Credit system fuels new market entrants

Seol Song Ah  |  2016-12-06 10:15
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A deferred payment system is becoming popular in North Korea for garment production, manufacturing, and food services, wherein raw materials are provided for credit instead of cash. As marketization accelerates in North Korea, these types of private transactions are helping to build trust between finance providers and are opening the door to citizens who would otherwise not have enough money to start a business. 

“Operating a restaurant near a train station or market has now become a possibility for more North Koreans than ever before, even those who are not members of the donju (newly-affluent middle class). Restaurants tend to have high profit margins and a lower risk of insolvency, which has merchants feeling more comfortable providing credit for such endeavors,” a source in Kangwon Province told Daily NK on December 2.

“As market controls are easing, suppliers are entering into intense competition with each other. Some merchants have begun to deliver restaurant supplies on credit to businesses that are performing well. In doing so, they have been able to capture larger proportions of the market.” 

“This has opened up new possibilities for people with good business acumen that don’t have the capital to establish a business. Such individuals are able to acquire both a storefront and raw materials on credit. That has created more opportunities for new businesses to grow.” 

In North Korea, there is an expression that says “providing credit is the same as gambling.” Lacking the legal and financial safety nets available in other countries, some individuals who used their connections to secure loans experienced unforeseen problems in the past. Such problems necessitated extreme measures at times, with some individuals even putting their homes up as collateral. 

However, times are changing. With donju holding greater reserves of currency, the availability of loan providers has risen. Furthermore, the relationship between the donju and the ordinary residents has been stabilizing, which has diminished the influence of the North Korean authorities. While in the past the relationship between the state and the citizenry was simple and hierarchical: obey or suffer the consequences, the people of North Korea are now establishing horizontal relationships in the marketplace that are relatively unaffected by the old system. 

“Residents are becoming less and less concerned with the authorities because they are rarely helpful in terms of earning a living. This is also driving a change in priorities. People these days think to themselves: Politics is of little interest; earning money is what I need to focus on.” 

Accordingly, individual relationships in the marketplace are becoming more complex, and deferred payment arrangements are flourishing beyond the restaurant business, reflecting new levels of mutual trust between lenders and borrowers.

“In some cases, the restaurant owners are able to quickly sell the goods and return the borrowed money to the lenders. If so, the donju might sell the item at a discount in return. On the other hand, when business is not going well, the donju might pause on further offers,” a source in North Pyongan Province added.
 
“Some residents raise livestock such as pigs, and then provide the meat to restaurants entirely on credit. Food scraps from the restaurant are received in return to feed their livestock. A harmonious relationship develops, as both sides benefit.” 

*Edited by Lee Farrand

 
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2017.01.26
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