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Pooled Cash of Loan Clubs Key to Asian Immigrant Entrepreneurs

October 30, 1988|MARK ARAX | Times Staff Writer

Tom Chi's first job in America was busing tables at a fancy restaurant. A few months later, at the age of 37, he was promoted to waiter. Chi, a Chinese immigrant, considered hard work and thriftiness second nature, but all the scrimping and saving and 15-hour shifts got him no closer to the dream of opening his own business.

So Chi did what countless other Asian newcomers in need of seed money have done: he turned to fellow immigrants and an underground banking system that has greased the wheels of Asian enterprise for centuries.

Called hui in Chinese, kye in Korean and tanomoshi in Japanese, private loan clubs have crossed the Pacific with only minor accommodations to a different time and culture.

Key to Business Prowess

Sociologists consider the clubs--in which members contribute to a kitty that is then given on a rotating basis to every member--among the most important factors behind the entrepreneurial prowess of Asian immigrants.

Many of the Mom and Pop bakeries, restaurants, grocery stores and boutiques that dot Chinatown, Koreatown and the Vietnamese business strips of the San Gabriel Valley, Orange County and elsewhere could not have opened or survived tough times without the pooled cash of a loan club, sociologists say.

The clubs, while not illegal, operate outside U.S. banking laws and safeguards. They offer high, sometimes usurious, rates of interest to those willing to put up the money and ready cash--ranging from a few hundred dollars to $20,000 and more--to those unable to obtain loans through conventional means.

There are no signatures, no documents, not even handshakes to seal the deal.

Instead, the concept--descended from villages where groups joined together to build a road or marry off a daughter--is based on trust and the certain disgrace that would accompany failure to pay a debt.

"Americans need lawyers and pages and pages of legal paper," said Chi, 57, who opened Fortune Bakery in San Gabriel in 1985 using start-up capital from a hui . "But we believe in each other, no questions asked. They know the money won't be going to Las Vegas."

Amounts Involved Unknown

The subterranean nature of loan clubs makes it impossible to quantify their influence. Few members are willing to talk about their participation and even fewer want their names used. The interest earned from the transactions, members say, is rarely reported to the government.

But loan clubs are so entrenched in the Korean community, for example, that a leading Koreatown bank recently unveiled a savings and loan plan along the lines of a kye. A customer who agrees to save $1,000 a month for 10 months can, at the end of the third month, borrow $10,000. Paper work is limited.

Participation Widespread

In a 1987 study, Ivan Light, a UCLA sociology professor, found that 75% of the members of the Korean American Garment Industry Assn. belonged to or had a family member belonging to a kye . More than 36% said that at least part of their start-up capital came from a kye.

In the Korean community, the loan clubs are run by women, who by tradition manage the family's finances.

Light, who has written extensively on the subject, credits loan clubs as one reason why Asians are more entrepreneurial than other groups.

"The loan club is a factor of consequence," Light said. "It's not trivial. It's not an archaic institution by any means."

At the Triple AAA Seafood restaurant in Monterey Park one recent evening, 10 men and two women gathered for a monthly meeting of their hui . All were ethnic Chinese refugees from Vietnam. All were friends or longtime acquaintances. All had been members of a previous club.

Before an elaborate table with pink napkins, they sat down to an eight-course meal that began with shark fin soup and ended with a sweet dish of white nuts and mashed taro. In between, the men toasted with cognac.

Must Cover Defaults

After the meal, the 11 members each handed over a $2,000 check to the hui master, the man who had organized the club and received the first $22,000 kitty free of interest. The master picks or clears all members and therefore must cover all defaults.

By this--the 11th meeting--all but two of the members had also taken home a pool. Unlike the master, however, they had to bid secretly on paper the amount of interest they were willing to pay. The highest bidder takes home the kitty for that month.

Tina Chau, one of the two members who had not yet collected a pool, explained that those needing immediate cash bid higher interest payments--$1,000 and up--in order to collect their pools in the early months.

Those who joined mostly as investors waited until the latter months before collecting their pools, all the while earning interest from the others.

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