Minority communities in the US and elsewhere have sometimes turned to traditional money saving methods outside the formal banking system. The economic shock from the coronavirus pandemic could spur renewed interest in those savings clubs.
When Hilda Robles recalls her first years in America, tears come to her eyes.
“I cried and even wanted to leave at one point because I felt alone,” she says. “I would ask people for help and they couldn’t help me because they didn’t understand Spanish and I didn’t understand English.”
When she came to San Antonio, Texas some 20 years ago, even daily duties like getting to work or going to the doctor were feats of bilingual diplomacy and logistical planning – she had no car, no English and almost no one to turn to for help.
Opening a bank account seemed impossible. “When I stepped into a bank for the first time, I was told I couldn’t open a bank account because I had no social security number,” she says.
“Someone told me about a bank where I could open an account with no social security number, but the language barrier stopped me from going.”
So Ms Robles, 49, went a different route – she started a tanda, an informal savings club popular in Latin America, with contributions from her extended relatives.
Members of the club each contribute a fixed sum to a pool of money on a regular, periodic schedule, with the lump sum going to one member each round until everyone gets paid.
This means that members get back what they put in over the course of the scheme, but by getting it in the form of a lump sum, the money can be put to use for purchases, investments or debt payments they otherwise could not afford. Members who get their “hand” early are effectively receiving an interest-free loan, while those who receive theirs later in the cycle are essentially withdrawing a lump of “saved” cash.
With the $5,000 lump sum she received for her turn of her tanda, Ms Robles bought her first car. Her relatives and friends in the savings club were able to put down payments on houses, pay for university tuition – and now, amid the Covid-19 pandemic, survive when their families have been out of work or sick.
Since that first savings club 14 years ago, Ms Robles has run them continuously with only a few months break to organise the next one.
“It gives me a lot of joy to see people reach their goals because of the tandas without having to drown in debt from loans,” she says. “It’s proof that among us Hispanics, we can get ahead here.”
Hispanic-Americans are not alone in their use of this ancient savings mechanism that has parallels all over the globe, known generally as a rotating savings and credit association, or roscas.
In Mexico, they are popularly called tandas, but they are also known as huis, susus or ballot committees in various parts of the world. Immigrant communities continue their practice in the US.
As economic hardship accompanies the public health crisis caused by the Covid-19 pandemic, for some families, traditional methods of saving outside the banking system have become a lifeline, especially for hard-hit immigrant communities with little access to mainstream sources of capital.
Financial access and security in America has become an increasingly pressing subject of discussion in 2020. Even before the pandemic, the US was behind other rich countries when it comes to accessing money and credit.
Some seven percent of Americans over the age of 15 did not have any kind of bank accounts in the US in 2017, compared to less than one percent of Canadians, and less than four percent of Britons, according to the World Bank.
A quarter of American adults – more than 80 million people – were “unbanked” or “underbanked”, meaning either that they had no accounts entirely, or that they are forced to use alternative services besides traditional banks in order to get enough financial access to meet goals or obligations.
Households most likely to fall into the two categories were black or Hispanic, lack university qualifications and to be poor. To access loans, they must sometimes turn to non-bank lending options like payday lenders or loan sharks.
These shadow banking options can be risky, charge high interests and bring dire consequences for borrowers who struggle to pay – but a rosca can provide a safer, more trustworthy alternative.
“These systems are actually useful when we have bank systems that have a finite possibility,” says Caroline Hossein, a professor of business and social studies at York University who studies roscas in communities in Canada.
“Banks only have a certain amount of money, and if you only have a certain amount of money, you’re only going to dish it out to those that are less risky.
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“So it makes perfect sense that people would engage in these kinds of mutual aid or money pooling systems.”
Often, they are run by women, whom Dr Hossein calls the “banker ladies” of the community.
“The banker lady, who might be the one organising it – you can be in touch with her anytime of day, it may be someone who lives in your neighbourhood so [there’s] the ease of getting there.
“The paperwork is not as treacherous as it would be as a formal bank, so there’s a kind of kinship that exists because it’s people who voluntarily like and know each other.”
Though they tend to be “more of a life line for people who have difficulty accessing banking, particularly on the lending side,” such savings schemes are also used by more established members of communities who may have inherited knowledge about them from immigrant parents.
Beyond access to a pool of money, “a primary benefit is building ‘bonds of mutual trust’ within a network of trustworthy people,” says Lee Martin of the University of California, Davis. Roscas are primarily beneficial for people without access to mainstream forms of credit, he says.
But because they are used by marginalised communities, studying their overall prevalence and use has been difficult, says Dr Hossein, who participates in a rosca – known as a su-su in her Afro-Carribean community – as part of her research.
“A lot of these roscas, particularly in places like Canada, the US or Europe, tend to be underground,” she says, because many worry that the endeavour is seen as an unrespectable or even an illicit form of financing, only for those who are short of options. Clearly, unlike a savings account, they do not generate interest.
Yet economists believe they are probably quite common in the West. One survey of Korean-American garment business owners in Los Angeles from 2004 found that 77% of households had participated in a version of the lending scheme.
Self-lending within communities can have unexpected benefits. A rosca-like system among Chinese immigrants in Spain, for example, helped expatriate businessmen weather the Euro crisis of the late 2000s and 2010s.
The Chinese business community was “largely insulated from the vagaries of the country’s tottering retail banking system” – precisely because the system that shut them out meant they turned to each other, reported the Financial Times in 2014.
In the 2020 Covid-19 crisis, families who participated in the tanda Ms Robles is running were able to pay their bills when some fell ill and could not work.
For most, it was their only source of cash, Ms Robles says – only one of the families has received a cheque from the government for coronavirus relief because they lack the papers to get onto the dole.
Like any investment scheme, however, roscas are not risk-free. A participant could fail to pay their hand, or take their share and run.
Ms Robles says there have been rare times that she misplaced a contribution and had to make up the difference out of her own pocket, which can be costly.
As they operate on trust, usually within a deeply connected community, the social consequences of misdeeds dissuades wrong-doing.
But since they are run by privately, there is little legal recourse for cheating. And unlike putting money in a bank savings account, there is no interest paid.
Could roscas catch on and become more mainstream? The Federal Reserve Bank of Philadelphia asked just such a question in 2006, but was sceptical given the depth of trust it would require.
An attempt by Yahoo Finance to popularise a tanda app in 2018 was unsuccessful. The scheme shut down after only a few months due to, it would seem, lack of participation.
There are two big hurdles, as Dr Hossein sees it – the stigma attached to a non-traditional financial tool used by ethnic minority communities, and the barrier in trust that must be surmounted to put one’s faith in other people to handle money.
But with the Covid-19 pandemic, a younger generation of North Americans with an interest in sharing resources and the technology to do so efficiently – from crowdfunding to forms of “caremongering” – roscas are bound to be a savings method that continue and evolve and expand.
For Mayra Martinez, 30, a university administration professional in Dallas, Texas, being in tandas has helped her learn about trust and foster a sense of obligation to save, which can otherwise be hard for young people like herself she says.
“It’s not like your commitment to yourself, where you can easily say ‘hmm, I’m not going to do that this month because I just don’t want to,” she says.
It is an added layer of security in an economic world that has been particularly unpredictable for young professionals, which Ms Martinez says she has seen first-hand – her sister and brother-in-law each recently tested positive for Covid-19 and could not work.
“She just happened to get her tanda this week,” says Ms Martinez. Because of that, Ms Martinez says, her sister was able to tell her husband: “It’s ok”.
The tanda Ms Martinez is involved in now consists of family members from all generations and is run by her mother.
Would she ever take over and start one for her own cohort of siblings and cousins once the older generations retire from such schemes?
“I wouldn’t mind running one,” she says, adding with a laugh, “but it depends on which cousins.”