LOS ANGELES - This city's Korean-American community was still in shock from the 1992 riots when accountant Howard Y. Ree started organizing Hanin Federal Credit Union two years ago.

Hundreds of Korean-run businesses had been put to the torch during the pandemonium, and some merchants who wanted to rebuild were denied credit by local banks. The alternative, for many, was borrowing from individuals at extremely high rates.

"We are interested in driving out the usury practice," said Mr. Ree, 60, chief executive of Hanin Federal as well as partner of the Los Angeles accounting firm Ree & Kim. "Presently the business people are using monies provided by private lenders charging high interest."

Mr. Ree decided this grass-roots financial institution for the city's 300,000-strong Korean community was the answer, and in October, it opened its doors in a bare-bones office in Los Angeles' Korea Town neighborhood.

Given the nature of Korea Town and its inhabitants - a reliance on extremely small, family owned businesses and newly arrived immigrants for economic vitality - Mr. Ree wants Hanin Federal to be the perfect combination of two ethics: immigrant self-help and credit union democracy. To achieve his goal, he's sought the help of a much larger, mainstream credit union.

Although Hanin Federal seeks to serve a wide spectrum of Los Angeles' - and eventually affluent Orange County's - Korean community, Mr. Ree sees a special niche in entrepreneurs who run tiny businesses with less than $30,000 in capital. Typically they are vendors at the indoor flea markets that dot the city, and have had trouble finding reasonably priced loans.

The merchants generally seek small loans of around $3,000 to load up on goods during the peak seasons, Mr. Ree said.

"The kind of businesses we would like to help are the businesses that are not considered small but considered very small," he said. "Profit- oriented banks didn't find lending to the people would generate the profits they were looking for."

Nevertheless, Mr. Ree considers the indoor discount merchants to be a good risk.

"They're responsible merchants and they're not there to borrow money from a lending institution and abscond," he said. "They're there to make a living."

But despite bringing in about 200 members and $75,000 in deposits in its first two months, the credit union has yet to disburse a loan. Because of bureaucratic hangups, it is still waiting for its Truth-in-Lending and Truth-in-Savings disclosures to be underwritten by the CUNA Mutual Group. Mr. Ree said that matter should be resolved soon.

"I hope that will be resolved no later than the end of the year," Mr. Ree said. "It is very difficult to tell members that although we are accepting deposits we are not making loans. It's embarrassing."

He hopes Hanin will hit $20 million of assets in five years - which would put it in the top quarter of credit unions in terms of asset size, according to the Washington-based consulting firm Callahan & Associates. Eventually the credit union could hit $200 million in assets.

"We're not aggressively seeking membership at this time because we're not able to make loans," he said.

Once Hanin Federal is able to lend, it plans to offer a wide range of services - automated teller machines, credit cards, and mortgages - services most smaller credit unions can only dream of. It can do this through a proposed management contract with El Segundo, Calif.-based Xerox Federal Credit Union.

Through the contract - which will be signed once the credit union's bonding is completed - Xerox Federal will provide Hanin Federal with staffing and products.

In exchange for roughly 50% of the net revenue, Xerox Federal will pay all operating costs apart from Hanin Federal's allowance for loan loss and its bonding.

The National Credit Union Administration, which is enthusiastic about chartering new credit unions, has sanctioned the arrangement.

Kevin Foster-Keddie, chief executive of Xerox Federal, called the arrangement a "venture opportunity." The $311 million-asset credit union already provides broker-dealer services for five credit unions and is negotiating for a management contract with another small California credit union.

Eventually, Hanin Federal will probably strike out completely on its own. Mr. Ree said he's grateful for Xerox Federal's assistance, but he added that such an unusual relationship could hit some snags.

"There may be some hurdles to cross over with Xerox Federal Credit Union," Mr. Ree said. "Nothing like this has ever been tested in the credit union community."

Beyond the issue of the credit union's ties with Xerox Federal, Mr. Ree is interested in more than lending to Los Angeles' Korean community. He said he hopes Hanin Federal will encourage systematic savings by reminding members that American prosperity does not equate with spending more than you earn.

"The problem with these transplanted people is that they're exposed to this commercialism and get the idea that to live the American way is to live beyond their means," Mr. Ree said. "We would like to break that pattern."

Mr. Ree views Hanin Federal as more than a financial institution. He said the credit union - as a democratic, member-run institution - could help immigrants bridge the cultural gap between Korea and the United States.

He knows what it means to be a transplant and adjust to a different culture. Before he moved to the United States in 1961 to attend Notre Dame University, South Bend, Ind., he spent years following his parents around Korea and China.

Ironically, one of the credit union's volunteers, David Kim, is a boyhood friend from Shanghai.

Mr. Ree said he has lived in the United States too long ever to settle down again in Korea. But he hopes the credit union can help recent immigrants adjust to a democratic culture that values individual initiative over the authority-centered culture of their homeland.

"In Korea, the decisions are handed down by the head of the family or the company or the state," Mr. Ree said. "When we had the L.A. riot, about 2,500 merchants had their businesses destroyed and they didn't have a paternalistic leader to make a decision for them."

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