An Introduction to Lending Circles

For hundreds of years, people around the world have joined together in simple financial agreements called lending circles. Though they are known by many names, the most technical are Rotating Savings and Credit Association (ROSCA) and Accumulating Savings and Credit Association (ASCA).

While there are many variations, they all stem from the same basic model: members pitch in an agreed amount at regular intervals. In the case of a ROSCA, the sum is awarded to one member and the group keeps meeting until each person has received the sum or pot once. For an ASCA, the funds are collected at each meeting and dispersed to all members evenly at the last. In the intervening time between when funds are collected and dispersed, lending circles may use them to generate more money. For example, they can be used to make short term loans, or placed in bank accounts.

People not only use lending circles to borrow and develop good saving habits, but also to socialize and build communal trust. After all, trust is the underlying component that makes it work. In many communities, lending circles are highly connected to other social clubs and their meetings are often combined with dinner parties.

The history of lending circles goes back hundreds of years. Before the introduction of modern currency, examples of lending circles can be found based on older money, such as cowry shells and grain. It is highly likely the earliest lending circles were developed out of rotating working parties, in which people take turns working on each other’s projects. It’s essentially the same as a lending circle, but instead of money, it’s labor. This is particularly common when the projects are very time consuming or require multiple people. For example, groups of farmers may form a rotating working party in which they plow one farmer’s field each week. This not only helps them efficiently achieve their goals but strengthens relationships and provides a social aspect to often monotonous work.

Today, lending circles can be found around the globe under dozens of different names. In this series of blog posts, we will look at several and learn about their history, see how they are used today, and discover just how universal they are.