This Rotational Savings App Lets You Pool Funds with Trusted Friends and Family
Esusu.org uses a system inspired by an ancient African traditionAdd bookmark
It’s a well-known fact that the financial industry rewards those with money, while shunning or loan sharking those with poor credit or no credit history.
Esusu, a mobile app-based startup, is looking to disrupt the vicious cycle of poor credit leading to predatory loans to worse credit endured by the low-income community by bringing an ancient African rotational savings tradition into a digital form.
Members form groups with trusted friends and family, and each month the pooled funds go to a different member of the group so that the respective contributors end up with more money than they started with.
For Esusu co-founders Samir Goel and Wemimo Abbey, the product is deeply personal; their parents used rotational savings to not only tide things over financially but achieve social mobility for their children.
“I grew up in the slum neighborhoods in Nigeria, I lost my father at the age of two and this concept of rotational savings was my lifeline to a better education,” Abbey told CCW Digital. “My mom essentially pooled over 60 percent of her salary and contributed with her friends and family to afford my tuition at one of the best high schools in Nigeria.”
Esusu co-founders Samir Goel and Wemimo Abbey (Image courtesy of Samir Goel)
Meanwhile, Samir’s grandparents, based in India, used rotational savings to send his father to college in the US. According to the Federal Reserve, around 40 percent of adults lack the funds to “cover a $400 emergency expense, or would do so by borrowing or selling something.”
Meanwhile, a quarter of African Americans are not confident that a new credit card application for them would be approved - twice the rate among whites.
Esusu primarily targets immigrant communities who may already be familiar with rotational savings. It’s a common practice across Southeast Asia, Africa, South America and the Middle East.
“These folks are already using this sort of practice so it’s very easy for them to migrate onto a digital platform, especially with the added benefits we’re able to offer,” said Goel.
The entire process is automated, so the app automatically withdraws contributions from each user’s linked bank account and directs the pooled funds to one person in the group on a rotational basis.
Most impactful of all is that participating in an Esusu group is considered a debt obligation that is automatically reported to the credit bureaus as a loan repayment, so that someone with zero credit history can build their credit from scratch.
Through another complementary product, Esusu Rent Reporting, users can opt to have their rent payments reported and buttress their credit score even further if they are confident of being able to make timely rent payments. This is what takes Esusu from being just a useful financial management tool into a lifeline towards a brighter financial future.
“We’re not only helping people manage their cash flow and avoid predatory lenders, but now we’re also helping them improve their credit scores,” explained Abbey.
While groups have to consist of at least three members, Esusu recommends 6-12 people saving between $500-$2000 a month over a period exceeding six months. The length of the savings cycle depends on the number of people in the group, meaning a group of five would pool funds over the course of five months so that each member receives a payout. Each pay cycle, the platform charges a $10 subscription fee divided equally among the members.
Before members can form a group they have to agree on what they’ll use the money for. Furthermore, no one can withdraw all the funds without the approval of the other members. An in-app chat function allows members to direct message individually or chat as a group. Some use the savings to start businesses, purchase homes, or for medical emergencies. There’s an R.I.P. Student Loans group; another is culling capital to return home to the Caribbean.
“People are essentially pooling capital to tackle high-interest credit card debts they have and some people are just saving for rent or utility bills,” said Abbey, “so it’s interesting to see the spread of things people are saving for.”
Founded in 2015, Esusu has partnered with universities, nonprofits, local banks and economic development institutions, who introduce the technology as part of their programming around financial coaching, job training and wealth management.
Working with banks might sound counter-intuitive, given that Esusu offers a by-the-people-for-the-people alternative to mainstream banking, but Goel said they approach banks as a partner, not a competitor.
“We offer them an opportunity to understand whether or not somebody is trustworthy based on their behavior on this app and whether or not [the banks] can then offer them capital.”
By allowing low- and middle-income communities to build their credit, banks perceive them as lower-risk debtors, allowing the customer to secure loans at a lower interest rate.
“There’s an African saying that goes, If you want to go fast, go alone but if you want to go far, go together,” Abbey chimed in. “For us, we’re all about partnership, we’re all about trying as much as possible to pave a strong financial path to prosperity and making sure everyone has a fighting chance at the end of the day.”