By Omodele Adigun
Getting credit is one of the major challenges facing micro enterprises in Nigeria and one of the ways small entrepreneurs go round the problem is by using informal channels. These include friends and family, moneylenders and informal savings schemes such as Esusu and thrift societies.
Esusu, according to Essence.com, is an informal rotating savings club, where a group of people get together and contribute an equal amount of money into a fund weekly, bi-weekly or monthly. The total pool, also known as a hand, is then paid to one member of the club on a previously agreed-on schedule. The pool rotates until all members have received their share. Some use it to start businesses, others for big purchases, vacations, down payments on properties and cars and even to send their kids to college.
How Esusu works
The group elects a treasurer who will collect the members’ contributions. She will also create a payout roster, or members can request to receive their hand at any given date during the cycle. Everyone agrees on how much and how often they want to contribute. If 10 members are contributing N5000 a week, each week a member will receive a N50,000 hand or cash lump sum. The cycle begins again after 10 weeks. Any member who can afford it, can also double their contribution and get paid two hands in one cycle.
There is no interest to be collected, so you will always get out the exact amount that you put into the pot. The underbanked also use the model to escape the same lack of access to capital
The membership size, amount contributed and interval are usually agreed on by members These groups aid social interaction, give financial support and expose members to business opportunities due to their interdependent nature.
However, you need to decide at what point you will cash in the funds. If the purpose is to start a business, you could cash in once you have reached a specific target for your seed capital.
Challenges
Since Esusu is not regulated by any laws and can, therefore, be risky if someone untrustworthy joins, if you are considering joining one make sure it is with people that you know well and trust. Usually, sou-sou members are from the same family or a close-knit community.
There are no legal paperwork or credit checks involved when starting a sou-sou, all you have to protect you and your money is the familial trust between the members. So pick who you save with wisely.
To overcome this challenge, Soji Apampa, the co-founder of the Convention on Business Integrity, which sponsors the Corporate Governance Rating System in partnership with the Nigerian Stock Exchange, once noted in an online post that at the heart of every collective saving scheme is the clan nature of its members. And “all members of this ethical business clan jealously guard entry into the clan to ensure that admitted members comply with the traditions of the clan. Such traditions include integrity, compliance, and transparency.”
Sociologist, Emile Durkheim defines a clan as an organic association that resembles a kin network but may not include blood relation. “Clans are characterized by a strong feeling of solidarity and are governed by long-held traditions.
In case of a deviance from the traditions of a clan, they are able to correct their members through peer pressure – there is an implicit understanding that if you benefit from the collective, the collective has a right to redress if you do something that is inimical to the collective.”