A ROSCA is an informal alternative to financial institutions that allows people to contribute and withdraw funds. They’re most commonly found in parts of Africa and Asia where there’s limited access to banks and credit unions. The idea is simple: members contribute a portion of their earnings to the ROSCA which creates a pool of funds. Any member can apply for a loan to cover unexpected expenses or big purchases and then repay their loan. Other ROSCAs, sometimes called “savings associations”, act as investment clubs where members pool money to invest in new businesses or real estate.
Why start a ROSCA?
So why are we seeing these organizations pop up in Canada where we have a strong banking system and (arguably too much) access to debt? The answer is simple: our banking system doesn’t work for everyone, especially newcomers. New Canadians may not have a credit score here that will allow them to secure a loan from a bank, for example. And some want the sense of community that comes from investing in each other, together.
Unfortunately, setting up a ROSCA is a little trickier in Canada than elsewhere. Canada’s banking and securities regulations are complicated and expensive to comply with. This means ROSCAs need to be creative when building their operating model. At Co-operatives First, it’s our goal to demystify the start-up process, to remove barriers, and help entrepreneurs take their co-op from an idea to an operating business. The ROSCAs we’ve supported take two approaches depending on their goals:
- If their goal is to invest collectively, the group forms a community investment co-operative
- If their goal is to build credit and access shared funds, the group forms a community service co-operative and partners with a financial services provider
Read the rest at Co-operatives First
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