In many immigrant communities in the United States, rotational savings groups, or informal banking groups, between friends and family provide financial safety nets and/or loans. While these groups have taken on various structures and names, their central vision remains clear — to provide a social space for families and friends to support each other financially.
New research and a partner case study from BlackRock’s Emergency Savings Initiative (ESI) detail different aspects of community financial support as a savings resource. As we continue to face economic challenges due to the global pandemic, it is crucial that financial service providers and industry leaders learn from the innovative solutions developed within these communities, especially with regard to emergency savings.
Background: Collective Savings Efforts in the United States
Collective savings groups, often referred to in academic literature as Rotational Savings and Credit Associations (RoSCAs), have existed for centuries in Sub-Saharan Africa, the Caribbean, Asia, and Latin America. When people from these regions migrate to the United States, they often rely on RoSCAs to build their financial futures.
A 2019 report by researchers at the Henry J. Leir Institute at Tufts University described several RoSCAs in immigrant communities across the United States. For example, Ethiopian cab drivers in Boston use a savings circle called an iddir, to save for emergency expenses like funeral costs. Eritrean migrants in Seattle have created an equob, the Eritrean expression for a savings group, to save for immediate expenses, like rent and utility bills. Latin American immigrants in Asheville, North Carolina use tandas, a Mexican expression for a RoSCA, to build up their savings. These collective savings groups provide a pathway for new immigrant communities to build their financial health through providing opportunities to save.
Esusu’s Innovation Within New Immigrant Communities
Esusu, an ESI partner, is a fintech company that allows such groups to create and manage their own rotational savings efforts. It was founded in 2018 by Abbey Wemimo, who had first-hand experience of how a rotational savings group provided a financial cushion for his family when they emigrated from Nigeria. Esusu demonstrates the success of using a community-based approach to advancing financial health among communities who’ve been historically excluded from financial services. In just three years, Esusu has served over 30,000 users and has expanded to help renters build credit.
In collaboration with Commonwealth, Esusu launched a pilot study to measure their model’s effectiveness as an emergency savings solution. From December 2019 to January 2021, eight savings groups, each containing three to four low-income Esusu users, were formed. The Commonwealth team found that 93 percent of users saved regularly. The pilot study’s findings were recently published in “Collective Savings: The Power of Social Support in Building Emergency Savings.”
In addition to Esusu, other fintech platforms have used community-based approaches to launch innovative products. One such product is Wellthi Wallet which provides a platform for users to set and track their savings goals with other members of their specified rotational savings group. The creation of Wellthi was inspired by the informal savings groups, or Sou Sous, of West Africa and the Caribbean.
Research Shows Importance of Community Support in Times of Hardship
New analysis of the Financial Health Network’s Financial Health Pulse by ESI echoes the need for such innovation. A new report published in September 2021, “When Does Financial Support from Family, Friends Play the Role of Emergency Savings?” demonstrates how financial support from family and/or friends has served as an emergency resource for those who did not have emergency savings during the COVID-19 pandemic.
The analysis showed more than twice as many people who did not have access to emergency savings both borrowed and supported family across the year, compared to those who had access to emergency savings (8% v. 3%). Further, people who borrowed from family to cope with the effects of the COVID-19 pandemic were 17% less likely to experience a financial hardship between Spring 2020 and Spring 2021, after controlling for fixed effects.
By relying on the mechanisms and habits that have already been developed by these communities, financial service providers can build products that are accessible and scalable for future innovation. Sometimes the greatest innovations come from simply tuning in and listening to what communities have, want, and need.
BlackRock’s Emergency Savings Initiative
BlackRock announced a $50 million philanthropic commitment to help millions of people living on low to moderate incomes gain access to and increase usage of proven savings strategies and tools – ultimately helping them establish an important safety net. The size and scale of the savings problem requires the knowledge and expertise of established industry experts that are recognized leaders in savings research and interventions on an individual and corporate level. Led by its Social Impact team, BlackRock is partnering with innovative industry experts Common Cents Lab, Commonwealth, and the Financial Health Network to give the initiative a comprehensive and multilayered approach to address the savings crisis.