A tanda is a rotating savings and credit association (ROSCA) formed by a group of people who know one another for the purpose of helping each other save money for a larger goal, such as an interest-free loan or major purchase. 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.
Learn about how tandas are used around the world, how they work, and some of their pros and cons.
Definition and Example of a Tanda
The word "tanda" comes from Mexico, where almost a third of the population takes part in a money-pooling group. It is a ROSCA for a group of people who know each other very well. The members of a tanda are most often friends or family members who can trust each other to add their share of the money every time, even after they've gotten their own payouts.
As an example, 10 friends and family members may agree to each put in $100 a month for 10 months. Each member of the tanda would get $1,000 in one of those months.
ROSCAs are more common in developing countries or among immigrant groups in more developed countries.
Alternate names: A tanda goes by many names in different parts of the world, including cundina (in northern Mexico; tanda is more often used in central and southern Mexico), hui (Vietnam), paluwagan (Philippines), asusu (Benin), esusu (Liberia), and susu (Tobago). In India there is also a version very close to the tanda called a chit fund.
How Do Tandas Work?
Members of the tanda agree on how much money they will all contribute, how often they will do so, and for how long. The order in which people are paid may be set up ahead of time, or they may all decide to choose a member to receive of the cash on a given week at random.
For people who receive money early in the cycle, a tanda 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.
Because tandas aren't subject to government regulation and in most cases are set up by an informal agreement, you don’t have much recourse if you don't get your full expected payout.
Alternatives to Tandas
If you want to save money and gain some of the perks of a tanda, but don't have access, or don't feel it is for you, you can create a payout structure by using certain standard banking features. For instance, you can open a savings account at a bank and set 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 better perks, such as the highest interest rate.
Made popular in the early 2010s by the now defunct EMoneyPool, online money circles or pooling services offer something like a tanda, but with extra safeguards in place that are standard for online commerce. Yahoo had an app called "tanda," which only lasted a few months, but others such as MoneyFellows and crowdfunding forums had more staying power. Each online money circle or money pool may function slightly differently, but at the most basic level they charge a small fee for a guarantee that if one of the people in your pool fails to keep up with their payments, the service will cover your payout.
For example, MoneyFellows charges a fee of 6% for a slot in a circle with a 5-month time frame. Then the fee lessens over time as you engage, and based 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.
Advantages and Disadvantages of Tandas
Social benefit in helping friends and family
Missed payments are rare
Many online options with extra safeguards
Risk that you won't be paid
May cause loss of trust among friends or family
Online versions come with fees
Social benefit of helping friends and family: A major perk of a tanda is the social aspect. Many people find that meeting each week or each month with their tanda group strengthens these existing relationships. 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.
Missed payments are rare: In almost all tandas it is very rare for people to miss a payment. This is because the social cost of not following through on your promise can be very strong. In a study of 130 ROSCAs, Arizona State University professor Carlos Vélez-Ibáñez found the nonpayment rate was 0.005%.
Online options offer extra safeguards: If you are worried about the lack of a guarantee that you'll receive a payout, online money circles are a way to participate in money pooling groups, with greater protections in place than can be found in a tanda.
Risk that you won't be paid: Since tandas are not regulated and are based on social contracts, there is no legal recourse if the group members don't follow through on their payments.
May cause lack of trust among friends or family: Perhaps the biggest factor to think about when joining a tanda is whether you trust the people in it, and how you manage these personal relationships. 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. And if you aren't able to keep up with the scheduled payments, you risk alienating people you care about.
Online versions come with fees: If you prefer the safety of an online tanda or money circle, chances are you will have to pay for it, at least for a few months.
- A tanda is a rotating savings and credit association for a group of friends or relatives.
- The members of the group meet often 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.
- Tandas also can be used by people who have a hard time saving money to force themselves to set some aside.
- A tanda is more common in developing countries and goes by many names around the world.