In this latest e-MFP guest blog, Dalia Ali, Project Manager & Consultant at GOPA AFC, discusses trends and challenges of fintechs digitising the ROSCA model, and provides examples of how this is now happening.

The case for ROSCAs

The Rotating Savings and Credit Association (ROSCA) stands as one of the oldest and most popular informal financial institutions, that thrives on community-based pooling of resources and is driven by shared trust and mutual support of the group. A group of individuals, typically from a close-knit community, agree to contribute a fixed sum regularly, typically on monthly basis. The accumulated funds are then distributed to each group member in rotation. The order of this lump-sum distribution is either randomly assigned or based on financial need, as agreed upon by the group members.

ROSCAs are an imperfect alternative to the mainstream banks that help participants save money and access credit, which otherwise might be difficult for them to obtain from the conventional financial market. ROSCAs are very prevalent among adults in developing countries, with membership rates reaching up to 95% in several African nations like the Republic of Congo, Cameroon, Gambia, Ivory Coast, Togo, and Nigeria.[1] They also have a different name in each country, such as Ajo in Nigeria, Susu in the Caribbean, Tanda in Mexico, pandeiros in Brazil, and Ekub in Ethiopia.

An important foundation and prerequisite for the effective functioning of ROSCAs is the existence of social capital and strong mutual trust among the participants. People rely on social capital and local information to evaluate the reliability and creditworthiness of a borrower. The ease of information flow and circulation between people, particularly in rural communities, helps in establishing and sharing local information about the people who live in the same area.[2] The existence of mutual trust among the participants significantly limits the transaction costs, as monitoring is not required.[3] ROSCAs tend to be formed by a group of individuals of a cohesive community who are aware of the socio economic status, reliability, and social capital of each other. Thus, in the absence of legal enforcement mechanisms, peer pressure and the fear of being ostracized by the community will guarantee the continuation of payments.[4]

Trends and innovations in digitising ROSCAs

ROSCAs play a vital and instrumental role in the informal sector, helping their members, who are predominantly women, with accessing savings and interest-free loans. Over the past decade, numerous fintech start-ups have sought to harness the potential of ROSCAs by integrating the model into the mainstream financial landscape through digital transformation. Here are some examples of start-ups that are digitising ROSCAs:

  • Oraan in Pakistan

Oraan is Pakistan’s first woman-led fintech startup which was founded in 2018. Their digitised ROSCA focuses primarily on women. With only 13% of Pakistani women having access to financial services, Oraan’s mission is to make financial services accessible for every woman in the country. Upon registration, users can join one or multiple groups that align with their financial goals and preferences. Furthermore, they have launched "Oraan SNPL", a new product in collaboration with four Pakistani universities, specifically designed to finance students from these partner institutions. By November 2021, they announced reaching a milestone of growing their community to 2 million women.

  • Equbs in Ethiopia

In 2020, eQUB launched a digital savings platform that is based on the ROSCA model, locally known as Equb in Ethiopia. Users can filter and explore different Equbs and select one based on their preference in terms of location, amount deposit and frequency of contributions. In each sub-round, the Equb wheel is spun, randomly selecting a member to receive the lump-sum amount. In an effort to streamline the process of cash deposits on collection days for Equb members, they have collaborated with Hibret Bank in Ethiopia for the launch of a new product named ‘Equb Collection Deposit Account.’

Although having a similar name, Digital eQub is another fintech in Ethiopia that aims to enhance accessibility by enabling individuals to join an Equb group without physical meeting constraints. Members can make their contributions via mobile banking or Telebirr and can opt to collect their funds in cash. Despite members potentially being unfamiliar with each other, they are required to provide verifiable credentials like ID cards, income statements, and business licenses. To facilitate the fintech’s services, Digital eQub has partnered with the Commercial Bank of Ethiopia and with The Bank of Abysinnia.

  • MoneyFellows in Egypt

Founded in late 2016, MoneyFellows was launched also with the goal to digitise Gameeyas, which is the commonly known name of ROSCA in Egypt. To ensure security, every user is required to sign a legally binding contract following a thorough credit assessment. The process is fully digitised and offers multiple different options for online payment (including salary deduction for corporate employees). They serve more than 4 million users and have over 300 employees.

  • Other fintechs

There are several other fintechs that leverage ROSCAs, including Mapan, launched in Indonesia in 2011 and now having around 3 million users; Sommos, founded in Bolivia in 2020 and expanded to Peru in 2023; and Tyms Africa (formerly known as AjoMoney), founded in Nigeria in 2021. The latter uses the ROSCA model to serve not only individuals but also micro-businesses, SMEs and Nigerians in the diaspora. The trend of digitising ROSCA extends beyond developing countries, with US-based fintech Money Pool distinguishing itself by adding a digital credit report to each member's profile to foster reliable online rotating pool funds.

Potential challenges

In recent years, there has been a growing trend of the emergence of fintech startups across various countries where their model is based on capitalizing ROSCAs’ potential by digitising the model, making financial services more accessible, convenient, and efficient. Except Sommos, most of these startups focus solely on the local market. Users can explore different groups and make selection based on their preferences for deposit amount frequency of contributions, and sometimes even location. These platforms offer group management tools, track payments, and record-keeping. Each fintech has a unique approach to ROSCA's digital transformation. Some offer a fully digitised experience, like Oraan in Pakistan. Others, like eQub and Digital eQub in Ethiopia, have partnered with banks to facilitate deposit collection. Moreover, some fintechs expand their products and offer financing to students and SMEs.   

Currently, there is no available specific research on the challenges of digitising ROSCAs. However, enforcing payments in a digital setting can be challenging. Traditional ROSCAs are formed by close-knit community (group of friends, neighbours, relatives etc.) that rely on shared trust (as well as fear of reputational damage and being ostracized) to comply with regular payments, which might not translate seamlessly into a digital environment where the ROSCA members might be from different communities and locations. Fintechs mitigate this risk by requiring verification documents and income statements during registration like eQub in Ethiopia. MoneyFellows in Egypt takes it a step further and requires signing a legally binding contract, while the US-based Money Pool adds a digital credit report to each member's profile.

Several of these fintechs have successfully established a solid ground and substantial user base, counting millions of users. The ongoing digital transformation of ROSCAs presents considerable market potential, suggesting the likelihood of more fintechs emerging in other countries to digitise ROSCAs. Thus, it unveils untapped resources and investment opportunities in these burgeoning local fintech start-ups.

For any questions, please contact Dalia.Ali@gopa-afc.de

Photos: GOPA AFC

[1] Anderson, S., & Baland, J. (2002). The economics of ROSCAs and intrahousehold resource allocation. The Quarterly Journal of Economics, 117(3).

[2] Robinson, M. (2001). The microfinance revolution. Washington, D.C.: World Bank.

[3] Habtom, G., & Ruys, P. (2006). Traditional risk-sharing arrangements and informal social insurance in Eritrea. Health Policy, 80(1), pp. 218-235.

[4] Hevener, C. (2006). Alternative financial vehicles: rotating savings and credit associations (ROSCAs). Community Development Division of the Federal Reserve Bank of Philadelphia.

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