Economic and Social Change in Developing Countries -
Poverty Alleviation and Sustainability
Role of the microcredit in developing countries with focus in Roscas: the microcredit organization with a rotative insurance in Cameron
Francesca Perolari
H.H.H.Bergen
Spring 2002
INDEX
DEFINITION
ORIGIN AND DIFFUSION OF THIS PHENOMENOUS
SUBJECTS
THE STRUCTURE
THE MEMBER CONTRIBUTION
CASH DESCRIPTION
THE ALLOCATION SYSTEM OF THE FUND
USE THE FUNDS
CONCLUSION
BIBLIOGRAFY
DEFINITION
Tontines,in French, or ROSCA In English are the Returning of Saving and Credit Association . In this paper they are used to speak about the same phenomenon.
Now we give some definitions made by people involved in this phenomenon to understanding better what we are speaking.
“A Rosca is an association consisting of a group of people. These people make arrangement to give money in the same cash giving, a whole or in part, to each of participant in rotation way.”
“ A Rosca are associations consisting of a people with the same social level willing and periodical give some fixed or variable amount of money in a fond (it is called pot, pool or hand), assignment to each member in rotation way through a lottery (RANDOM Rosca), auction (BIDDING Rosca), or in according of a different needs of participant. (Njeunga, 1995)
“A Rosca is a voluntaries group making arrangement to contribute in financial way by a fixed terms, to create a found giving that other persons in according fixed criteria.(Calomiris,1998)”
“A Rosca is men and women association gathering in fixed days when a found is given to each of participant. The found is making by a fixed or variable contribute of each member of association”(Chavas,1995)
“A Rosca are informal association founded by homogenous criteria and honor word. Its purpose is to encourage all solidarity action among member or to build periodical a financial informal and closed market given the opportunity to own member to deposit and obtain credit. This is a rotation system.” (Nzemen 1998)
A Rosca are informal association, groups of people living in the same community, gathering for convention. In each convention, each of member gives a non determined contribute in a fund (pot)
given to a member. This one cannot receive a pot in the next meeting but it is mandatory to give all time its contribute. The convention are finished when each participant receive the whole pot.
There are main different among Rosca in the time of conventions, in the amount of individual contributes, in the number of the member and in the criteria to give the found (Baland,2000)
ORIGIN AND DIFFUSION OF THIS PHENOMENOUS
This Phenomenon has provoked attention of sociology and of anthropologies at the beginning of 60’s. In particular they made survey about the rural community in Africa, Asia and South America, where they checked the role and function of this informal credit and saving association in almost developing countries with different name or a different characteristic between countries.
Bouman (Bouman 1997,1995), one the first economist interesting to this phenomenon, around at 70’s, made a list of different Rosca different name.
Africa: Benin (Asusu, Yissirou,Ndjoune,Tontine); Cameroun (Djanggi,Njanggi,Tontine);
Etiopia (Ekub,Ikub); Costa d’Avorio (Moni,Wule,Susu,Tontine); Kenya (Mabati); Nigeria (Esusu,Osusu, Enusu); Congo (Kikedimba,Likilimba); and others in Senegal, Togo,Ciad, Zaire, Zambia
Asia: China (Lun-hui,Yao-hui); India (Kuri, Chitty, Chitfunds); Indonesia (Arisan); Giappone (Ko, Kuo,..) Korea (Keyes, Ke): Malaysia (Kutu, Hui,…); Nepal (Dhikur, Dhikuti); Phillipines (Paluwagan,…) and other in Thailandia, Taiwan, Singapor, Vietnam.
South America and Caraibe: Bolivia (Pasanacu); Messico (Tanda, Cundina,..) Brasile ( Consorcio Pandero), Bahamas (Esu); Jamaica (Parteners, Susu); Tobago (Susu) and sone in Guatemala, Peru’ , Panama.
Cameroon, like some country, Benin, Nigeria, Ethiopia, Ghana, Bolivia, Korea is a good example for a informal microcredit students for a different shape and different system of this association, and also for their diffusion between a rural and urban local population.
But what is the origin of this interesting Phenomenon?
In Cameroon, but we think that the same happened in others countries in the Sub-Saharan Africa ,the origin is founded in the kind of reciprocal help and assistance characteristic of traditional community in rural environmental and between the Bamileke’ community.
In its effort to adapt the environmental the human behavior is guided by satisfaction of three need shared with the other in somewhere: eating, finding a refuge and trying to have a good health.
But often to satisface this need is associated a risk depending of different individual skill or of different weathers influencing the harvesting and so the amount of food or facts like pathology or death.
This kind of cooperation and reciprocal help is to resolve this general risk and uncertain situation. At the begin they are between the member of the same family, after between neighbors, between a member of the same village, between a member of the same clan…….
So it’s clear like in the first traditional community it was trying to share the only product factor avaible, work. At the begin, in accordance with our schedule, between a member of the same family, after between neighbors and the last between a member of the same village , the cooperation systems were creates to built houses, roads, schools, to cultivate fields.
At this level the job tontines between Bamileke’ community are called seugneum
The human beings share with the others a cycle of events during their life even if they don’t happen in the same time: the wedding, the born, the family, the pathologies, the death.
Also for this happening often the expenses are not only financial but also social, and not are whole sustainable by the single. So the mutual assistance net can be developing also in this contest.
The contribute “Kind” (like, soap, plates, cloths, and other good in accordance by situation) are added to a job contribute. The giver knows that his family will receive the same, when he is in the same circumstances. This kind of tontines are called tchwa.
By the currency introduction happened in this area, next to job tontines there are also a currency tontines
In this transaction it’s not lost the fundamental solidarity criteria between members. Above all between the people with focus on business, the Bamileke’ in Cameron or the Ibo in Nigeria, the currency Rosca are becoming a fundamental tool to have a large sums of money. The colonization, the introduction of taxes, the improving of the business and the currency, the increase of the consumes, the contacts between a rural and urban environmental making by the immigration, are the main factor pulled to resetting of the social safety. To adapt of the human behavior to this new economical and social context, pulls a new expression of the cooperation and the reciprocal help.
Infact today we can observe Rosca with two task: they provide a very strong credit and saving system and a mutual insurance system .
We can see the Job Rosca, Kind (above all between woman) and currency Rosca in the rural environmental, while in the urban environmental the currency Rosca dominate in all country where this phenomenon is present.
So Rosca are a fundamental of a social safety net in all world
The economical function do Rosca are added and sometime they are overpass the original purpose of social safety. The rotation criteria of a resource found is a answer to a problem of risk and uncertain. (Bouman,1995)
Now our focus is on the element of Tontines
SUBJECTS
The tontines member are gathering spontaneous finding a homogenous criteria to have a strong social links among them. This criteria becomes mandatory to entered in this association.
This link is facilitator keeping information about the economical condition of single participants and this is a very strong linked: if you don’t observe this link, you are pulled out to this association.
There are different kind of membership, different criteria to entered in tontines:
- Member of the same community
- Member of the same birthplace
- Member of the same residence place (neighbors)
- Member of the same job or profession
- Member of the same family
- Friends
Now we can observe what can happen if a member don’t contribute.
At the begin it’s trying to understand why he couldn’t pay
If this impossibility depends to suddenly fact, like pathology, a no scheduled trip or other fact no depends by the member will, after, the penalty payment and the contribute , he is still in the tontines
But, if he doesn’t pay the contribute because he has the whole fund, there are two penalty: one social and one by judgment.
The first one pulls the person not only to participate to tontines but also to have relationship with the others members
For the subject it becomes difficult to obtain a loans in the future from the tontines knowing the default and from the formal sector like a bank, because he hasn’t the guaranties. Also the tontines make a report for the police. So in the default the subject is punishes also by law.
THE STRUCTURE
Sometimes when we speak using a informal word, we think a disorganized thing. But when we speak about this informal association we want to say don’t exist a definition or a clear study by the law like exist for the bank and creation of the bank or cooperative.
Often, in the 90% of the case each tontines has a own rules fixed the behavior of the component, the system to attribute the fund, the penalty……
There are also four roles in the administration with annual function:
- The president guaranties a good function
- The secretary guaranties written documents
- The treasury man for the fund
- The punish man for keeping order during the meeting and he notices the late and the absence
This role are elected by the tontines assembly gathering one time at the begin the each tontines year.
THE PERIODICAL
The tontines periodical consist in the time between one meeting to the others
So we can have a daily tontines, weekly tontines, monthly tontines.
The most frequently ones are weekly or monthly
The daily tontines are present only between the bayem sallam, a little ambulant commercial people in the capital city.
At the end of the day a part of their revenues is in the found. This amount is around 1000/2000 FCA (3-6000£).
This system is a way to keep a amount of money not enough to buy something and it could be lost gambling or drinking.
Usual the periodical is weekly or monthly.
THE MEMBER CONTRIBUTION
Generally they are fixed or variable.
The fixed contribution are fixed by the internal rules and they are the selection criteria for the components.
There are tontines between a big commercial people Bamileke’ where the monthly payment is around 3000000FCA( 9000000£) with 12-14 people.
Usually in the tontines we have this kind of contribution:
- One to build the rotation fund: this periodical is daily, weekly or monthly and it can be fix or variable.
- One to create the emergency cash: annual and fix amount
- One to create the scholarship cash: fix amount but it’s not mandatory
- One contribution free and variable for the loans cash.
CASH DESCRIPTION
Given its origin of an assistance and reciprocal help tool in the tontines next to contribution using to create a rotating fund, they are created different cash on according with the willing, needs and possibility of the people
In main cases we find a Emergency cash, making by the individual contributes annual and individual from 10.000 to 100000FCFA.
This cash is build to happy event like wedding, born or unhappy pathologies , deaths
For instance, if one falls in sick and it need to bring him in the hospital for 3/4 days at minimum , there are a moral sustain and he can obtain a certain sum
At the same way if one died, his relatives obtain money, a minor sum is forecasted for the son or parents died.
EX. Emergency cash in the Fraternite’ Banka of Yaounde’:
Individual annual contribution : 25000FCFA
In wedding the member obtain 50000FCFA
In born events the father or the mother obtains 15000FCFA
In the father’s, mother’s or son’s dead the member obtain 100000FCFA
In the sick with minimum 3 days in hospital, the member obtains 20000FCFA
An other cash is the scholarship cash. It’s begin at the half of September and it’s closed to end of August. The contribute is free and it’s a king of insurance to the re-entry in September.
The found of this two cash, emergency cash and scholarship cash, are not static but they are a resource of loans for the member and often for no-member (giving some guaranties) of the association.
At the recash moment of the own sum giving in the scholarship cash, the member give this with interest yielding and sharing between the participant in this cash.
Next to this systems having a insurance and social purpose, there are also systems with a financial purpose.
The Saving cashes: inside the association they collecting a free and various contributes loaning to members, with a interest rate not up 55, and to no member with a interest rate around 7/8% giving guaranties like to introduced by a member association
The investment cashes (or Project) diffuse in the member associations from the same village or neighbors, collect the contributes and they use to making projects of different kind like building a school, improving the neighbors
So, by this we can understand like tontines are a very good tool of reciprocal help.
THE ALLOCATION SYSTEM OF THE FUND
The allocation system of the fund inside the tontines is a way ex-ante to reduce the default risk between participant
The rotation order is a very delicate phases to stability and efficiency of the tontines.
The risk that a member don’t pay more after the first meeting where he had the fond, is reduced by the selection system introduced to be a member of tontines
The way to allocate of the fund id a way to reduce the default risk
This is short list of the allocation system ways:
- by subscription order
The fund is give to a old member in the association and they are considered safer by the contributes after the obtaining the found
- By lottery
This way is one of the most diffused.
In the box there are the people name and it extract the name. In English they are called RANDOM ROSCA
There are two important version:
a)Lottery during each meeting:
At each meeting only one name is extracted, and it will be not present in others extractions.
In this way all no extracted participants have a motivation to be present at the next meeting with owned sums to participate the next lottery
The participant doesn’t make forecast about owned investment plan because he doesn’t know when he will have the whole fund
b)The first meeting the names of the all participants are extracted
The first meeting the names of the all participants are extracted creating order.
The subject X knows when he will have the fund.
If X has the fund at the begin, he could to stop to give the contribute in the next meeting, but, like all member, he can make a plan.
So there are a kind of trade-off (the default case are 1-2% in each tontines cycle) to reduce ex-ante risk and efficiency allocation
- Auction
This way is diffuse between Bamileke’ present in Cameron and in the few other countries, Taiwan, India, China.
In this case we call it BIDDING Rosca
In the African countries, it assumes a particular character because it is developing on two market, one principal and other in local.
I report the example by Tchuindjo (Tchuindjo,1998)
We consider a tontine with 6 person , a monthly periodical and with individual contributes about 1000000FCFA, around 3000000£.
The sums in the auction is called principal market and it will be 6000000FCFA, around 18000000£ in each monthly meeting.
The president open the account on the principal market saying a start price fixed for the next meeting ,250000FCFA
So the participants interesting to buy the sums of 600000FCFA, made their offer and at the end one of the member, in our case A, give the all sums paying a sum ,in this case 15000000FCFA
The tontine president gives to A 45000000FCFA (6000000-1500000)
At this point the local market is open where it’s start an account to buy 14500000FCFA. The price paid by the first buyers A who paid 50000FCFA for expenses and for the dinner.
This second sums is buyed in this case for 3600000FCFA who refunded together the sums, 1450000,during the next meeting for a total of 1810000fcfa by the beneficiary, The interesting the local market is post-discounted(it’s paid after) while in the principal market is pre-discounted (it’s paid soon).This is what happened in the first meeting.
At the second meeting the sum in the principal market is buyed by B FO 13000000FCFA.The total sum can be lens on the local market will be: