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Microfinance: Do you Susu?

February 20, 2010
  • Susu is a method of pooling savings in parts of West Africa and the Caribbean
  • Formal financial services are out of reach for many in developing countries
  • Microfinance methods like Susu are vital in almost every part of the world

Famed 19th-century writer Robert Louis Stevenson dedicated an entire novel, The Wrong Box, to 'Tontines', a once widely practiced form of group life insurance. Each member of the Tontine paid a sum into an investment fund and later received dividends from the earnings.

When a contributor died, his share of the dividends were distributed among the group. When the last member died, the fund went to the state and was used for public works. Tontines were popular in France, the United States, and Britain, but they are mostly forgotten today—and rightly so.

Over time, the system had changed so that the last survivor would receive the entire fund. In Stevenson’s novel, as in real life, Tontines became an incentive to murder friends and family, and were subsequently banned in most countries.

A less dubious method of community-based saving and investing is the so-called 'Susu', which is still practiced in parts of West Africa and the Caribbean. Susus are essentially savings plans.

A group of people regularly pays a fixed sum into a pool held by a Susu collector. Each time group members make a contribution, one of them receives the entire sum. Thus, if 20 people each contribute 10 dollars per week, every one of them will receive 200 dollars at a certain point in time.

For the ones that receive the first payments, it is like an interest-free loan. For the others, it is like forced saving with gradually declining interest rates. In Ghana, Susu collectors can be found at most marketplaces.

They provide cheap credit that would otherwise not be available. Formal sector credit is often out of reach due to high interest rates (typically between 20 and 30 percent). Banks also demand collaterals that many informal entrepreneurs cannot provide. And widely ruling corruption may imply additional costs to facilitate the application process, sums up Soete Klien, who conducted a field study on corruption in Ghana for the German development organization GTZ. 

Susu schemes provide an alternative. And to meet the growing demand, Susu operators are getting more organized. Since 1990 the Ghana Cooperative Susu Collectors Association (GCSCA) is trying to minimize fraud and regulate the operations of Susu collectors across the country.

Banks like Barclays and Citigroup have now taken an interest in Susu and rely on Susu collectors to roll out their microfinance schemes. In 2006, Barclays teamed up with GCSCA to launch a microfinance scheme to cater for small Ghanaian traders that work in road-side stalls or move from market to market.

Independently, their income would not qualify them for a bank account. Together they account for more than 75 million pounds per year in Ghana alone, according to Barclays figures.

The bank uses the roughly 4,000 Susu collectors operating in the country to cater for this market. “What we are doing is somewhat unique,” says Margaret Mwanakatwe, managing director of Barclays Bank of Ghana Limited.

“We are creating an account for Susu collectors to deposit their funds. We are also providing them with loans of their own, which they can ‘lend-on’ to their customers, helping them build their capital.”

When researchers started looking into traditional microfinance systems like Susu, they found similar tools all over the world.

Man Hau Liev from the Center for Refugee Education in Auckland lists more than thirty different terms for such money pools that stem from countries all over the world: Latin Americans refer to them as Tandas or Quotas; Koreans call them Kyas or Kaes; Gambians and Nigerians refer to them as Tontines, even though they are quite different from the Tonti’s original concept. 

Academics coined a rather dull term to herd in the multitude, and simply named them rotating savings and credit associations (Roscas).

These traditional microfinance practices go back a long way. In ancient China, the Hui, a mutual financial association, can be traced back to the middle of the Tang dynasty (618-906), says Hau Liev. 

And despite the advent of modern communication and financial tools, it looks like Susus, Tandas and Keas are here to stay as they team up with globalization to meet the demands of people from all over the world. 

According to Aron Carlos Velez-Ibanez, a professor of anthropology at Arizona State University, money pools are even sprawling in the United States, thanks to a steady influx of immigrants.

“When immigrants are economically at the bottom rung, the only way to save and invest their money is to pool their resources,” says Velez-Ibanez, who specializes in social organizations within ethnic and minority groups. “And if they are undocumented and cannot go to banks, they have no other choice.”

Unfortunately, informal money pools have a number of drawbacks. First of all, they are prone to fraud. If one of the participants receives an early payment and leaves before the end of the cycle, other members lose parts of their savings. Secondly, the ones who are last in line to get paid do not receive any interest.

The British NGO Oxfam and its Senegalese partner Mutualité et Développement spearhead a more advanced form of savings plans. They do not provide additional funds; instead they train small groups of women to start something that could best be described as small-scale banking.

Members still pool their resources on a regular basis and, once in a while, receive payments. But instead of keeping the money, they have to repay the sum with interest. The group builds a capital base, and, over time, issues more and bigger loans. Community saving thus becomes an incentive for growth, not for murder. 

Thilo Kunzemann

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