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What are rotating savings and credit associations?

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Find out how these informal savings and lending schemes work and what to think about before you choose to take part in one.
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A Rotating Credit and Savings Association (ROSCA) is an alternative way to save or borrow money. The way it works is a group of individuals acts as an informal financial organisation.

ROSCAs are popular in developing countries, and among Caribbean and Southeast Asian communities in the UK, where they’re more commonly known as pardner, pardna or committee schemes. 

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How do pardner, or committee schemes, work?

When you set up a ROSCA, or pardner scheme, members make monthly contributions into a common fund. One member from the group is selected as the 'banker' who manages the contributions and the central fund.

Every month, one member is chosen to withdraw all the money in a lump sum. These members are chosen either due to a particular financial need they have, or through a lottery system in which a member is chosen in a random draw. 

Keep in mind though that people who’ve already had their turn to withdraw aren’t included in subsequent draws. 

For example, let's say a group of 10 friends decides to form a ROSCA with a contribution of £100 every month:

  • For 10 months, every member contributes £100 a month until each has paid over £1,000

  • Each month a different member gets a turn to withdraw the full £1,000 

  • Once every member has been paid, in this case after 10 months, you can start again with a smaller or larger monthly contribution or terminate the ROCSA

Remember that if you’re one of the first to make a withdrawal, you still have to continue to contribute the £100 until every member has had a turn to withdraw. 

So, for people withdrawing first, a ROSCA acts more as a source of credit, and for those withdrawing later it can be viewed as a savings scheme. 

What to consider before participating in a ROSCA ... 

There are a number of pros and cons to a ROSPA, which need considering before leaping in with a potentially costly commitment.

Pros

  • They are useful for those who are unable to open a bank account - perhaps because of their credit score or only having lived in the UK for a short time. 

  • They can be a good way to get into the habit of saving money before eventually opening a savings account at a bank. 

  • They are useful for short-term savings - perhaps to fund a special purchase or a holiday.

Cons

  • They can be risky as they're not regulated by the Financial Services Compensation Scheme. In case of problems, you might not get your money back.

  • You don't earn interest as you would with a bank or building society - although given the current savings interest rates, you're not losing out on much.

  • You don't have access to your money, which can be tied up for a long period.

Help stretch your budget a little further by making the most of your savings.

About Salman Haqqi

Salman is our personal finance editor with over 10 years’ experience as a journalist. He has previously written for Finder and regularly provides his expert view on financial and consumer spending issues for local and national press such as The Express, Travel Daily, and The Daily Star.

View Salman Haqqi's full biography here or visit the money.co.uk press centre for our latest news.

About Salman Haqqi

View Salman Haqqi's full biography here or visit the money.co.uk press centre for our latest news.