The number of people who have turned to private lenders or loan sharks in the secondary financial sector has jumped 18 percent over the past six months, reflecting worsening borrowing conditions for the poor amid industry-wide credit crunch.
More than 2.27 million people took loans out from private lenders as of April, up about 300,000 from October, the Financial Services Commission said. Given there are loan sharks who don’t report to the agency to charge interest rates far above the legal limit, the number is believed to be higher.
About 7,500 private lenders made loans totaling 7.56 trillion won ($6.9 billion) where the average amount borrowed for each stood at about 3.43 million won. It is the first time more than 2 million people have turned to private lenders since the agency started collecting data in 2006.
It is common for loan sharks to charge exorbitant interest rates and harass borrowers to the point where many go bankrupt and some choose to commit suicide.
The overall delinquency rate fell to 1.8 percentage points to 7.2 percent but the default rate on collateralized loans increased by 0.7 percentage points to 18.6 percent.
Most of the loans were made by borrowers with credit ratings often too low to open accounts at commercial banks and mutual savings banks. About 73 percent of customers had credit ratings below level six.
The agency is pushing for a bill to convert many of the private lenders into savings banks to lower borrowing costs and improve financial access to all segments of the population.
President Lee Myung-bak in 2008 ordered a review of what can be done to curb illegal lending which was followed by a crackdown by the FSS and prosecutors. The rise of customers turning to private lenders is attributed to the credit crunch in the secondary banking sector after the financial watchdog suspended eight savings banks this year alone.
By Cynthia J. Kim (firstname.lastname@example.org