Cooperative Savings
The concept of cooperative loans, also known as ROSCAs, in the conventional microfinance literature, is being practiced today in many countries globally. It is known as “Gamaeyah” in Egypt, “Chit Fund” in India, “Tontines” in Cameroon and other names by practitioners. Rotating Savings and Credit Associations are institutions that are allocating funds between participants in order to meet lifestyle needs. As such, they furnish platforms for financial services that reduce the cost of lending, mobilizes savings, facilitates monitoring and deploys community-based enforcement mechanisms.
In more modified structures, some members may mainly save, whereas some others only borrow. In this new form, the association is called an Accumulating Savings and Credit Association (ASCA). The chief advantage is that borrowers are not required to deposit their savings in advance and members who have surplus income can save there, that is, members who save may be different from those who borrow and the fund distribution is based on demand.
The relative success of the microfinance industry in providing financial services and saving opportunities to the poor and its proliferation throughout the developing world have promoted the creation and development of Islamic microfinance institutions in many Muslim countries. A number of microfinance schemes that are compatible with Islamic rules have been innovated. Qard al-Hasan (bona fide loan) Associations is a type of mutual group lending and borrowing. The interesting practice in Qard al-Hassan is not only contribution to a pot and its random distribution but also the fact that the lending and borrowing operation is free of any interest charge. Organizers exert effort to select creditworthy members and, reciprocally, members seek a committee whose director has management talents and is trustworthy.
An interesting digital form of Qard al-Hassan, Takaturn, is a debt-free, community savings and financing solution built on the blockchain. Takaturn is creating a trustless system that allows people who do not know one another to engage in turn-based crypto financing. The order of distribution of the pot in ROSCAs is usually determined by drawing lots. At Takaturn, we favor a distribution on a first come first served basis.
An optimum economic scale of operation ensures the efficiency of the financial intermediation services and also its stability and resilience.
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