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In many parts of the world, individuals and communities use innovative ways to save money and access credit. One such method is the Rotating Savings and Credit Association (ROSCA). This traditional financial system has been utilized for centuries and continues to thrive in various cultures. In this blog, we will explore what ROSCA is, how it works, and the different names it goes by in various regions, with a particular focus on its relevance to Sweden.
What is ROSCA?
ROSCA stands for Rotating Savings and Credit Association. It is a group of individuals who come together to pool their savings. Each member contributes a fixed amount of money at regular intervals, and the total amount collected is given to one member of the group on a rotating basis. This process continues until every member has received the lump sum once.
How ROSCA works
- Formation of the Group: A group of people, often friends, family members, or colleagues, agree to participate in a ROSCA. The size of the group can vary.
- Regular Contributions: Each member contributes a predetermined amount of money at regular intervals, such as weekly or monthly.
- Rotating Payouts: At each interval, one member receives the total collected amount. The order of receiving the payout can be decided randomly, by mutual agreement, or based on urgent financial needs.
- Completion: The cycle continues until every member has received the lump sum once. The group can then decide to start another cycle or disband.
Benefits of ROSCA
- Simplicity: ROSCAs are straightforward and do not require formal banking infrastructure.
- Community Support: Participants often know and trust each other, which reduces the risk of default.
- Access to Lump Sums: Members can access a significant amount of money that would be difficult to save individually.
- Discipline in Saving: The regular contributions encourage a disciplined saving habit.
What you can do with ROSCA
ROSCAs are versatile and can be used for various financial goals. Here are some common uses:
- Saving for a Vacation: Pool funds to enjoy a well-deserved break.
- Buying a House or Car: Accumulate a significant down payment for major purchases.
- Weddings: Save collectively to cover wedding expenses.
- Home Renovations: Use the lump sum to finance home improvement projects.
ROSCA around the World
ROSCAs are known by different names in various regions, each with its unique cultural context.
India: Chit Fund
In India, ROSCAs are commonly known as Chit Funds. These are legally regulated and widely used for both savings and borrowing. Members bid for the lump sum, and the highest bidder receives the amount minus a commission, which is distributed among the members.
West Africa: Susu
In West Africa, particularly in Ghana, ROSCAs are referred to as Susu. Susu collectors manage these groups and provide a secure way for people to save money. They also offer small loans to members.
China: Hui
In China, the ROSCA system is known as Hui. This traditional method is still popular in rural areas and among close-knit communities. It serves as a means of mutual financial aid and community bonding.
Latin America: Tanda
In countries like Mexico, the ROSCA system is called Tanda. It is widely used among workers and low-income groups to manage cash flow and meet financial needs without resorting to high-interest loans.
Egypt: Gameya
In Egypt, the ROSCA system is known as Gameya. It is a common practice among women to save for household expenses, education, and other needs. The system is based on trust and mutual support.
Pakistan: Committee
In Pakistan, ROSCAs are known as Committees. These are widely used for various financial needs, from household expenses to significant investments. The system relies on trust within the community and provides a reliable method of saving and accessing lump sums.
ROSCA in Sweden
While ROSCAs are not as prevalent in Sweden as in other parts of the world, the concept is gaining interest among immigrant communities and those looking for alternative saving methods. In Sweden, where the financial system is highly developed, ROSCAs offer a community-based, informal way to save and access funds. This is particularly appealing to those who may not fully trust or have access to traditional banking services.
Using Cirkly as a modern ROSCA
Cirkly offers a digital platform that modernizes the traditional ROSCA model. By joining a Cirkly circle, members can save money collectively and receive lump sum payouts in a structured and transparent manner. Here’s how Cirkly can benefit you:
- Structured Savings: Regular contributions help build a disciplined saving habit.
- Community Support: Save with like-minded individuals and enjoy mutual support.
- Transparency: Clear records of contributions and payouts build trust among members.
Conclusion
ROSCA is a powerful financial tool that has stood the test of time, helping people save and access funds globally. Whether known as Chit Fund, Susu, Hui, Tanda, Gameya, or Committee, the concept remains the same – community-based financial support. In Sweden, platforms like Cirkly are bringing this traditional method into the digital age, providing a modern way to achieve financial goals.
By understanding and utilizing ROSCAs, individuals can harness the power of community savings to meet their financial needs and achieve greater financial stability.
