Secret To Korean Business Success -- Money-Lending Gives Immigrants An Edge

They've been accused of having special treatment from the government, stereotyped as shrewd financial wizards and pigeon-holed as the model minority.

But the key to many Asian small-business owners' success is a centuries-old cultural tradition of money-lending.

Taking various forms among different ethnic groups, the system has helped many immigrants get off the ground in a way that astounds outsiders.

In the Seattle area, the Korean version, called a kye (pronounced "keh"), is thought to be most common among Asian cultures.

One person leads each kye, gathering 15 to 25 people who each contribute about $500 a month. The total typically reaches $10,000 and often $20,000.

There are two ways of distributing the money:

-- In a rotation kye, members take turns receiving the lump sum each month.

-- In a bidding kye, members submit bids for the amount they want. The lowest bid wins. The difference between the total and the bid is then distributed among the rest of the members.

With no contractual relationships - they rely on trust alone - kye are vulnerable to being broken. There have been cases in which the kye leader, who is the first to receive payment, flees with the money. In addition, sometimes members will collect their lump sum, then stop making monthly payments. Because sometimes members often only know their leader and not each other, it's hard to track down a delinquent member.

But Kenneth Lee, the president of the Korean Association of Washington, said members are, for the most part, trustworthy. He estimated fewer than five kye around Puget Sound have failed in the past 10 years.

The informal ties of kye members can be as binding as a signed loan agreement with a bank.

"If you want to live in the same community, go to the same church and see the same relatives, you live up to your obligations. Otherwise your name is mud in the community," said Korean attorney Benjamin Lee, who represents many Korean clients.

A person might participate in more than one kye and combine proceeds to start a small business, such as a convenience store, dry-cleaning operation or small restaurant.

Money isn't the only benefit of a kye.

"Because we are very lonesome, very lonely in America, it is a good way to get to know each other," said Dong Keun Lee, editor of the Northwest edition of the Korea Central Daily Times newspaper.