“Ask a North Korean” is an NK News series featuring interviews with and columns by North Korean defectors, most of whom left the DPRK within the last few years.

Readers may submit their questions for defectors by emailing [email protected] and including their first name and city of residence.

Today’s question is about how North Koreans can borrow money in the at least nominally socialist country.

Joshua Kim (a pseudonym) — who was born and raised in North Korea and lived there until he defected in 2019 — writes about why North Koreans can’t take out loans from the bank, the emergence of private lending in the country and how lenders seek to collect what’s owed them.

Got a question for Joshua? Email it to [email protected] with your name and city. We’ll be publishing the best ones.

North Korea has branches of the Central Bank of the DPRK all over the country, but there is no personal loan system available via the bank. Banks in the DPRK only offer loans to companies and not individuals.

It’s probably no exaggeration to say that ordinary residents do not borrow money from the bank or even use the bank for savings. Instead, North Koreans tend to hide their money in their wardrobes, and people with a lot of money play the same role that commercial banks would usually do in capitalist countries.

These people are sometimes called money dealers or loan sharks, and they are well aware of how money moves around. They were the first in the country to realize that hiding money in your wardrobe is as reckless as using it like tissue paper.

Individuals rarely had to borrow money when North Korea’s socialist planned economy functioned as intended to ensure a relatively fair distribution of goods. However, as this system collapsed, covert markets began to emerge, and individuals needed starting capital to do business and make more money. Since banks did not lend to individuals, people inevitably began to look to one another.

At first, North Koreans didn’t really have the concept of interest and just lent money to their close friends or people they knew relatively well, and they would return the money as a token of gratitude. As more and more people needed to borrow money, individuals started to make profits through private loans.

The North Korean government sees financial transactions between individuals as an unhealthy action that violates socialist principles. Some debtors have abused this situation to avoid replaying their debts, as they know lenders will have no legal recourse. In especially severe cases, debtors may report the person who loaned them money to authorities.

This state of affairs is why there’s a saying in North Korea: “Give while sitting but take while standing.” This means that it is easy to lend people money when they come to you, but that getting your money back will require chasing them down.

THE MARKETS BECKON

In 2003, North Korea actually legalized marketization through comprehensive market reform, further easing regulations on economic activities among citizens. Nevertheless, those who generate profit from private loans remain in an uncomfortable position, as they are often compared to capitalists during the Japanese colonial era (1910-1945).

In many cases, when legal battles between debtors and lenders take place in the DPRK, the ruling favors the debtor and they only have to pay back the original amount borrowed. If the debtor does have to pay interest, the lender and debtor determine the amount of interest through mutual agreement.

Because there are many cases where debtors break their promise and refuse to pay back their debt, lenders now often prepare documents on the terms of their loans. These documents show who borrowed money from them on a certain day, the amount of money borrowed and the interest owed.

The loan documents also stipulate that a guarantor will have to repay the debt if the debtor fails to, and the guarantor must sign a letter of guarantee for the other party to borrow the money. Guarantors often get into trouble when people do not pay their debts. As one North Korean expression goes, “there are no guarantees even between parents and children,” and this applies just as well to lenders and debtors. 

North Koreans decide on interest rates based on the financial status and identity of the person borrowing the money, similar to credit ratings in capitalist countries. The interest rate typically starts at around 10% per year and sometimes even exceeds 20%.

Aware that their status can influence the rate, people try to exaggerate their wealth and how much private property they own or hide who they really are. It is difficult for lenders to verify the details because the DPRK does not register private property held by individuals.

To ensure they receive what’s owed them, lenders will threaten debtors who fail to repay their debts and try to harm them. This is possible because North Korean authorities punish such non-political crimes less severely, and it’s possible for lenders who have money to pay bribes to avoid legal punishment.

So I’d say that in short, there is not as much difference as one might imagine in borrowing money from individuals in North Korea and institutional lending in capitalist countries.

Edited by Bryan Betts