WASHINGTON–A concept for saving and borrowing that is emerging and being used by an increasing number of consumers will sound awfully familiar to credit unions.
Noting there are millions of Americans struggling to pay bills, raise capital to start a business, or make a big-ticket purchase that can improve their quality of life, most lenders won’t make loans to them due to their poor credit.
Stepping into fill the vacuum is what the Wall Street Journal described as “rotating credit and savings associations, a centuries-old cooperative system where members deposit money into a common fund.”
What is different from the CU model, according to the Journal, is that in this case as savers make regularly monthly payments, “at the end of an agreed-upon funding cycle a single member withdraws the funds. A different member receives the funds at the end of the next cycle, and so on.”
‘Larger Pool of Money’
According to the Journal, the system gives participants access to a larger pool of money than they would have saved otherwise. The funds are typically used for large purchases such as education fees, launching businesses, purchasing homes and medical emergencies.
One company is now offering a solution. Called Esusu, users download the Esusu app and then invite trusted friends and family to join their savings group. The group sets a savings goal and a schedule for payments, the Journal said.
“The app then automatically withdraws contributions from each member’s linked bank account and directs the pooled funds to one person in the group on a rotational basis,” the wall Street Journal reported.
In addition to giving users access to larger sums of interest-free capital than they could amass individually, Esusu reports every payment to major credit-rating firms as a loan repayment, the Journal added.
“When a group member keeps their savings commitment, their credit score improves over time. This same mechanism helps prevent the first recipient of the group’s funds from not paying back into the system.”