Unlocking the Power of Communities in the Digital Age

By: Alexander Hizikias, Founder and CEO of eQUB, and Chen Pizanti, Research Director at F4L Academy
November 8, 2023

This blog post serves as a glimpse into the topics that will be explored in our new introductory course “Alternative Saving Models” providing participants with a foundation to delve deeper into the power of communities in risk pooling, and best practices of alternative saving models from global case studies, including ROSCAs, SACCOs, and tontines. 

Personal attributes significantly influence the likelihood of one’s savings behaviour. Attributes like subjective norms, impulsivity, financial anxiety, perception about the future and level of stress shape saving habits. In additional to this, demographic determinants such as age, gender, education, and employment impact the willingness and ability to save for long periods of time, while financial knowledge and financial literacy enable informed decision-making. The economic environment along with the cultural context plays a vital role in long-term saving behaviours. With economic crises and cultural values like thrift and frugality, long-term saving habits might change over time, leading to dynamic patterns of subjective feelings of financial security across time.

Tax and regulation policies also have a significant impact on long-term saving behaviours. Governments provide tax incentives for retirement savings, and countries like Luxembourg offer various tax incentives to promote long-term saving. Institutional structures such as deposit insurance contribute to higher levels of long-term saving, as seen in countries like Japan and Singapore. Recognizing the influence of tax and regulatory policies helps understand how governments and institutions can promote financial security and stability both for high-income and underserved communities.

While the effect of personal traits, demographic attributes, and cultural and regulatory environments on long-term saving is quite straightforward, understanding the power of communities on long-term saving, surprisingly, have not yet been fully explored.  This is because the power of communities in pooling risk is crucial for achieving financial security and stability, especially among underserved communities, which are more likely to be excluded from the traditional financial system.  By coming together and sharing resources, individuals can achieve greater benefits than they would alone. 

What are alternative saving models? How do they work? How is the power of communities leveraged in establishing these models?  And what are the most prominent types of alternative saving models? Additionally, what is the role of technology in shaping ASMs as they are observed worldwide? We will answer a few of these questions and those who want to learn more about this topic are invited to enroll in our new course. 

What are Alternative Saving Models? 

Alternative saving models are community-based models that provide valuable financial solutions across diverse economic contexts. The most common ones in developing countries are called ROSCAS (Rotating Associations), SACCOs (Savings and Credit Cooperative Organizations), and tontines, which have been used globally for centuries. 

In principle, ROSCAs, SACCOs and tontines are three types of financial institutions that foster collective savings and lending among a group of people or organizations. These institutions offer unique approaches to savings and lending, with ROSCAs involving regular contributions and periodic distributions, SACCOs providing formal savings and loan services and tontines distributing funds to surviving members until the winner survives and takes it all. All three models are using pooled resources while fostering a list of advantages as outlined in the graph above. 

ROSCAS is a traditional financial cooperative that is offering mutual support and financial aid through rotating savings and lending mechanisms, as well as investment opportunities with returns. Unlike ROSCAS, SACCOS is a member-owned cooperative, which promotes savings, with low-interest credit, and comprehensive financial services. In contrast to ROSCAS, SACCOS are serving as significant Microfinance Institutions (MFIs), thus empowering low-income communities to access essential financial services, prioritizing their best interests through a democratic and member-driven cooperative approach. As an informal financial institution, ROSCAS is more likely to serve individuals and households, while SACCOs, a more established institution, supports local economies, small businesses, and charitable organizations. An additional alternative model is called tontines. originating in the 17th century, tontines combine elements of annuities and lotteries, allowing participants to pool funds for retirement income. While tontines faced bans in the past, they offer simplicity and cost-effectiveness, making them an intriguing subject for alternative investment strategies in the 21st century.

The two common saving models, ROSCAS and SACCOS, are popular among people who already know each other, often living in the same town or village. Therefore, personal relationships affect their economic behaviours including their likelihood to not repay their loans. The emerging number of digital saving models is challenging the traditional models, as they facilitate the connections between the users, even when they are strangers that base their relationships upon trust.

Fintech for Longevity Academy has launched a new course “Introduction to Alternative Saving Models”, therefore our readers are invited to understand the common characteristics, challenges, and benefits of each one of the models we described previously and explore the role of technology in shaping them globally. By attending this course, participants will gain valuable insights and practical recommendations to navigate the changing economic landscape by unlocking the power of communities in the traditional and digital age.

To learn more about the course, click here: https://fintech4longevity.gumroad.com/l/Savingmodels

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