A tanda is a rotating savings and credit association (ROSCA) that is formed by a group of people who are acquainted with one another with the aim of assisting one another in saving money for a greater objective, such as an interest-free loan or significant purchase. The participants in the group hold regular get-togethers during which they each donate an amount of money that they have already decided upon to a pool, which is then distributed to one of the participants.
An explanation of a tanda, along with an example
The name "tanda" originates in Mexico, a country where roughly one-third of the population is involved in some kind of financial cooperative. It is called a ROSCA for a group of individuals who are well familiar with one another. Members of a tanda are often people who know each other well enough to believe that they will contribute their allotment of money each time, even after they have received their own rewards. These people may be friends or family members. For illustration's sake, let's say that ten close friends and family members all agree to contribute $100 per month for the next ten months. In one of those months, $1000 would be given to each person who was a part of the tanda. ROSCAs are more prevalent in less developed countries or among immigrant communities in highly developed nations. Alternate names: A tanda is known by many different names in different parts of the world. Some of these names include cundina (in northern Mexico; tanda is more commonly used in central and southern Mexico), hui (in Vietnam), paluwagan (in the Philippines), asusu (in Benin), esusu (in Liberia), and susu. Other names include susu (Tobago). Chit funds are another form that can be found in India and are quite similar in concept to tandas.How exactly do tandas function?
The individuals that make up the tanda come to an agreement over the amount of money, the frequency, and the duration of their contributions. It is possible that the sequence in which people will be paid will be determined in advance, or the group may decide that each week a different member will be selected at random to receive some of the cash. A tanda is a short-term loan with no interest that is offered to persons who receive money at an earlier stage in the cycle. It is a means for people who receive rewards in the midst of the cycle to plan for and save up for a significant purchase. Those who are getting close to the end of the cycle are the ones who are put under the most societal pressure to continue putting money aside. Because tandas are not subject to government regulation and, in most circumstances, are set up by an informal agreement, you do not have many options available to you in the event that you do not receive the entire payoff that you had anticipated.Other Options Besides Tandas
If you want to save money and obtain some of the benefits of a tanda, but you don't have access to one, or you don't think it's right for you, you can establish a payout structure by making use of some elements that are included in conventional banking. You may, for instance, create a savings account at a bank and then arrange for money to be sent into that account whenever you get paid. There are several financial institutions, most notably those operating solely online, that provide annual interest rates of one percent or higher. The opening of a savings account at most financial institutions does not necessitate the deposit of a predetermined minimum sum of money; nevertheless, you may be required to maintain a minimum balance in order to be eligible for certain benefits, such as the greatest possible rate of interest. Online money circles or pooling services offer something similar to a tanda, but with additional safeguards in place that are typical for online commerce. This model gained popularity in the early 2010s because of an organization called EMoneyPool, which has since gone out of business. There was an app developed by Yahoo called "tanda," but it was only available for a short period of time. Other applications, such as MoneyFellows and crowdsourcing forums, were more successful in the long run. Each online money circle or money pool may operate in a slightly different manner; however, at their most fundamental level, these services charge a small fee in exchange for the guarantee that the service will cover your payout in the event that one of the people in your pool is unable to keep up with their payments. For instance, the fee that MoneyFellows charges for a spot in a circle that has a time range of five months is six percent of the total amount. Because of how far along you are in the payout schedule and how much time you spend participating, the charge will decrease over the course of your participation. If you are able to hold out until the very end of the payout schedule, you will be subject to the most affordable fee.Tandas' Pros and Cons: Both Have Their Place in the World
Pros- Social benefit in helping friends and family
- Missed payments are rare
- Many online options with extra safeguards
- Risk that you won't be paid
- May cause loss of trust among friends or family
- Online versions come with fees
The Positives Exposed
The following are the social benefits of assisting friends and family: The opportunity to interact with people is a key advantage of using a tanda. There are a lot of people who believe that getting together with their tanda group once a week or once a month helps to keep these connections strong. A tanda can be an efficient method for people to borrow money from people they trust without incurring any interest or fees and for friends and family members to assist a loved one who is in need of financial assistance. It is unusual for payments to be late: It is extremely unusual for anyone to miss a payment in any of the tandas that I have seen. This is due to the fact that the societal penalty of not keeping your word can be quite high at times. Carlos Vélez-Ibáez, a professor at Arizona State University, conducted research on a sample size of 130 ROSCAs and discovered that the percentage of nonpayment was 0.005 percent. There are three online solutions that provide additional safeguards: Online money circles are a method to join money-pooling organizations with better protections in place than can be found in tandas. If you are concerned about the absence of a guarantee that you will receive a payout, using online money circles is a solution to alleviate such concerns.Defining the Drawbacks
You run the risk of not getting paid: There is no legal recourse available in the event that the members of the group do not carry out their obligations to make contributions because tandas are not regulated and are founded on social contracts. Can lead to a loss of trust among loved ones or close friends: When deciding whether or not to join a tanda, one of the most important questions to ask oneself is whether or not one can trust the members of the tanda, as well as how one will handle the personal ties formed within the tanda. If you have never taken part in a tanda before or if you are joining one with a new group of individuals who are not close friends or family, it is probably a good idea, to begin with, a smaller group. You run the danger of alienating those who are important to you if you are unable to maintain the payments as they are scheduled. There are costs associated with using online versions: If you feel more comfortable using the protection offered by an online tanda or money circle, there is a good probability that you will be required to pay for the service, at the very least for the first few months.Key Takeaways
- A revolving savings and credit association for a group of people, such as friends or relatives, is known as a tanda.
- The participants in the group get together frequently to contribute a set amount of money to a pool, which is eventually awarded to one of the participants.
- Early beneficiaries are eligible for what is essentially an interest-free loan through tandas.
- People who have trouble saving money might utilize tandas as a form of financial self-discipline to compel themselves to put some money aside.
- Tandas are more prevalent in developing nations and are known by a variety of names in different parts of the world.
