Thrift or Mutual Contributory Financing-Adashe-Ajo-Esusu

www.wealthresult.com

Having talked about Targeted Savings in our last post (Here) I did talk about Ajo  as a method of targeted savings, and I got a chat from a blog visitor requesting that I do elaborate on it and therefore the need for the post.

 I must stress that the Thrift or Mutual Contributory Financing is not new to our system and it is found in all tribes in Nigeria, it is called Adashe in the North, Ajo by the Yoruba’s and Esusu in the East. The history of this method of financing dates back to the 16^th Century (Seibel 2003a) I had to do some research on it myself and its quite interesting to know that it is can also be founded in the Caribbean Island and other African countries. It is called ‘Susu’ in the Caribbean, this suggest to me that it was even earlier than we thought.

Enough with the history and let us talk about Adashe, Ajo or Esusu. I will like to categorise them into two:

 One in which you have a collector move around a specific area collecting the funds from members and associates and amount contributed is recorded in two cards one with the collector and the other with the saver, in this method you lose your first contribution as that is what you pay for the service of the collector, and you can get your funds less the first contribution at the specific collection date that has being pre agreed with the collector and if for any reason you stop contributing you will access your fund contributed less the first contribution, the major risk is that the collector could bail away with the funds as was the case of my brother, so to mitigate against this risk contributors stylishly know the family members of the collector.

On the second hand, it is a group of people that come together and agree on a certain amount to be contributed and the number of people to form the contribution. I have had to form a few Thrift Contributory group myself and I have one running as you read this post.

Here are a few guild lines for a Thrift or Mutual Contributory group:

·         The number of people in a group can range from two to as many as possible, but I must stress that the more people you have in the group, the more the stress and trouble you get and the longer the collection circle will be.

·         The amount to be contributed should be pre agreed between the contributors, and has the leader of the group, you must ensure that all the group members have the capacity to pay promptly and that is why I always advise it’s done among people working in the same office so as to monitor when salaries are paid.

·         Trust is a key word here, never accept anyone with trust issue into your group also never join any group without finding out who is in the group. Again that is why I advise a smaller group in order to reduce the risk.

·         Join a Thrift or Mutual contributory group with a financial goal in mind, to avoid the pitfall of money mismanagement when you collect your lump sum amount. (This is a good savings system for Short and Middle term financial goals

·         The major risk is the inability of a member to contribute, may be through loss of job or other reason known to them and thereby causing a reduction in the pool of fund and a loss if the defaulter has collected funds during the circle.

 

www.budgeting.thenest.com

The hidden truth of Thrift or Mutual Contributory group is that it pays the first collector more, because he gets an interest free loan less his own contribution. How do I mean: Take four friends in a work place contributing 50,000(Fifty Thousand Naira) from January Miss. A gets 150,000.00 (One Hundred and Fifty Thousand Naira) Interest free loan as the first collector less her own 50,000.00 which she will add to make the total 200,000.00, while Mrs. B gets 100,000,00 (One Hundred Thousand Naira) Interest free loan in February having contributed 50,000.00 each in January and February, making her contribution in the group a 100,000.00  and Mr. C gets 50,000.00 (Fifty Thousand Naira) having contributed for three months and Mr. D gets a lump sum of his savings for the four months in April because he had contributed for 150,000.00 already and adding his contribution of 50,000.00 in April to it, all comes to the total of 200,000.00. This  is why to make it even out it is advised that rotation is turned upside down in the next circle as Mr, D gets first this time around and if he is able to save the initial lump sum of 200,000 (Two Hundred Thousand Naira) he gets double and can achieve more financial goals.

The last to take in the contribution is not losing out and I do not want anybody to feel that way, but look at it that you have being able to save 150,000 also with an addition of 50,0000 which is your contribution for that month

I hope you enjoyed reading this post as I did myself, invite your friends and also post comments and questions so we can brainstorm together on our journey to financial freedom.