Can Traditional Savings Group Still Work In Today’s Economy?

[knowngunman]

You have mentioned the risks and with those risks I don't find it attractive, what's the reason for saving as a group, so someone could borrow from the pooled funds? This is also popular in our country, members contribute, at the end of the month there's a raffle and someone gets the total amount and then they start saving again. The problem is if someone fails to contribute the amount is no longer complete, leaving those whose turn comes later getting less than what they are supposed to receive. This does not look like the best way to save money, better put it in a bank, and if you want to borrow, borrow from a financial institution.

It's actually helpful and works very well if it is well organised, at least from my experience. People hardly fail to meet up if there's a written agreement signed by a respected person and you don't just gather random people you can not trust to be part of it. Even with trusted and familiar people, there must be a punishment for anyone that failed to honor the agreement. It's actually better than borrowing from any financial institutions because you'll pay interest at the end of the day but you nothing in this type of saving. I'm not saying it doesn't have its own shortcomings but the problem is mostly from the organisation. If it's well organised, the success rate is higher than failure.

[The Cryptovator]

Remember, digital tools would make everything easier but can’t build trust anyway. If a group of people save money together and distribute it by lottery or some other way, they could do it digitally as well. Either through the traditional way, the banking system, the mobile financial system or through crypto. But anything couldn’t make sure someone from the group still will pay their next payment or debits.

So far in my country, traditional savings groups still seem to be working well. Still, we can see on the markets or street markets, people gather money together and distribute it accordingly. In a traditional system there is social responsibility; also, one needs to be eligible to become a member of a group. Just simply can’t skip with the funds. So I don’t think a digital system would give extra security when it’s not possible to handle with a decentralised system.

[Spaceman1000$]

As well all know that before digital banking came into existence, people found ways to save up money together. Members of the group contributed regularly and each person take turns receiving the gathered money. What makes it more interesting is that it does more than just encourage saving, it gives someone access to a larger sum of money without taking a loan provided that they can keep up with their contributions.

I believe today technology can make these arrangement easier to manage and track but though it cannot eliminate the risks involved. Someone might stop contributing after receiving their share and leaving the remaining members to deal with the shortfall. This is not to replace these traditional but to improve how they work.

Now my question is could digital tools make group savings a reliable source of financial support for people who struggle to access bank credit or would the risks still overweight the benefits?

The truth is that some of these contributions and savings are done within members that you trust, this is to say that you guys are either working in the same organization or you are closely related in one way or the other, hence salary is been paid supposing your in one organization, everybody will contribute at the same time without excuses.

Now considering the fact that you guys know each other, it will be very difficult for anybody to abscond with the contribution that has been made so far by the group, and if you want to incorporate it into a digital platform, you guys can easily approach the bank giving them a mandate to deduct a certain amount into anybody that it reaches his turn to collect the contribution.

[henmark]

This is also done digitally. Instead of paying money with paper cash, digital or online transactions can already be used. But if you're asking about a certain middle man who'll act as the intermediary and will handle the funds collected, I'm not sure whether banks or other platform would consider organizing something like this because it's a lot of risk. Just like with the traditional way, what if the person run away after taking her turn of getting the money and won't continue saving up for the rest? The middleman would have to cover up for this for the other members. So I think, rather than doing this with a group of people, there are digital banking that offer daily interest to encourage people to save.

Even when digital, there would still be a need of a middleman for these savings group. This middleman usually also gets the fees paid by the participants but their job role is really strict. There is no chance of an error because they will be dealing with people's money. Banks and institutions would barely take this risk. Even if they want to, regulatory bodies won't allow them to so there will always be room for unorganised players who are actually controlling the markets.

I think if organised players can enter this market, things can take a U-turn and these kind of savings can still be people's choice for years. Without a trusted middleman, these groups will never really operate profitably.

[Taricoins]

As well all know that before digital banking came into existence, people found ways to save up money together. Members of the group contributed regularly and each person take turns receiving the gathered money. What makes it more interesting is that it does more than just encourage saving, it gives someone access to a larger sum of money without taking a loan provided that they can keep up with their contributions.

I believe today technology can make these arrangement easier to manage and track but though it cannot eliminate the risks involved. Someone might stop contributing after receiving their share and leaving the remaining members to deal with the shortfall. This is not to replace these traditional but to improve how they work.

Now my question is could digital tools make group savings a reliable source of financial support for people who struggle to access bank credit or would the risks still overweight the benefits?

I think with this old form of group savings, the aim isn't just take a bridge loan but to do so without unnecessary over steep interest from banks or commercial lenders. The most important improvement digital tools can and has done is proper tracking of funds that enables accountability of the money holder, with digital banking, excuses like lose of money wouldn't imply as funds can be trace from every transactions.

[Maslate]

Before you start saving with a particular group who has the same vision, you should make sure that those involved in the contribution should be trusted and have a means of income which they can use part of it for his weekly/monthly contributions. In fact, the digital tools has made it easy because I belong to an AKAWO group in my LB and it has been going smoothly, with no one doing the opposite.

There's a deadline for when payment will be made by all individuals in the group and if you fail to meet up with the deadline, you will add 1% of the amount being contributed and no one is complaining.

Having a stable job or regular source of income should be a must, and should not be living paycheck to paycheck, otherwise how can he pay his contribution if he has no extra income to pay. And being trustable should be non-negotiable. If there are negative backgrounds about a certain member, then he/she should not be accepted as a member, or else he will cause a headache to the rest of the group. And bring chaos to the group.

[Questat]

This ajo or esusu is best when it's among trusted people. You don't know who is who when you invite a stranger to join you to do it.

The thing is, it takes time to establish trust. And you cannot tell if all those members are trustworthy or not because some are only encouraged to join just to complete the group and start giving contribution. And most likely when it comes to money, even the trusted people become untrustworthy in the end. They can be good in the beginning, but lose their consistency and reliability once they have achieved their goal.

Still, it works for some despite of some slight misunderstanding within the group.

[Die_empty]

The thing is, it takes time to establish trust. And you cannot tell if all those members are trustworthy or not because some are only encouraged to join just to complete the group and start giving contribution. And most likely when it comes to money, even the trusted people become untrustworthy in the end. They can be good in the beginning, but lose their consistency and reliability once they have achieved their goal.

Still, it works for some despite of some slight misunderstanding within the group.

It works if the people involved are understanding and trustworthy.  I know people who said they wouldn't have had saying or invested if not for this local savings scheme. The advantage is that there are no charges or interest for any financial transaction carried out within the contribution group. Since it is not a formal organisation, they are also flexible options that can be beneficial to members. I had a bad experience in one of these groups, and I decided to avoid the setup.

[abhiseshakana]

Now my question is could digital tools make group savings a reliable source of financial support for people who struggle to access bank credit or would the risks still overweight the benefits?

I think the idea for technical changes for traditional savings group that you presented can change fraud risk mitigation significantly  but the risk of moral hazard cannot be eliminated entirely. There are two risk that closely linked to traditional saving group which are technological limitations in relation to default and managerial risk. Technology can not withdrawing money from an account with a zero balance. Mater of fact technology often use as tools for criminal schemes to collect fund massively and rapidly and in my opinion, the risk of a ponzi scheme is very high. In my opinion, the drawbacks outweigh its benefit such as utomated recording, transparency and highly effective in addressing unintentional oversights (forgetfulness) on the part of participants.

What we forget as social institution, traditional saving group has social capital in the form of social sanctions, shame culture, and geographical proximity to ensure the compliance of its members. The use of technology will eliminate traditional social control because of deindividuation and criminals no longer feel morally bound with the victim. Anonymity and false Identity increasing the potential for ghosting. Although it cannot be denied that the use of technology makes more measurable law enforcement.

So if OP idea realized we need KYC verification, escrow account and micro credit score like traditional banking practice. But I think the idea of ​​a traditional saving group focused on essential staple goods like rice and corn could work and can serve as a solution for community food security just need to combine it with technology.

[Obulis]

To be honest, we still have such traditional savings groups here. It is very well known especially in the villages. It is still very popular because people can easily take loans there and can easily make their weekly savings. The loan installments and the installments for savings also come to them from their homes every week. But a bigger challenge than technology is the issue of people's honesty and trust. When a member at the end of the circle gets his allotted money, he can suddenly stop paying the installments. In a physical society, money could be collected by creating social or face to face pressure but that opportunity does not exist on an online platform or remotely.

Doing traditional savings face to face is not even too advisable talk less of doing it online where you don't even know the person's involved personally, even if they're known personally it's easier when primarily in the same locality, this is to help manage the probable greediness that usually arise in these savings method.
Irrespective of the financial discipline that goes with putting away certain amount of your earning for this traditional savings. To avoid all the regrets that follows, traditional saving box can even be a better option.

[Nathrixxx]

I wouldn't advise anyone to deeply go into traditional savings when your money are being kept under some people that are in charge of this, when you can easily invest in Bitcoin and hold your asset in order to be profitable, bitcoin has been a reliable source of income generation whereby if we invest our fund in it, we are going to be profitable as long as we have the ability to hold until the market is rising above the level we took it from, therefore this era, I can't advise someone to be doing some sort of contribution when we plan use DCA to invest in Bitcoin.