Tontine: A Homegrown Answer to Microfinance

16 Jun

Lately, it seems like my blog posts have just been giving brief updates summarizing what’s new in my life for the past couple weeks. Well, not much is really new in my life (even living in Africa becomes routine after a while. Shocking, huh?) so I’m going to start devoting more of my posts to Rwandan culture, folktales, traditions, lifestyles, etc.

A few months back when I was waiting for my evening students to come to class, I got to talking with one of them about spending and saving habits in Rwanda. For most Rwandans, saving isn’t an option, simple because most households are engaged in subsistence farming and any money they make is spent supporting the family. My students, however, are definitely upper-middle class, and so they have some disposable income. This student was telling me that it is very hard to force yourself to save when you have money, and even though he knew how to live on much less than he was making, he sometimes would still find all his money gone at the end of the month.
One solution to this problem was to form a saving group- a tontine. Usually a tontine is formed with friends or work mates, but always with people that you trust. The group agrees on a monthly amount that each member will contribute to the tontine, and each month the pool of money is given to one individual from the group to do with as he or she pleases. The amount is usually enough to start a project, make an investment (livestock, for example), or simply a lump sum to put in the bank. Another option is to have tontine bank account, where every member puts in an amount each month, and after a certain amount is reached the money can be borrowed by members of the group, to be paid back at low interest. This ends up looking more or less like a credit union, I imagine, and avoids high interest rates at banks, need for collateral for a loan, and even the whole loan application process.
Apparently the tontine originated in 17th and 18th century Europe, but I had never heard of it before. Because microfinance has been trendy in development recently, I thought it was interesting to hear about the tontine as an alternative. Microfinance does operate with a much poorer group of people than the tontine seems to here in Rwanda, but it is also often criticized for its high interest rates and creation of loan-dependence. Rwanda does have a system of local banks at which locals can open an account with as little as 3000 RWF ($5) but as I mentioned earlier, few people have money to spare.

And now, because I can’t resist, a brief update on my life. After the water went out 3 times in the last 2 weeks, we finally got a tap put on our water tank! I told my neighbors too, so now they can come here to haul water instead of going farther down the hill. A local cooperative is about to launch a cultural village with traditional grass huts across the street from my school, and I met with the head of the cooperative (also one of my conversation students) to discuss the possibility of helping him write a small informational book about the village to sell to tourists. If it is successful, I think we can market it to other hotels in the area too, so it could be a good income generating project for the coop. I’m going to be teaching a brief seminar on basics of photography here at the school this week, and that should be interesting too. Otherwise, the only thing that’s new is that my mom and sister are visiting next week! I am very very excited to see them, and I promise I will make them take lots of pictures to make up for the fact that I never do.


One Response to “Tontine: A Homegrown Answer to Microfinance”

  1. David June 19, 2012 at 2:28 am #

    Hey Nick. A very interesting entry. Saving and lending clubs like this are also very common in Asian cultures, and were a mainstay of small business development among recently arriving Jewish settlers in the Eastern United States

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