Facing an unfamiliar and sometimes unbending banking system in the United States, thousands of Korean immigrants rely on an ancient Asian lending practice known as a kye to finance their prospering small businesses in Los Angeles and other cities.
In a kye , a group of a dozen or more friends or associates get together monthly and each contributes the same amount, usually ranging from $100 to $50,000, to a common pot. Each month, a different member takes the kitty and agrees to pay interest to the others. The members also promise to remain in the kye (pronounced kay) until each has collected the pot.
The practice flourishes in South Korea, and Korean business leaders say \o7 kyes \f7 are very common among the 400,000 Korean immigrants in Los Angeles, where the monthly meetings are often conducted over a traditional meal at a Korean restaurant.
But \o7 kyes\f7 also are very private here because members rarely report the interest income they receive on tax returns. Yet the practice is so entrenched that a leading Koreatown bank has introduced an installment savings and loan plan structured along the lines of a \o7 kye\f7 .
Under a plan introduced last month by Hanmi Bank, a customer who agrees to save $1,000 a month for 10 months can borrow $10,000 from the bank at the end of three months. The customer continues to collect interest on the savings while paying off the loan's principal and interest. Paper work is limited and demands for financial references are more liberal than at most banks.
"New Korean immigrants don't have a credit history, and they don't have anywhere to go for traditional loans," said Benjamin B. Hong, president and chief executive of Hanmi Bank. "We wanted to open the door to these people."
Many Korean immigrants have prospered operating groceries, liquor stores, laundries and other small businesses here. \o7 Kyes\f7 often help them get around the difficulty of getting a bank loan for start-up capital.
Often, said Hong, a group of established business leaders decides to admit a newcomer to the club and to help finance the person's business through the \o7 kye\f7 .
Built on Trust
The entire structure is built on mutual trust, which means that there is an element of risk. Hong said Hanmi Bank has tried to take the danger out of the deal while still providing loans to people with slim financial histories.
"We tell them not to do this private financing in \o7 kyes\f7 because it is risky," Hong said. "If they join the savings program at the bank, we will lend them money after three months."
One of Hanmi's customers is Lim Seung Soo, who came to the United States from South Korea eight years ago and has built a thriving film supply business in Glendale. He said in an interview that he has had difficulty obtaining capital to expand. But Soo shied away from \o7 kyes\f7 .
New Type Planned
\o7 "Kyes \f7 are sometimes good, but there is a lot of risk," he said. "There is no place to turn if the leader runs away with the money or the \o7 kye \f7 is broken. You cannot go to the police."
Hong said he intends to introduce another type of loan that is even closer to a \o7 kye\f7 in the near future. The new plan will allow up to 10 people to form a group and obtain a loan from the bank based on the guarantees of all members of the group.
The \o7 kye\f7 -like loans are only part of Hong's effort to expand Hanmi's position in Los Angeles' Korean community, where its base of customers is the hundreds of Korean shopkeepers and small business leaders who have prospered in Koreatown and elsewhere in the city.
Hanmi is one of several banks in Los Angeles serving the Korean community, members of which now own many of the convenience stores, liquor stores and garment factories in the city.
Fast Growth Rate
The largest bank is California Korea Bank, a subsidiary of the Korea Exchange Bank in Seoul, which is owned by the South Korean government. The two other primary banks for the Korean community are California Center Bank and Wilshire Center Bank, which are both about half the size of Hanmi.
Since its founding by local Korean business leaders in 1983, Hanmi has more than doubled in size. Its assets top $130 million and, in addition to its headquarters on Olympic Boulevard in Koreatown, there are branches at Eighth Street and Vermont Avenue and downtown. Last week, Hanmi became the first Korean bank to be publicly traded in the United States when Sutro ' Co. began handling its stock on the over-the-counter market.
Hong became president and chief executive four months ago when the directors decided that the bank had reached a size where they wanted someone with experience in American banking.
Hong, 55, arrived in the United States 20 years ago. After obtaining an MBA degree at UCLA, he went to work as a trainee at First Interstate Bank in Los Angeles. During 14 years there, he rose to senior vice president and then to chief executive of the bank's trading company.
In a description that could fit many entrepreneurs from South Korea, Joseph J. Pinola, the chairman of First Interstate, said Tuesday of Hong: "He has done very well, and he has done it on his own."
Under Hong's leadership, Hanmi has introduced Small Business Administration loans to Korean businesses, created a mortgage banking department and hired American consultants to advise it on expanding services.
"We're trying to build a bridge between the Korean community and the mainstream American financial world," Hong said.
At the same time, Hanmi is trying to tap the more traditional needs of its customers by bringing the \o7 kyes\f7 out of the restaurants and into the bank.