Title : Study of Informal Finance in North Korea, with Analysis and Evaluation
Author : Jooyung Lee(BOK), Sungmin Mun(BOK)
This study aims to grasp the current state of informal finance in North Korea through a questionnaire survey of North Korean defectors, and to evaluate the degree of development through comparison with other countries. The results of the survey of North Korean defectors show that trade credit, lending by individual money lenders, rotating credit & savings association were the major informal financial activities, while 27.8% of defectors have experienced at least one of these activities, showing that North Koreans still lack sufficient experience in them. In addition, North Koreans possessed informal financial assets through the following means, in the order of largest to smallest: cash holdings, trade credit, lending by individual money lenders, rotating credit & savings association. Looking at the characteristics of residents' informal financing types, trade credit was used as the main financial means among merchants, and individual money lenders issued loans mostly to acquaintances based on credit rather than collateral. The purpose of the lending by individual money lenders was mainly for distribution businesses, while lending for industrial production was rare; the average interest rate of interest-bearing transactions was 13.1% per month. North Korea's informal financing was larger than that of the former Soviet Union in the early days of perestroika (1986), but relatively small compared to China in the early days of full-scale economic development (2001) or some developing countries (Peru, Vietnam) in the late 1990s. It was also found that most informal financial transactions were to support commercial activities, while only a small proportion was used for production, meaning that informal financial transactions were not able to play a major role in vitalizing production. In addition, North Korea's financial intermediaries appear to have remained at the level of loan brokers or rotating credit & savings association and have failed to develop into informal financial companies(informal savings & loan institutions). Although this paper represents a step forward in that it quantitatively identifies and analyzes informal financial activities, readers should be aware that it still fails to overcome problems such as the small number of samples, regional bias, and accuracy limitations inherent in retrospective surveys of North Korean defectors.