This book explores who we behave when our means are low. Very interesting insights. One that really struck me was the complexity of the financial instruments used in developing countries.
One such thing was ROSCAS, rolling savings schemes, a group of people meet up at regular intervals. Each time they contribute a certain amount and one person takes the whole amount. All you have to do is turn up and commit to doing that to hit your savings goals.
Read more below:
“When we met her, she belonged to no fewer than six ROSCAs, which differed in size and frequency of meeting. In one of them, she contributed 1,000 Kenyan shillings, or KES ($17.50 USD PPP), per month, in another one 580 KES twice a month (500 for the pot, 50 to pay for the sugar for the tea, which is an essential part of the ceremony, and 30 for the welfare fund). In another, the contribution was 500 KES per month, plus 200 as extra savings. Then there was a weekly ROSCA (150 KES per week), one that met three times a week (50 KES), and one that was daily (20 KES). Each ROSCA had a specific, separate purpose, she explained. The small ones were for her rent (this was before she built a house), the bigger ones for long-term projects (such as house improvements) or for school fees. Auma saw many advantages to ROSCAs over traditional savings accounts: They don’t have fees, she could make small deposits, and on average she got access to the pot much faster than it would take her if she saved the same amount every week…..”
“But her financial portfolio did not end with the six ROSCAs. She had taken a loan from one of her ROSCA savings pools in early May 2009 (a little over two months before we met her) to buy maize worth 6,000 KES ($105 USD PPP). She was also a member of the village savings bank, where she had a savings account, though it was currently almost empty. She had used that money to buy shares in the village bank worth 12,000 KES ($210 USD PPP). Along with some shares she already had (each share entitled the borrower to borrow up to 4 KES from the village bank), this allowed her to borrow 70,000 KES ($1,222 USD PPP) and build herself a house. She also had little stashes of money hidden in various parts of her house to deal with small emergencies such as health needs, although as she pointed out, sometimes the health money was used for feeding visitors. Finally, she was owed money by a variety of people, including 1,200 KES by her clients and 4,000 KES by a former member of her joint liability group in the village savings bank. He had defaulted on the loan when he still owed the bank 60,000 KES ($1,050 USD PPP), obliging the group members to cover for him, and he was only now slowly paying them back. As a market vendor married to a farmer, Jennifer Auma probably lived on much less than $2 a day. Yet she had an array of finely tuned financial instruments.”
Excerpts from Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty – great read.
Imagine this concept here?
I’ve always believed, we can learn as much from developing countries as they can from us.