I got a call from one of my friends and she\nwanted to get my opinion on the Thrift Savings System, popularly known as the AJO\n(or Esusu) system of investment. <\/p>\n\n\n\n
First, let me declare my biases ahead. I am\na Yoruba boy and I grew up in Ijebu-Igbo town where the culture of the AJO\nsystem is well ingrained. Of course, only an irresponsible child will use the\n\u201cleft hand\u201d to describe his father\u2019s house. So, this post is to defend our\nlocal culture. So, despite my few certificates (not mere affidavits o), I still\nhave my respect to the long enshrined way of community savings.<\/p>\n\n\n\n
My friend mentioned that the system\ndeprives the participant of interest income, especially if the participants not\none of the first set of people to collect the contribution. While the comment\non interest income is not entirely wrong, it is very misleading. <\/p>\n\n\n\n
But, lets start from the basics. What is\nthe \u201cAJO\u201d system about? It involves a group of people who know and trust each\nother, and take turns in pooling a certain quantum of savings to each\nparticipating member on a monthly basis, till the cycle is completed and all\nmembers have collected a similar amount of savings.<\/p>\n\n\n\n
There are four key principles that drives\nthe thrift system.<\/p>\n\n\n\n
\u201cKnow<\/strong>\u201d\n\u2013 refers to the level of demonstrated good standing by each participant of the\ngroup. The family (wife or wives, children, brothers, sisters, father, family\noracle, etc.) are known. This is \u201cdue diligence\u201d or \u201cKnow Your Customer\u201d at the\nadvanced level. This helps to ensure that the risk profile is minimal.<\/p>\n\n\n\n \u201cTrust<\/strong>\u201d\n\u2013 refers to the level of comfort and brotherhood that exists within the group.\nIn those communities where this practice is very strong, the participants\nusually have a strong personal and family ego and self respect (which is\nprobably lacking in most of our urban centres) that they hold in high esteem.\nThey don\u2019t want to spoil their \u201cfamily name\u201d, so they are disciplined and\ncommitted to the group\u2019s goals. The success of this\narrangement heavily depends on trust. Each member has no option but to keep\nfaith that others will contribute their due at the agreed interval.<\/p>\n\n\n\n \u201cPooling<\/strong>\u201d\n\u2013 Unlike the banks or mutual funds where you can break your investment at will\n(subject to termination clauses and conditions), it is very uncommon for people\nto withdraw from the ajo cycle. Secondly, the monthly contributions are usually\nset at an upper percentile of the average group member\u2019s capability levels.\nThis means that the participants might not be willing to drop such amounts in a\nbank account or mutual funds, especially when they have some personal needs,\nprobably not so important needs. Hence, this also helps to mould financial\nresponsibility and behaviour.<\/p>\n\n\n\n While I recognize the fact that,\ntheoretically, an automated transfers to mutual funds or restricted account\ncould help achieve the forced savings culture, we need to respect the benefits\nof working together as a \u201ccommunity\u201d.<\/p>\n\n\n\n \u201cCycle<\/strong>\u201d \u2013 In order to manage the concern that the last set of people in a cycle are being penalized, most ajo groups always ensure that any community savings must have two full cycles so that the participants in the tail end of the cycle are rotated to be at the starting point of the second cycle. This instills fairness into the \u201cpacking order\u201d and addresses the concerns my friend raised as regards \u201ctime value of money\u201d and \u201cunfairness\u201d.<\/p>\n\n\n\n Based on the model, which assumed that\nmembers know<\/strong> and trust<\/strong> themselves to pool<\/strong> funds together for one\nanother in a minimum of two cycles<\/strong>,\nthen it would appear more like each member is actually collecting term loans\nfrom the group on an \u201cinterest-free\u201d arrangement. <\/p>\n","protected":false},"excerpt":{"rendered":" I got a call from one of my friends and she wanted to get my opinion on the Thrift Savings System, popularly known as the AJO (or Esusu) system of investment. First, let me declare my biases ahead. I am a Yoruba boy and I grew up in Ijebu-Igbo town where the culture of the […]<\/p>\n","protected":false},"author":1,"featured_media":2605,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[285],"tags":[284,286,287,288,289],"class_list":["post-3422","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investments","tag-ajo","tag-pros-and-cons-of-ajo-saving-system","tag-saving","tag-saving-in-groups","tag-thrift-saving-system"],"_links":{"self":[{"href":"https:\/\/bluecreekvalley.com\/woleoluyemi\/wp-json\/wp\/v2\/posts\/3422","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bluecreekvalley.com\/woleoluyemi\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bluecreekvalley.com\/woleoluyemi\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bluecreekvalley.com\/woleoluyemi\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/bluecreekvalley.com\/woleoluyemi\/wp-json\/wp\/v2\/comments?post=3422"}],"version-history":[{"count":0,"href":"https:\/\/bluecreekvalley.com\/woleoluyemi\/wp-json\/wp\/v2\/posts\/3422\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bluecreekvalley.com\/woleoluyemi\/wp-json\/wp\/v2\/media\/2605"}],"wp:attachment":[{"href":"https:\/\/bluecreekvalley.com\/woleoluyemi\/wp-json\/wp\/v2\/media?parent=3422"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bluecreekvalley.com\/woleoluyemi\/wp-json\/wp\/v2\/categories?post=3422"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bluecreekvalley.com\/woleoluyemi\/wp-json\/wp\/v2\/tags?post=3422"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}