Savings Circles: A Way To Get Loans Without Using The Bank

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Savings Rounds/Informal Savings are incredibly popular in South Asia and among British Asians. More commonly referred to as ‘committees’ they offer an alternative to taking out loans from banks or sites such as Wonga.  In the ‘committee’ system, a group pools collective savings in on a regular basis, each member can draw out a lump sum  over an allotted time period while continuing to make the regular payments.

I searched for articles online and didn’t find much, this Bloomberg article from 2013 sheds some light on the practice as does this Quora page but surprisingly there is little else online regarding this.

I personally have been using this system for over 5 or 6 years. Essentially it’s just saving money but with the perk of being able to withdraw the full amount before paying it off. Very useful if you are moving house and need to cover the cost of furnishing or you want to go on holiday. On a more serious and sombre note it also may help to cover the costs of a sudden death in the family. The main thing is the system offers instant cash (well almost) interest free although some committees incur small charges and late penalties.

Being in a ‘committee’ isn’t without it’s risks. As there are no laws binding anyone down mutual trust is very important. You may get messed around with your money and in a worse case scenario, someone could just run off with your money.

In principle ‘Committees’ work in a similar fashion to Peer To Peer Lending groups and Credit Unions but completely off the books. For this reason, it would be prudent to make sure your group consists of trustworthy people, people you know such as family members and close friends. When all’s said and done, it could be argued that the banks are no more trustworthy that running your own private savings circle. There will always be some benefit and an element of risk.

 

 

 

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