Vasco Pyjama talks about community finance. The ROSCA is known as a “sou-sou” in west Africa, or at least in Nimba county, Liberia. Sousous run for a fixed term, based on the number of members. If there are 10 members and the contribution is $10, each month one of the members will get $90 (9 other members * $10 each). At the end of ten months, the sousou can either be restarted, or the membership can be renegotiated (for example, to drop people who failed to pay on time during the past sousou period). If the sousou is reconstituted with more or fewer people, it doesn’t really change anything, it just runs shorter or longer until the next restart. Sousous run best when they are between 6 and 12 people for social and economic reasons (a 5x – 11x payoff is manageable in a cash society). The order of the payouts is determined randomly at the startup meeting of the sousou. Sometimes people negotiate to trade their places in the payout order in order to assure that the sousou payout would arrive at a time that was convenient for them.
One thing Vasco forgot to mention about it is the very powerful social aspect to village finance. In a village environment, saving face is important. Failing to be a reliable member in a sousou is a pretty embarrassing. But the worse punishment comes when people are invited to the next sousou, and you are excluded. People who are trustworthy get the benefits of a community savings scheme, and those who don’t are excluded. Tough, but transparent. Those excluded from a sousou this time might get another chance with another sousou later. The basic fabric of village life means that everyone has a chance at redemption.
The proceeds of social investment in Nimba are used for things like concrete floors and new roofs. Some richer guys planned on buying a car by combining savings from their salary over the year and their sousou windfall. Then they paid their brother to drive it, making a small foundation of a family taxi company. Others would arrange for their sousou windfall to come in the same month as their vacation, so they could use the money to buy cement and work full time on a second house. After two or three years of this trick, using sousou windfalls every six months or so to advance construction, they’d be landlords — and that’s the real secret to getting rich in Liberia. (To be clear: landlords benefit from a transfer of wealth, they do not actually make new wealth by producing something. So it’s relative prosperity, not global GDP growth.)
There’s are some added systems that some sousous I learned about used. One had a loan concept, where members who wanted to be moved to the head of the line had to pay higher amounts in ($12 instead of $10) with the “interest” being accumulated into a long-term reserve pool. The reserve pool would then be paid out at the dissolution of the sousou to the non-borrowing members. Another sousou, this one with a large reserve after years of continuous operation, included a “compulsory loan month” in August. Each member was compelled to take a loan in August and to spend it in the local economy. He had to pay back this loan, and his normal sousou contribution during the rest of the year. They explained to me that the compulsory loan was intended to create demand in the local marketplace at a time when the local shopkeepers were normally seeing lower than average sales. Another sousou arranged their payout schedule to defer some of the normal payouts until December, to help buy Christmas presents.
As an aside… the business of a eastern Congolese motoman is interesting as well. I don’t remember the figures anymore, but it was a very tidy little business. I think the motocycle buyer could get his investment 100% paid off in 9 months by renting the moto to a motoman, and then for the remaining 3 year life of the motorcycle, he made $25 a month “moto rent”, and the motoman (usually a younger relative) got a steady job driving the motorcycle. The only problem was competition. In east congo, the business case for motos is blindingly obvious, and the right conditions exist: reliable supply of cheap chinese motos and parts from the port in Mombasa, capital ready to invest, and roads that are hostile to more comfortable cars. So there are 10 motos for every customer. The price does not collapse, because it tracks the running costs (gasoline) closely. Instead the weekly wage of a moto driver collapses, because the moto owners still demand their rent, no matter how bad competition gets.