Internet Works as Alternative Financier
By Kim Tae-gyu
Staff Reporter
Borrowing from neighbors or relatives is a time-honored method of financing a small amount of money. The Internet accelerates this process by matching borrowers with potential lenders.
Popfunding (www.popfunding.com) is a broker of such Internet-based deals in Korea, where more than 90 percent of households are linked to broadband.
At the site, people can borrow or lend money without resorting to the banks. Similar sites such as Zopa.com and Prosper.com have sprouted in western countries but Popfunding is the first peer-to-peer online lending marketplace here.
``After its foundation midway through 2007, Popfunding has mediated a total of 537 contracts that amount to more than 700 million won in total,'' Popfunding Chief Executive Hur Jin-ho told The Korea Times.
``Currently, loans stand at approximately 50 million won a month and it is rising at a rapid pace. We aim to increase the monthly tally by 10 folds to 500 million won next year.''
A person can request a loan of up to 5 million won. The loans have detailed repayment plans, and are typically redeemed in installments over 12 to 36 months.
Then, potential creditors can apply to lend as much as 99,000 won at a maximum annual interest of 30 percent.
For example, those who want to borrow 1 million won are matched with at least 11 lenders who offer the lowest interest rates.
``Most of the users of our site are those who have low personal credit ratings. They use us because they can sidestep banks. But to our surprise, the default rate is very low, at a mere 4.6 percent right away,'' Hur said.
``We think that the site will assist people in need so that they can finance at relatively low rates without knocking on the doors of loan sharks. In addition, lenders will make handsome profits. This is a win-win formula.''
Hur said Popfunding plans to raise the upside limit of one-off borrowings to tens of millions of won so that people can start small businesses through online loans.
If a borrower fails to repay by 10 days after the pre-set date, their contact details are delivered to creditors, who might require the payback on their own.
If the payment still isn't made after 30 days, an online vote is conducted over how to deal with the case. Lenders can sell off the credits or decide to delay the payment plan.
Loan sharks have been problematic in Korea particularly given the financial crisis, which hit the country late last year. The government has come up with several measures to grapple with them to little avail.