The Dawn of Microcredit
At the end of the century, the behavior of loan sharks had become utterly appalling.
“The way these loan companies are acting these days is just disgraceful,” Hwang Jae-hong said, raising his voice.
Yoo Jae-won nodded in agreement. He knew all too well about the tyranny of these predatory lenders. At first glance, the current Yoo Jae-won seemed completely unconnected to such businesses. And that made sense. Looking at the state of ID Group, most of its subsidiaries were generating healthy profits on their own, with the exception of a few specialized affiliates that poured massive amounts into R&D and the recently merged Time Warner Nextcom.
His connection to loan sharks belonged entirely to his previous life. Anyone running a business who went bankrupt inevitably crossed paths with private moneylenders. When the primary financial institutions—regular commercial banks—refused further loans, people turned to secondary institutions like credit unions. And when those doors slammed shut too, the only options left were loan sharks or illegal private lenders.
Yoo Jae-won had once knocked on those very doors. From that moment on, he had been sucked into a swamp from which there was no escape. Among everyone present, he was probably the only one who truly understood how illegal debt collection could drive a person to ruin.
“They even call themselves the ‘third financial sector’ and scatter flyers all over the streets,” Hwang Jae-hong continued, his voice growing louder as he gave his report.
He didn’t say it aloud out of respect for the setting, but the reason for his anger was personal. Those brainless touts had been dumping flyers and business cards right in front of ID Investment’s offices. The people who visited ID Investment were there to invest their surplus funds, yet the touts simply saw a crowd and started throwing their garbage everywhere. Even when the police were called, the problem only disappeared temporarily. The touts weren’t directly employed by the loan companies. They worked through advertising agencies, making it nearly impossible to hold the actual lenders legally accountable.
“The third financial sector, you say. It has quite the respectable ring to it. What are the typical interest rates these loan companies charge?”
“Usually between fifty and fifty-six percent.”
Fifty percent or more! It was an outrageous rate. Borrowing one million won meant repaying 1.56 million won after just one year. The loan company that had driven Yoo Jae-won to complete bankruptcy in his previous life had charged twenty-five percent. To think the current rates were double that left him speechless.
“And this is considered legal interest?”
“Yes, Chairman. Due to IMF measures, the interest rate ceiling was abolished. As long as they avoid illegal collection practices, charging even higher rates is considered legitimate business activity for licensed lenders.”
The shadow cast by the IMF still loomed large. Yoo Jae-won had personally contributed funds to help the country once and had done so again through the operation of the White Tiger Fund. Yet the neoliberal policies the IMF demanded were slowly taking root in Korea. One only had to look at these loan companies to feel it clearly.
“Where does their funding come from?” Yoo Jae-won asked next.
“Ninety-nine percent of it is Japanese capital. Some of it enters through illegal channels, some legally, but either way, they’re conducting predatory operations in Korea with ease.”
It was information everyone already knew, but Yoo Jae-won asked anyway to remind the presidents and executives seated with him. It was also a moment of self-reflection. While he had made a fortune targeting Japan, the Japanese had been sticking massive straws into Korea and sucking out its marrow in return.
Yoo Jae-won fell silent for a moment, lost in thought. Every president and executive in the room focused intently on him. They all knew that whenever he fell silent like this in a public setting, he would soon deliver a decision that left everyone stunned.
“Are there any restrictions on establishing a loan company? Interest rate floors, minimum capital requirements, that sort of thing?”
“None at all. That’s why they’re popping up like mushrooms after rain,” Hwang Jae-hong answered immediately.
He had grown suspicious after seeing them advertise themselves as the “third financial sector” and had looked into it. He had discovered that the term wasn’t even an official designation—they had simply made it up to market themselves.
“Then we should enter the market as well,” Yoo Jae-won said simply.
The reaction was immediate.
“Chairman, the public image of loan companies is extremely negative. If we enter this business, all the criticism will be aimed at us,” Hwang Jae-hong said, immediately voicing his opposition. He had clearly come prepared. Choi Kang-wook and the other executives seemed to share the same sentiment, nodding in agreement.
“Hmm, is that so? Surely you don’t think I plan to enter under the same conditions as those loan sharks? If so, I’m quite disappointed…”
“What form do you envision for this lending business, Chairman?” Choi Kang-wook asked directly.
Although he knew Yoo Jae-won always had something up his sleeve, entering the lending market carried enormous risk. It was only natural for him to be on edge.
“You all know I made quite a bit of money in Japan, correct?”
Choi Kang-wook’s expression grew even more serious at those words. The news that ID Investment and its hedge funds had wreaked havoc in Japan had been widely reported in Korea. Many people still clearly remembered how Japan had mocked Korea when it applied for IMF bailout funds. Seeing Japan get a taste of its own medicine had eased some of the resentment in the public’s hearts. Naturally, media coverage had been extensive.
Of course, exactly how much Yoo Jae-won had earned in Japan was a matter of intense curiosity for the press. Moreover, when Japan’s Ministry of Finance Securities Bureau was reported to have investigated ID Investment’s Japanese branch—Shin-Nihon Investment Bank—and its president, Vincent Greenhill, many had sensed that something significant was happening. Interest in the exact amount he had earned had reached a fever pitch.
Only a handful of people knew the truth. Choi Kang-wook, Remington, and Vincent Greenhill were among those who knew how much Yoo Jae-won had actually made. That was why Choi Kang-wook’s face had stiffened—he feared the Chairman had become addicted to the thrill of making enormous profits and was now even considering entering the loan shark business.
“A little over four hundred billion dollars. But seeing Japanese capital come into Korea to practice usury leaves a very bad taste in my mouth. So I thought it would be better if I did it instead.”
At Yoo Jae-won’s following words, Choi Kang-wook’s expression softened slightly. But it was still too early to relax.
“We can easily contribute about a hundred billion dollars in capital. With that money, I’m thinking of creating a company that only offers small loans of up to two or three million won per month. We’ll also cap the interest rate at five percent or lower.”
When Yoo Jae-won had begun his campaign against Japan, he had resolved to lose up to a hundred billion dollars if necessary. That same resolve had now taken concrete form in the idea of establishing a specialized micro-lending company.
“Five percent? Ah! You mean five percent per month, right?” Hwang Jae-hong asked with an innocent expression.
Yoo Jae-won answered firmly.
“Come now. I’m Yoo Jae-won.”
He even said his own name for emphasis. To the politicians of Yeouido, that name might carry little weight, but Yoo Jae-won was unmistakably different.
“Of course I mean five percent per year. You didn’t seriously think I meant per month, did you?”
A hundred billion dollars, at the current exchange rate, easily exceeded fifteen trillion won. It was an enormous sum—enough to provide three million won each to five million people. And he was saying he would lend it at only five percent annual interest.
From a twenty-first century perspective, five percent annual interest would still be considered quite high. But this was the IMF bailout period. That was what mattered.
“Five percent per year would be even cheaper than what the primary financial institutions offer!” Hwang Jae-hong exclaimed in shock the moment he heard Yoo Jae-won’s plan. The typical interest rate on personal loans from commercial banks was in the late teens. Five percent was less than half that.
“I wanted to follow Japan’s zero-interest model, but then people who don’t actually need the money would rush in. That’s why I settled on five percent.”
“There’s a significant risk of loss. The reason loan companies charge such high rates is because their repayment rates are correspondingly low.”
“Even so, rates exceeding fifty percent cannot be tolerated. What I’m talking about isn’t large-scale lending of tens of millions. This is emergency living expense support for people who have no immediate household funds, whose families are being torn apart and homes destroyed. That’s why I set the monthly cap at three million won. In return, borrowers can reapply every month. Economic hardship doesn’t usually resolve in a single month, after all.”
After Yoo Jae-won’s detailed explanation, Choi Kang-wook and the other presidents finally understood the vision. At the same time, they were deeply shocked. The concept of small, low-interest loans had never even occurred to them before.
Nor had Yoo Jae-won come up with this idea on the spot. A man named Muhammad Yunus in Bangladesh had created something called Grameen Bank. It provided loans to the poor to help them become self-sufficient. What Yoo Jae-won had just announced was essentially that same model, adapted for living expenses.
“Relieving the suffering of ordinary citizens is something the government should handle. Even the primary banks are already struggling with people who borrow and don’t repay. If small loans with low interest rates become available, the problem will only get worse. If more and more people do this, no matter how large the fund you contribute, Chairman, it will disappear in the blink of an eye.”
Choi Kang-wook expressed clear opposition. It seemed he had already calculated that this plan would fail quickly.
“As Vice Chairman Choi says, even with a hundred billion dollars in capital, if too many people default, the fund will be depleted rapidly.”
Yoo Jae-won readily agreed.
“However, I have no intention of contributing more than a hundred billion dollars. And I believe in the goodwill of the Korean people. They voluntarily participated in the gold collection campaign. Those who feel relief from our service will surely repay their loans so that the next person in line can receive help.”
Some say reality is hell. But it isn’t always. There are certainly romantic moments in real life. The gold collection campaign was one of them. Among those receiving two or three million won in living expense loans, how many would truly harbor malicious intent to run away with the money?
Yoo Jae-won’s vision didn’t stop there. This micro-lending initiative could naturally extend into the fintech and smart payment markets and be used for various events. Of course, if the entire hundred billion dollars disappeared, it would be both regrettable and disappointing. But even if that money vanished, it wouldn’t seriously impact his future plans.
However, there were definitely families in Korea falling apart because they lacked even a month’s living expenses. Despite everyone’s concerns, Yoo Jae-won’s resolve did not waver.
“I understand the noble intention behind your vision, Chairman.”
In the end, Choi Kang-wook once again decided to follow Yoo Jae-won’s wishes. Once he took that stance, Hwang Jae-hong and the other executives quickly fell in line.
“Then, President Hwang Jae-hong, I’d like you to take charge of this project.”
Yoo Jae-won immediately pointed to him.
“ID Investment’s existing branches won’t be enough to cover the entire country, and differentiation would be difficult. So establish this as an entirely separate business. Starting from the beginning as an internet-centered business model might not be a bad idea either.”
Suddenly handed an enormous responsibility, Hwang Jae-hong felt the weight crash down on him. This wasn’t a small project—it was a hundred-billion-dollar business. Even more frightening than the money was the need to protect Yoo Jae-won’s noble vision. To Hwang Jae-hong, Yoo Jae-won was as precious as his own parents and family. He never wanted to see him disappointed. At the same time, he didn’t want to back down. As the Korea president of ID Investment, he wanted to prove he could successfully handle a micro-lending business.
“Ah, and never advertise this as a loan company.”
The public perception of loan companies was extremely poor. No matter how many fun, positive image advertisements they ran, it wouldn’t change. Moreover, the micro-lending business Yoo Jae-won wanted to create was practically a charitable activity. Calling it a loan company would be deeply unfair.
“Microcredit. ID Microcredit sounds good.”
Yoo Jae-won had even come up with the company name on the spot. Neither Hwang Jae-hong nor the other executives reacted negatively. Given that all of ID Group’s subsidiary names followed this style, anyone with a sense of the company’s culture would have expected it.
“Well then, it seems we’ve discussed all the important matters. Shall we go eat?”
Starting with Yoo Jae-won, everyone rose from their seats and began moving toward the restaurant on the commercial floor. In a normal company, a new business requiring fifteen trillion won would have undergone thorough market research and careful analysis. But at ID Group, such decisions were made with lightning speed and concluded in a single meeting.
This was the singularity created by the existence of Yoo Jae-won himself. Moreover, because he had seen the successful models of microcredit and Grameen Bank, he could push forward with confidence. This was both ID Group’s strength and, potentially, a weakness in the distant future.
As he led the way to the restaurant, Yoo Jae-won thought of his former principal. He was glad he could honor the final words the principal had left behind, even in this way. He wasn’t certain whether the seeds he was sowing this time would grow into mighty trees or wither without even sprouting because the soil was too barren. Still, if families that had nearly collapsed due to economic hardship could be saved, that would be enough.
Furthermore, if the capital he had earned in Japan could be used to drive out Japanese-backed loan companies, wouldn’t that be yet another massive blow to Japan?
What mattered most was that Yoo Jae-won opening his purse for ID Microcredit was not the end, but the beginning. The shopping list for ID Group’s future food sources, along with the various methods of carrying out the principal’s will, were rapidly taking concrete shape in his mind.
After enjoying dinner with the executives in high spirits, Yoo Jae-won departed for the United States. He intended to show the world exactly what it meant to “earn like a dog and spend like a noble,” and what kind of scale it reached when he truly opened his wallet.