North Korea cracks down on ‘vicious capitalist’ loan sharks

High-interest lending, known more formally as usury and more commonly as loan sharking, is on the rise in North Korea as economic turmoil pushes some families to the brink.

The problem has led to fighting in the streets between lenders and borrowers and has become bad enough to attract the attention of governmental authorities, who have begun to clampdown on high-interest lending after a nationwide investigation, sources in the country told RFA.

The issue is another hint of the calamity ongoing within North Korea’s closed society. Sources have told RFA that the economy collapsed over the past two years after trade with China was shut off to prevent the spread of the coronavirus. North Korea’s nascent market economy relies on the purchase and sale of Chinese goods, but freight shipments have only recently resumed between the two countries.

Citizens desperate to raise money during the lockdown found opportunistic loan sharks offering to help. But when borrowers fail to repay, families break apart and social order is threatened, sources said.

“The Central Committee [of the Korean Workers’ Party] issued an order on [Jan. 23] to crack down on usury. They defined it as a vicious practice of capitalism that threatens our socialist system, and they are taking strict measures to punish those involved,” a resident of the northeastern province of North Hamgyong told RFA’s Korean Service Jan. 31.

“In December, a resident of the city of Chongjin needed money urgently and borrowed 2 million won [U.S $400] in cash from someone in the same neighborhood, promising to repay it in a month,” said the source, who requested anonymity for security reasons.

The borrower agreed to pay off the principle plus two tons of coal worth 600,000 won [$120], or 30% interest, according to the source.

“However, business did not go well, and the borrower could not pay the principle or the interest on time. A big fight broke out when the lender seized the borrower’s mobile phone and household items, and it all caused a social scandal,” he said.

“After receiving a report on this incident, the Central Committee ordered an investigation into usury lending all over the country,” the source said.

The investigation revealed that the problem was prevalent throughout the country but varied in degrees of severity, the source said.

“Because of these kinds of predatory loans, large brawls break out between residents, and families are torn apart, which disrupts the social atmosphere. That’s why the Central Committee ordered thorough investigations and punishments,” he said.

If found guilty of usury, North Koreans may be sent to the local disciplinary labor center, or, in severe cases, to hard labor camps for three or more years, according to the source.

Usury lending was unknown in North Korea until the Arduous March, the Korean term used to describe the 1994-1998 famine that killed millions of the country’s citizens. The roots of that crisis also began when North Korea lost access to a key economic partner, in this case the Soviet Union, which had collapsed.

“After it was over, there was a strong crackdown on usury and the economic situation was improving, so it mostly stopped. But now with all our hardships during the pandemic, usury has reappeared,” the source said.

Loan sharking tore apart a family in the northwestern province of North Pyongan, a resident there told RFA.

“A resident of Ryongchon county loaned 300,000 won [$60] to a resident of the same village over a six-month period, receiving 100,000 won [$20] in interest each month. But when the borrower didn’t pay the interest on time one month, the lender went to the house every day and harassed and bullied the borrower. The borrower couple fought often, and the family broke up,” said the second source, who requested anonymity to speak freely.

“Local villagers said of the incident that nothing like it had ever happened before, not even in the Japanese colonial era, yet it is possible for this to happen here and now in our country that we are made to call a Socialist Paradise,” the source said.

The comparison to the 1910-1945 Japanese colonial era is striking given that many Koreans suffered greatly under Imperial Japanese rule.

The North Pyongan resident said it would be difficult to stop loan sharking.

“The authorities … say they will deal with usury through the law, but as long as our living conditions get more and more difficult, more and more people will be in need of urgent money,” he said.

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