More than 3.2 million university students took out loans to cover their education expenses from 2010 to 2016, according to the National Tax Service. Each student took out an average of 2,940,000 won per year to cover their high tuition fees and life expenses. The rising trend in student credit has raised fears that some students are using private lenders, which charge high interest rates and could lead them into a vicious debt cycle. With this in mind, a group of students set up a financial consumer cooperative association Kidaribank in 2015 to lend to their peers. Since its establishment, it has lent 30 million won to Korean students in need. Kidaribank was established by 30 Hanyang University students after taking lectures on understanding of cooperatives. The students first posted handwritten posters around campus to introduce their bank which they started with funds of 2,400,000 won. Currently, Hanyang Universitiy’s Kidaribank has more than 240 members and assets of 12 million won. Kidaribank’s main activity is to offer free interest loans to its members through “Shortdari Fund.” Each member contributes small amounts of money and collects up to 300,000 won, which is then pooled and lent to members who are in need. Borrowers should repay the money within six months through six installments. All students of Hanyang University can become a member of Kidaribank after paying a joining fee and a minimum equity investment of more than 10,000 won autonomously. New members, students must take a course on their rights, benefits and obligations associated with the consumer cooperative association. Kidaribank differs from other banks in that it offers interest free loans. The bank does not set specify interest rates but encourages borrowers to repay the amount they see fit, based on trust. “The concept of free interest was adopted to remind the members that Kidaribank is different from typical bank where people get loans from those they don’t know,” said Kim Dong-hwan the ex-chief director of Kidaribank who is currently working as chair of the Federation of Kidaribank. “Free interest does not simply mean that members do not have to pay any interest but that members should be aware that part of money they borrowed is money that they have paid as being the member of Kidaribank. And actually, on average, lots of members have paid more interest than we had expected them to.” However, basing interest payments on the trust of members has also come with some problems. Some members could not repay their loans within the six-month-repayment period. “There was a case when one of our members was not able to payback due to personal reasons,” Kim said. “In the end he was able to repay but we are flexibly providing leeway for payment considering borrowers’ situations. However, sanctions are imposed on members who purposely avoid our contacts about late installments.” Although lot of students first get to know Kidaribank simply because of the free interest loan, once becoming the members they learn lots of economic knowledge on top of financial help. “I was first introduced about Kidaribank from my friend who was one of the executives of the bank,” said the member of the Kidaribank who wanted to remain anonymous. “Then I decided to be the member when I needed emergency fund. Through Kidaribank I was not only able to get free interest loan but also I participated in several lectures including lecture on financial management which were very educational.” With growing interest of Kidaribank in other universities, Federation of Kidaribank was established in Hanyang University’s Kidaribank to easily spread and to operate the banks efficiently. The Kidaribank concept has now spread to other universities including University of Seoul and Konkuk University in 2016 and 2017 respectively. Due to lack of operating personnel, these two Kidaribank is currently on the rest. K i d a r i b a n k i s p l a n n i n g t o systematize programs and to establish other funds that could help students on top of current Shortdarifund and for a long term it wishes to establish a university credit association.
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