A tanda is a rotating savings and credit association (ROSCA) for a group of people who know one another. The members of the group get together regularly to contribute an agreed-upon amount of money to a pool that is then given to one of the members. It's a way for participants to get an interest-free loan or force themselves to save money, perhaps for a large purchase.
Learn about how tandas are used around the world—under different names—and some of their pros and cons.
What Is a Tanda?
The word "tanda" comes from Mexico, where almost a third of the population participates in a money-pooling group. The members of a tanda are generally friends or family members who can trust each other to contribute their share of the money every time—even after they've gotten their payout.
ROSCAs are generally more common in developing countries or among immigrant groups in developed countries. A tanda goes by many names in different parts of the world, including cundina (in northern Mexico; tanda is more commonly used in central and southern Mexico), hui (Vietnam), paluwagan (Philippines), asusu (Benin), esusu (Liberia), and susu (Tobago).
How Does a Tanda Work?
Members of the tanda agree on how much money they will all contribute, how regularly they will do so, and for how long. The order in which people are paid may be established ahead of time or the recipient of the cash on a given week may be chosen at random.
For people who receive money early in the cycle, a tanda effectively acts as a short-term, no-interest loan. For those who receive payouts in the middle of the cycle, it's a way to plan and save up for a large purchase. For those near the end of the cycle, it provides social pressure to keep setting aside money.
As an example, 10 friends and family members may agree to contribute $100 a month for 10 months. Each member of the tanda would get $1,000 in one of those months.
Because tandas aren't subject to government regulation and are generally set up by an informal agreement, you don’t have much recourse if you don't get your full expected payout.
Alternatives to a Tanda
Rather than participating in a tanda, you might consider opening a savings account at a bank and setting up automatic transfers into it on payday. Some banks, particularly online-only banks, pay 1% or more in interest annually.
Many banks don't require a minimum amount of money to open a savings account, though you may need to reach a certain amount to get the highest interest rate.
EMoneyPool is an online version of a tanda. If one of the people in your pool fails to keep up with their payments, eMoneyPool will guarantee your payout. However, the company charges a fee of 2%–8%, depending on where you are in the payout schedule. If you can wait until the end of the payout schedule, you'll be charged the lowest fee.
Aside from the payout guarantee, one benefit of eMoneyPool is that it reports your on-time payments to Experian, one of the three major credit reporting agencies. These timely payments can help improve your credit score if you are just starting out financially or have previously had financial problems.
Pros and Cons of a Tanda
The biggest consideration when joining a tanda is determining whether you trust the people in it. If you have never done a tanda before or are joining a tanda with a new group of people who aren't close friends or relatives, it may be wise to start small.
Having said that, missed payments are very rare in tandas because of the social cost of not following through on your agreement. In a study of 130 ROSCAs, Arizona State University professor Carlos Vélez-Ibáñez found the nonpayment rate was 0.005%.
A tanda can be an effective way for people to borrow money without interest or fees from people they trust and for friends and family members to help out a loved one in need.
Another benefit of a tanda is the social aspect. Many people find that getting together every other week or every month with their tanda group strengthens these existing relationships.
However, you won't earn interest from a tanda nor will you build good credit from joining one. And if you aren't able to keep up with the scheduled payments, you risk alienating people you care about.
- A tanda is a rotating savings and credit association for a group of friends or relatives.
- The members of the group get together regularly to contribute a certain amount of money to a pool that is then given to one of the members.
- A tanda offers early recipients the equivalent of an interest-free loan.
- It also can be used by people who have difficulty saving money to force themselves to set some aside.
- A tanda is more common in developing countries and goes by many different names around the world.