Rotating Savings And Credit Association – Being able to save and borrow, is one of the ways that you can improve your economic status. The good thing about rotating savings and credit associations is that you do not necessarily need a formal setting in order to save money!
What Is A Rotating Savings And Credit Association ROSCA?
A rotating savings and credit association ROSCA is an informal group of persons who agree upon a common financial goal for a predetermined period. This group saves and borrows together. It is a mutually beneficial relationship.
How Does A Rotating Savings And Credit Association ROSCA Work?
In a ROSCA, the participants all decide on a contribution. They decide how often they are going to pool their money together. It’s usually monthly but some people contribute fortnightly as well.
Each cycle, one member is given the lump sum (the total money that was deposited into the fund or pot). This is repeated until all members are paid. If all the participants agree, they can start a new cycle if they choose to.
Where Are Rotating Savings And Credit Associations Popular?
While ROSCAs are used in the developed world. They are extremely popular in developing countries. They are known by many different names, depending on the part of the world you are in. If you are from the Caribbean or Africa, you may have heard the term pardner or Susu. In the United Kingdom, it is often referred to as a partnerhand.
What Are The Advantages Of A Rotating Savings And Credit Association ROSCA?
There are several advantages of a ROSCA, especially for persons who may not always have access to traditional banking and financial facilities.
1.- You do not need to provide any documentation to join a rotating savings and credit association. – If you need to acquire a bank account or apply for a loan. You need to supply several documents
Here are a few of what you may need to take with you on a bank interview:
Identification- Drivers license, national ID, Passport. Usually, the bank requests 2 forms of ID. Depending on where you live in the world, you may not be able to access 2 forms of ID readily.
Proof of Address- This could a utility bill or bank statement from another institution. Cell phone bills do not suffice, since this does not prove where you live.
Credit rating reports-Sometimes, these may not reflect favorably, especially if you have been struggling with your financial situation.
Need a minimum deposit- Some savings accounts require a pretty high deposit. If you join a rotating savings and credit association ROSCA, you and the entire group will decide what the contribution will be. Contributions vary depending on the needs of the group at the time. If you need to start small you can join or start a ROSCA that you are comfortable with.
2.- You have a say in who you choose to save with. Rotating savings and credit associations are usually started by:
Friends (who may have similar savings good)
Friends of friends (Sometimes a friend maybe starting a ROSCA with another group and they have available spots and they invite you to join. You may not know the group personally, but your friend may be able to vouch for their credibility and trustworthiness.
3. You have access to funding for big-ticket items that you may not have ordinarily been able to access.
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Sometimes expenses that you may not be able to afford on your monthly or weekly salary come up. If you know when you want to purchase the item, you can request your payment around the time you need it. ROSCA pooled contributions are usually used for:
School books and supplies
Basically, you can use it for any expense, you know that you will have in the future. However, if an emergency occurs rotating savings and credit associations can still work for you. Since you are saving with people you know, and the arrangement is an informal one You may be able to swap turns with someone who does not need their money right away. This is not unheard of in ROSCAs.
4.- Sometimes rotating savings and credit associations meet to socialize. Even though you are in a financial partnership, it does not mean you cannot also have fun. Some ROSCAs actually meet in a social context. They may meet quarterly or bi-annually.
Are There Any Disadvantages I Should Be Aware Of?
No system is without flaws and the rotating savings and credit association ROSCA is no different. Here are some of the cons that you need to be conscious of:
1. Rotating saving and credit associations do not pay interest. You get what you put in, no more no less.
2. There is always the danger of members not meeting their financial obligation. You are usually told what date you have to make your contribution, so the person whose turn it is to be paid can get their money in a timely fashion. Sometimes members may falter in their payments.
3. On rare occasion, there have been persons who have lost their investment. However, we must reiterate that this is unusual. The reason being when you know the people in the group, they can easily find you. This keeps the participants honest.
What Is An Online ROSCA?
Due to the success of ROSCAs, all over the world, some companies are taking the concept online. Where you can join a rotating savings and credit association online, deposit your contribution remotely and be paid via Paypal or your chosen account when your turn comes around in the cycle. These online ROSCAs are popping up globally.
So, if you are considering joining a rotating savings and credit association ROSCA, we encourage you to go for it. It is an extremely rewarding exercise and is geared to give you a lump sum for your financial improvement. Speaking of rewarding, we have an offer that you may be interested in.
In our ROSCA, you will be rewarded with a 5% loyalty reward every 3 months at cycle completion. If that’s not an incentive to join. I don’t know what is! Check out our website for more information.