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What are rotating savings and credit associations?

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 informal way to save or borrow money. The way it works is that a group of individuals acts as an informal financial organisation.

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

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 chosen 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 chose either on a need basis, or through a lottery system in which a member is chosen in random draw.

Keep in mind though that people who have already had their turn to withdraw are not included in the subsequent random 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 will contribute £100 per month for a total of £1,000

  • Each month a different member will be get a turn to withdraw the full £1,000.

  • Once every member has been paid, you can repeat the same cycle, begin a new cycle with a smaller or larger monthly contribution, or terminate the ROCSA.

Remember that if you are one of the first few 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 ...

  • They can be risky. Pardner or committee schemes like these are not regulated by the government, so you don't have the protection of something like the Financial Services Compensation Scheme (FSCS), which covers banks and building societies. So if one more of the members are unable to make their contributions, you don't really have any recourse to get your money back.

  • You don't earn interest. As ROSCA schemes are informal and simply formed between a a group of friends, family or community members, there is no interest generating mechanism that you would get with a bank or building society. But given the current savings interest rates, you're not losing out on much by not earning interest.

  • No access to your money. These schemes can tie up your money for several months, especially if your turn to withdraw is towards the end of the cycle and there's a lot of members in the scheme.

What are the advantages of using a committee scheme?

  • They can be useful for those who are unable to get bank accounts, or are unable to get access to credit through mainstream banks or providers.

  • They can a good way to get into the habit of saving money before you eventually open a savings account.

  • Are useful for short term savings to fund a purchase or holiday.

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