Is a Sou-Sou for You?

Lending Clubs traditionally occur between extended family members.

Lending Clubs traditionally occur between extended family members.

A lending club is a pretty simple concept.  You get a group of people together, all contribute a certain amount of money to a pot every month (or whatever your designated period is,) and then every month a different person gets the pot.  For the people who get the money at the beginning, it’s like a non-interest bearing loan.  For the people who get the money at the end, it’s like a non-interest bearing savings account.  For everyone in the middle, it’s a mixture of both.

While lending clubs are a relatively new phenomenon in this country, they’ve been around elsewhere for a while.  Most notably, the Caribbean.  In the states they’re most commonly known as sou-sous, a term which originated in West Africa and then migrated to Trinidad. In Mexico and Central America they’re known as tandas or cundinas.  Ask a Jamaican and they’ll tell you they’re called partners.  They’re even found in the eastern hemisphere, known as gye in South Korea and hui in China.

We see them in the states mostly among immigrant populations.  A major part of that is cultural.  Another part, however, is that if you don’t have any credit or are not legal, things like a bank account or loan can be impossible to obtain.  It seems to me there’s a whole bunch of people these organizations could be good for, though.  You may want to join/start a lending club if…

…you cannot get access to credit/a bank loan.  There are many people who have this issue, even if they are native-born citizens.  A rocky financial past usually predicates this predicament.

…you are one of those people that need accountability to reach your goals.  A common question asked in a sou-sou is, “What are you saving for?”  There is a lot of excitement around everyone’s goals, and the fact that other people are relying on and expecting you to pay your monthly dues may just be the motivation you need to get your saving done.

…you have people you trust.  Traditionally, at least in populations from Trinidad, things are run within families.  In large families that are close knit, it’s more difficult for someone to just run with the money or not pay their dues.

When I came across this subject, I thought it was incredibly interesting, and hoped that perhaps someday there was a way to track and report the activities of these lending clubs so that people without credit could have it built.  They may not be for everybody, though.  There are a couple of arguments that should not be ignored:

  • They don’t build interest.  While if you’re the initial recipient of the money, you’re getting an interest free loan, if you’re the last person on the list you’re essentially just using a savings account that bears no interest.  If you can put $50 aside every month in a bank, this would be a much higher yield option.
  • Sometimes the organizers charge a fee.  There is generally one person in charge of collecting and holding the money every month.  In some clubs, they will charge fee for their services.  So even though you have 8 people in your club that pay $50 every month, the pot will only be $350 rather than $400.  (That’s just an example.)  If you were saving $50/month cash by yourself, you’d have $400 by the end of the same time period, without paying someone else to help you save it.
  • You really could do this by yourself.  If you’re not the kind of person who needs accountability to others to motivate you, you could just set aside the $50/month by yourself.  Even if you don’t qualify for a bank account.  Doing it yourself also means no worries about others shirking their responsibilities to you.
  • You don’t want to get mixed up with the wrong people.  While there is a concern that someone could run off with the pot, I would imagine there’s also a concern about WHO you are being held accountable to.  Are they scary?  If you miss out on a payment are you going to end up with a broken arm?  Traditionally this isn’t the case if you’re participating with family, but it’s something to be aware of if you’re participating or organizing your own with people who are non-native to the cultural tradition.

Have any of you ever participated in a lending club?  Would you?

 

When I heard about this subject, I was intrigued.  I did some research and reflection before writing this piece.  The reflection is my own.  But the facts come from theses three places.  One.  Two.  Three.

Barbara Friedberg PF
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20 thoughts on “Is a Sou-Sou for You?

  1. donebyforty

    The thing I love about sou sous are their ability to leverage the weak social bonds we have with society to help keep us on track with our goals. If I try to save $100 every month, but fall a little short, I’m only letting myself down and there are no real consequences. If I’m short on my $100 sou sou amount, you can bet there is going to be a huge social consequence from the group, and I’m thus less likely to miss my monthly goal.

    Reply
  2. Ms. S

    Yep, a partner hand is what people at home call it. My aunt and uncle have participated in a few. The circle was primarily family and close friends who were practically considered family. I think my aunt was still doing it up until a few years ago. She would talk about going to drop off her “partner hand” LOL.

    I wouldn’t do it though. I’d rather save up money on my own because the partner hand could fall apart before it gets to your turn and you never reap the benefit of giving up money on a monthly basis.

    Reply
    1. femmefrugality Post author

      Very cool! I’d love to hear more about her experience. Did it work? Why did she stop participating? Would she do it again? My aunt used to live in Jamaica; maybe I should ask her if she ever ran into this.

      I’m with you…I’d have to really trust the people and even then…

      Reply
      1. Ms. S

        They were in it for years. Even when my uncle passed away my aunt continued. I do remember hearing about it as I was growing up but when I got older and moved away I never asked about it. So I’m not really sure when she stopped. I know she eventually moved to another country so that could be a reason.

        I’ll have to ask her about it the next time we talk. My aunt’s a story teller so I know she would love to give me details.

        Reply
  3. Matt Becker

    This isn’t something I would do, though I can certainly see the appeal for certain people. In the end, if you have trouble saving money and this is what gets you to do it, then absolutely go for it.

    Reply
    1. femmefrugality Post author

      Agreed. I know a few people who can’t get access to a bank anymore, and think this may be a great solution for them as far as reaching their savings goals go.

      Reply
  4. getrichwithme

    I’ve seen them in operation twice in my City. Once with the Sri Lankan community and the other with the Maltese community. People would rather eat dirt than not pay back their loans and lose face amongst their families and extended circles.
    Very different than these peer to peer / social lending clubs which have sprung up recently and seem to have lots of bad debts.

    Reply
    1. femmefrugality Post author

      Interesting comparison! This is totally just the xenophile in me, but I wonder what the Sri Lankans and Maltese call these.

      Reply
  5. The Frugal Exerciser

    They call it tontine in Cameroon, my husband’s birth country. Our Cameroon friends just bought their first home using this method. In his tontine, 12 people contribute $500 a month. It is a system built on trust and a lot Americans don’t understand but that is how a lot of immigrants open businesses here.

    Reply
    1. femmefrugality Post author

      Super interesting! The ones I’ve heard about have been a bit smaller with people using a couple grand to do things like buy a fridge. That’s really encouraging information to know that people are using them successfully on such a large scale! And to then open businesses….all good things.

      Reply
      1. femmefrugality Post author

        I’m with the Frugal Exerciser on this one. While I do think there is a certain amount of risk in being involved, especially if you don’t know the people (which usually is not the case,) I don’t think it’s necessarily structured like a pyramid scheme. I understand your hesitation to be open to one, though. I don’t know if I could do it either. I’m pretty decent at remaining accountable to myself financially and have access to financial institutions, so taking on that added risk wouldn’t be a benefit to me, personally.

        Reply
  6. MonicaOnMoney

    @Femme Frugality- Thanks for sharing this! I’ve never participated in this but I do think it can be useful for some people and some families. I personally wouldn’t take the risk unless it was for a family member though.

    Reply
  7. Alkamal

    I’m on the 3rd cycle of a sousou I started based on your article and it’s going well. I included my fiance and our close friends, who work. It has grown to include my future mom-in-law and her friends (who all receive monthly pension or social security). Participants have paid for vacation trips, resolved tax debts, attorney fees (for those immigration matters) and credit bills. It’s a great endeavor and I encourage anyone to join one, as long as it’s not going to be a hardship to stay in. Rule of thumb for the sousou leader: Know the people who join and have solid knowledge of their financial situation. If they appear to be a risk, don’t include them in.

    Reply
    1. femmefrugality Post author

      Thank you so much for sharing your experience, Alkamal! One of the most rewarding things about writing is hearing how people have used the information and put it to practical use. This really made my day.

      And thank you for the advice for others! It’s always great to have the perspective of someone with some real life experience.

      Reply
  8. Holly

    My mom did it before but she had to leave because there was a thief in the group. It is best to do it with people you know. It would be cool if there is a site online that does sou sou because I don’t have friends and close family…..

    Reply

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