An informal rotating savings and credit association (ROSCA) is referred to as a “tanda” in Latin America. Even though they are used all over the world, they go by more than 200 different names that vary from nation to nation. A partner hand is a name given to such a group in English. A tanda, or short-term no-interest loan, is basically a form of borrowing money from friends and family.
Structure of a Tanda
One of the informal associations that is most widely practiced in Mexico is the tanda, in which 31% of the population actively participates. There are various methods for managing tandas. The way it typically operates is that a group of acquaintances gets together to raise money (either weekly, monthly, or annually) to assist one another financially. Any rules that are beneficial to the group may be proposed by participants. In order to receive the money immediately, the group typically agrees on a sum of money and a specific number of participants. They must determine who will receive the funds in what order after they have decided who will participate in the tanda and how much it will cost (weekly, monthly, or annually). Participants may decide who needs the money the most or may choose to raffle off the numbers. Everything is subject to the group’s judgments.
A tanda, for instance, is created between ten friends and family members. Every two weeks, each participant sends the group’s organizer $100 USD. One player wins the “pot,” which is $2000, at the end of the month. Alternately, if each participant contributes $100 each week, the pot ($1,000) would be divided among the ten participants each week. Up until the pot has been distributed to every participant, this process continues.
Rationale
Tandas can come into being for a variety of reasons, but frequently they do so because at least one member needs money right away to cover an urgent debt payment or because an emergency occurs. Obtaining the Social Security Number required to open conventional banking and credit card accounts in the US can take many months or even years. Tandas offer a means of “borrowing” and “saving” for immigrants and others who lack access to other forms of banking. They can, however, also form without any urgent financial obligations.
These unofficial savings organizations among Mexicans are vital to the livelihoods of numerous individuals who reside in both Mexico and the United States. Importantly, other Latino and Chicano populations in the U.S. value tandas as important cultural traditions.[6] Tandas, a Mexican cultural practice, is said to be based on mutual trust, according to cultural anthropologist Carlos Vélez-Ibáñez, who was the first researcher to critically analyze it. Trust “shapes the expectations for relationships within broad networks of interpersonal links, where intimates, favors, goods, services, emotion, power, or information are exchanged,” according to Vélez-Ibáez.
While tandas may serve significant economic purposes for Mexicans, they also play significant social and emotional roles in people’s daily lives as a means of enhancing their standing among other tanda members and their associates through devoted participation in the association. The following is an illustration from Tandas by Franziska Castillo. She talks about “tandas,” which are unofficial loan groups where trust and need can be met, and how her 22-year-old neighbor Gerardo joined one after getting a recommendation from his aunt. “Gerardo gave this justification for joining the tanda: “If I have the money, I will spend it.” Since his grandmother has been a lifelong member of the tanda, he cannot let the group down because she will be disappointed in him.[8] The platform that is created by these social constructs promotes saving among the participants. Mexican immigrants typically send an estimated 11.5 percent of their income back to their home countries, compared to the average American who saves only five percent of their income annually.[8] Anthropologist Lourdes Gutierrez Najera claims that tandas are typical among migrants from Oaxaca.
Particularly for women living in Los Angeles, tandas facilitate social networks and make them feel less alone. The women she quotes sarcastically assert that “women only attend tandas for the gossip; otherwise, it makes no sense.” As a result, taking part in tanda events helps people cope with being away from their hometown of Yalag. They also significantly aid migrants in saving money.
Companies that use online platforms to modernize tandas have been founded by younger generations. (For instance, Yahoo Finance developed the short-lived Tanda app, which allowed friends and families to participate in the same group without being physically close to one another.) Transparency, organization, localization, and methods for money collection and distribution are just a few issues that these platforms assist with addressing.
Alternatives To Tandas
If you want to save money and take advantage of some tanda benefits but don’t have access to one or don’t think it’s right for you, you can create a payout structure by using some standard banking features. You could, for instance, open a savings account with a bank and arrange for automatic deposits on paydays. Some banks, particularly online-only banks, offer interest rates of 1% or higher yearly.
In most cases, there is no minimum deposit required to open a savings account at a bank, but you may need to build up a certain amount to be eligible for better benefits, like the highest interest rate.
Online money circles or pooling services, which were made popular in the early 2010s by the now-defunct E-Money pool, offer something akin to a tanda but with additional security measures that are required for online commerce.5 Yahoo had an application called “tanda,” which only lasted a few months, but others like Money Fellows and crowdfunding forums had more tenacity. Although each online money circle or money pool may run a little differently, at their most basic level, they charge a small fee for the assurance that if one of the participants in your pool fails to make their payments on time, the service will cover your payout.
For instance, Money Fellows assesses a five-month fee equal to 6% of the cost of a circle spot. The fee gradually decreases over time, depending on your position in the payout schedule and your level of engagement. The lowest fee will be assessed if you can hold off until the end of the payout schedule.
Advantages of Tandas
Tandas exist as a result of a lack of faith in governmental and financial institutions. Only a small percentage of people who qualify for bank loans do so because they have strong credit histories and a steady source of income that allows them to pay high-interest rates.
Tandas are well-liked for a number of reasons:
Social trust: People are entrusting their money to friends, coworkers, and family members rather than a potentially dishonest government or bank.
A lump sum of money is available for unexpected expenses, special occasions, and large purchases.
A “forced savings plan” for those who do not want to pay fees to a bank account and those who lack the discipline to save
Problems With Tandas
Tandas has many benefits, but there are also significant drawbacks that prevent citizens from achieving financial success.
The pool’s distribution is not always equitable. For instance, Maria might not have the money to buy groceries if she hadn’t planned her shopping in advance and it was Marcos’ week. Though it occasionally is decided in advance, the rotation is frequently chosen at random.
The lack of long-term savings incentives stems from the weekly money transfers among group members. Members of a group do not receive any interest in taking part in a Tanda.
It is dangerous to carry so much cash.
It is stressful to not have access to cash for unexpected costs.
Formal credit history is not established through informal lending. As a result, members will be unable to obtain a bank loan. Lack of history can cause life-changing loans to be delayed or completely denied.
When someone doesn’t pay, it breaks confianza (trust) between friends and stresses close relationships.
Payouts occur infrequently with large Tandas. For their chance to collect the pool, members may have to wait months. It’s also possible for the earlier participants to quit before they’ve given their fair share.
