of course.
The money lenders have
become known as “ticks” and “troubleshooters” for the creative and tenacious
ways that they recover the principal and interest in the case of default.
*The content of this article was broadcast
to the North Korean people via Unification Media Group.
