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North Korea's informal loan networks can lead to gang violence, research says

Mortgage loan networks exist in North Korea, but maintaining the network sometimes leads to violence, according to a South Korean study. File Photo by How Hwee Young/EPA
Mortgage loan networks exist in North Korea, but maintaining the network sometimes leads to violence, according to a South Korean study. File Photo by How Hwee Young/EPA

Feb. 26 (UPI) -- An informal network that offers mortgage loans operates in North Korea, and conflict between lenders and borrowers leads to the deployment of gang members, according to new South Korean research.

In a report published in the Korea Development Institute's North Korea Economic Review on Friday, Professor Yang Mun-su, of Seoul-based University of North Korean Studies, said North Korea's system of private finance is not well developed, but residential real estate can be listed as collateral in informal loan networks, Yonhap reported.

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Yang's study indicates North Korea's system of state ownership coexists with an informal or underground economy dominated by a relatively wealthy class of entrepreneurs.

Nearly all housing is state-owned in the Kim Jong Un regime, with the exception of homes built before 1950, according to Radio Free Asia's Korean service Friday.

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Yang said mortgage loans for homes are on offer from North Korean entrepreneurs, known as "donju."

The donju, or "masters of money," do not finance home ownership, which is banned, but rather the acquisition of residential permits. Previous South Korean press reports have said North Korean buyers and sellers can trade their "right of residence" to housing units.

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The informal nature of mortgage loans in North Korea means borrowers and lenders are unprotected and cannot seek legal redress. In worst-case scenarios, a borrower unable to repay a loan will refuse to vacate the home offered as collateral, setting the stage for an unmediated dispute.

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"Eventually, there is no choice but to resolve the issue through negotiations among North Korean residents, and sometimes with the use of force" or violence, Yang said. "In North Korea, these masters of money sometimes hire gangs" to deal with uncooperative borrowers.

North Korea's masters of money may have become indispensable to the regime's construction efforts.

In its June 1, 2020, issue Korean Workers' Party paper, Rodong Sinmun reported the North Korean leader thanked workers and "managers." The article most likely was referring to members of the donju class, who provided capital for construction in Samjiyon County, according to Yonhap's analysis.

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