Common Cents
If You Want To Go Fast, Go Alone. If You Want To Go Far, Go Together - African Proverb
Malik Djinadou
Imagine a single savings method representing a whopping 7% of a country’s GDP! That's the power and significance of Chama, a traditional savings group deeply ingrained in Kenyan culture. The way people save money is influenced by their culture, society, and history. The Western world tends to prefer formal and individualistic methods. At the same time, Africa has developed various communal saving traditions, many of which can be broadly classified under ROSCAs (Rotating Savings and Credit Associations). This is the first part of a 2 part series where we will explore the origins and modern adaptations of popular African saving techniques, compare them to Western practices, and discuss the advantages, difficulties, and potential for formalizing them.
What is a ROSCA?
ROSCAs, or Rotating Savings and Credit Associations, are traditional financial agreements where individuals meet regularly to save and borrow. Each member contributes the same amount at each meeting, and one member takes home the pot. The process repeats until all members have benefited from the lump sum. This model is the backbone for several traditional African savings mechanisms.
African Traditional Savings Methods
*Africa has 54 countries, over 3,000 cultures, and more than 2,000 languages. It is impossible to cover every method used throughout the continent, so here are some major ones from various regions. If you know of any others, please feel free to share!
Tontines and Susus
Origin: Originating from Ghana and Nigeria, Susu has spread its wings across many West African countries. Tontines, similar to Susu’s, are common within French African countries. These are hallmark saving methods in western and parts of central Africa.
Description:
Members form a group and decide on a fixed contribution amount.
Each member contributes this amount daily, weekly, or monthly to a communal pot.
On a rotational basis, one member receives the full pot. This continues until every member has had a turn.
The Susu/Tontine collector, often a respected community individual, manages contributions and payouts.
Women mostly use these savings practices.
Scenario: Sarah, Amina, and eight other friends each give $10 every Monday to Mr. Kwame, the trusted Susu collector in their community. This creates a pot of $100 each week. In the first week, Sarah gets the pot. On the second, Amina receives it, and so on. After ten weeks, everyone has received the $100 pot once. This method helps members gather a larger sum than they could quickly save.
Formalization: With its increasing popularity, Fintech institutions have integrated Susu and Tontine methodologies, offering formal avenues and additional services for members (such as insurance and investing services), allowing these to go beyond their limited physical confines. These digital platforms allow users to create and join Susu/Tontine groups online and make deposits and withdrawals.
Chama
Origin: Chama is rooted in Kenya and is common in various East African countries.
Description:
A Chama is a group of people who save money together and use it for different purposes.
The main purpose is to invest in an initiative that results in more money for the group members.
The group's money from investments or loans is fairly partitioned among the members.
According to Potentash, there are approximately 500,000 Chamas in Kenya, managing assets worth Ksh 400 billion, which equates to about 7% of the country's GDP.
Women mostly use these savings practices.
Scenario: Sarah and Amina are friends who live in the same neighbourhood in Kenya. They want to start a poultry business but don’t have enough money to buy the chickens and the feed. They decide to form a chama with some of their other friends who are also interested in making money. They agree to pay $50 monthly and put it in a common fund. They use the fund to buy and rear poultry. They sell the eggs and the chickens in the market and make a profit. They divide the profit among themselves according to how much they pay into the fund. By saving and investing together, they can achieve their financial goals faster and easier than they could alone.
Formalization: Many Chamas in Kenya have metamorphosed into credit unions, bringing regulated services and broader financial offerings under their umbrella.
Jam’iyya
Origin: Egypt, with variations seen across North Africa and many Muslim-majority countries due to its roots in Islamic traditions.
Description:
Similar to Tontine/Susu, Jam’iyya is a communal savings method with minor differences:
Jam’iyyas usually have a larger number of members than Susu and usually have a longer duration than Susu, lasting from several months to a year or more.
The fund supports various social, educational, religious, or charitable endeavours benefiting members and the larger community.
Scenario: Sarah and Amina are part of a Jam'iyya with ten friends. Every month, each person contributes $30. After contributing, they draw lots. The winner that month takes the whole $330. This continues until every member has had a turn, ensuring each person receives the lump sum at least once.
Formalization: Modern banking has recognized the value of such traditional systems. Today, several innovative banking services offer automated Jam’iyya solutions, managing contributions and distributions, adding an additional layer of transparency and accountability to this age-old system.
Stokvel
Origin: South Africa, with variations in neighbouring countries.
Description:
Members contribute a predetermined amount to a communal fund weekly, monthly, or annually.
The pooled funds can serve multiple purposes: assisting members in emergencies, investing in ventures, purchasing goods/services, or supporting community initiatives. The payout order can be fixed from the start or determined variably through agreement, rotation, or lottery.
Stokvels are estimated to have more than 11 million members in South Africa, collectively contributing about R50 (2.65 billion USD) per year.
Women mostly use these savings practices.
Scenario: In South Africa, Sarah and Amina are members of a Stokvel. Each of the 12 members contributes $40 every month. They save it in a group bank account. At year's end, they either divide the savings (plus interest) amongst themselves or use it for a group need, like hosting a community initiative.
Formalization: South African banks have identified the potential of Stokvels, introducing specialized savings accounts to provide added security and structure. This vast network falls under the purview of the National Stokvel Association of South Africa (NASASA), which champions the rights and interests of Stokvels.
Advantages of Traditional African Savings Methods
Rotation order: The benefit is that you get the savings after a certain period, depending on the rotation order. Some people may prefer this method over saving in a bank account, where they may be tempted to withdraw or spend their money before reaching their goal. These traditions can also help people who have difficulty accessing or trusting formal financial institutions or want to support their community members.
Social connection and peer motivation help drive higher savings rates than most individuals achieve independently.
Social Accountability: There's a high level of accountability due to their communal nature.
Flexibility: These systems can be adapted based on the group's needs and preferences.
Accessibility: They often cater to those underserved by formal financial institutions.
Community Building: Beyond financial benefits, they foster community ties and mutual support.
Disadvantages
Limited Growth: The money saved doesn't earn significant interest.
Scalability: As informal systems, they might not suit large sums or significant investments.
Trust-Based: If trust is broken, it can jeopardize the entire system.
Attempts to formalize some of these practices face obstacles, including:
Technological Barriers: Traditional groups relying on in-person cash transactions can be averse to digital tools like mobile banking. There is often a generational divide in tech adoption.
Need for Flexibility: Standardized financial products limit the ability to adapt communal funds to needs flexibly. Formal structures mean less autonomy.
Loss of Community Feel: Moving to formal institutions disrupts the social community, accountability, and in-person interactions that are a core part of traditional groups.
Lack of Trust in Institutions: Groups with deep community roots often have more confidence in their established local savings systems versus unfamiliar formal institutions.
Bridging these gaps requires culturally aware product design, flexible platforms, hybrid online/in-person support models, and building institutional trust through transparency and community engagement.
While we've only scratched the surface of Africa's diverse and innovative savings practices, this is just half the narrative. In "Common Cents - Part 2," we'll revisit these rich African traditions, juxtapose them against Western savings practices, and explore the fusion of these worlds. Discover how these age-old systems are evolving in the modern world and what they can teach us about community, trust, and financial resilience.
A person is a person through other persons - Desmond Tutu