Interest Rates and Rationality: Rotating Credit Associations among Seoul Women

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Interest Rates and Rationality: Rotating Credit Associations among Seoul Women Roger L. Janelli and Dawnhee Yim The interest rate calculations in most kye are not, however, all too rational. David C. Cole and Yung Chul Park, Financial Development in Korea, 1945-1978 -Kotating credit associations are an extremely popular form of savings and investment in South Korean cities. A survey conducted by the Savings Department of the Bank of Korea in the summer of 1986 found that 34. 1 percent of all urban South Korean households were investing at least part of their savings in these organizations.1 Typically organized by housewives or small-scale merchants for the sake of borrowing and lending money, these associations offer an alternative Primary fieldwork for this paper was conducted in Seoul during the summer of 1985, with follow-up interviews during the 1986-87 academic year. The field research was made possible by an Indiana University Summer Faculty Fellowship and a year of sabbatical leave during 1986—87. Earlier versions of this paper were presented at the 1985 annual meeting of the American Anthropological Association in Washington, D.C., the Fulbright Forum of the Korean-American Educational Association in 1987, and at a meeting of the Indiana University Folklore Students Association Colloquium in 1987. We are grateful to participants at all these occasions, as well as to Yoon Suk Bum of Yonsei University, for providing encouragement and helpful comments. We alone are responsible for any errors. 1. Han'guk ünhaeng chöch'ukpu (Savings Department, Bank of Korea), Choch'uk sijang chosa: 1986 nyon (An investigation of the savings market: 1986) ([Seoul]: Han'guk ünhaeng chöch'ukpu, 1986), p. 19. That figure is lower than the 42.5 percent and 47.6 percent reported for 1976 and 1978, respectively, but slightly higher than the percentages reported for 1984 (33.3 percent) and 1985 (30.3 percent). Figures for intervening years were not included in the study. 165 766Journal ofKorean Studies to Korean banks and other financial institutions. Their importance to the South Korean financial market and to the daily lives of presentday Koreans makes them a topic of interest to both economists and anthropologists.2 Yet despite the scholarly attention they have already received, the above quotation from Cole and Park's important study of the South Korean financial system3 indicates that these folk economic institutions have yet to be adequately understood. Cole and Park's attribution of irrationality is surprising for several reasons. First, these authors are generally sympathetic to the unofficial or "curb" money market (sach'ae kümyung sijang), viewing it a necessary response to the high inflation and rigid constraints of the government-controlled financial system of South Korea, a viewpoint that they adopted from Lee Changnyol's earlier study4 of this financial market. Second, other studies of rotating credit associations cited by Cole and Park5 attempt to demonstrate the very rationality of their interest rates. Third, the rationality of these associations, particularly their interest rate calculations, is suggested by even casual observation and interviews with those who participate in and organize them. Fourth, comparing pönho kye, the type of rotating credit association most popular among families in Seoul, with similar associations found elsewhere in the world6 shows that pönho kye have eliminated most of 2.For an anthropological study of rotating credit societies in Seoul, see Gerald F. Kennedy, "The Korean Fiscal Kye (Rotating Credit Association): An Urban Accommodation in a Modernizing Society" (Ph.D. diss., University ofHawaii, 1973), and "The Korean Kye: Maintaining Human Scale in a Modernizing Society," Korean Studies 1 (1977): 197-221. For economic analyses of these organizations, see Colin D. Campbell and Chang Sik Ahn, "Kyes and Mujins: Financial Intermediaries in South Korea," Economic Development and Cultural Change 11 (1962): 55-68; Lee Changnyol (Yi Changnyöl), Han'guk üi kümyung kwa chabon tongwön (Financial and capital formation in Korea) (Seoul: Asea munje yön'guwön, Koryö taehakkyo, 1966); and Oh Kwan Chi, "The Economics of Kye: An Informal Association of Individuals for Savings and Loans in Korea" (Ph.D. diss., Vanderbilt University, 1972). 3.David C. Cole and Yung Chul Park, Financial Development in Korea, 1945...

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