The Progressive Susu--Round 1
What is a Susu?
A susu is a form of communal credit where members contribute regular equal amounts to a combined fund that is disbursed to each member at set times. For example, let’s say that eleven people decide to form a susu, where ten of them will contribute $10 to the fund every week and the eleventh person will receive the full amount of the fund in that week ($100) and he does not need to contribute in that week. Essentially every week, for eleven weeks, ten of them will contribute to the fund and one of them will receive these contributions with the idea that at the end of the susu period every member has received the full amount of the fund at least once.
The susu has historically been used as a means of communal credit where people without access to large pools of credit or who individually do not have much money can combine their earnings to sustain one another through tough economic times. It is also used to enforce savings and has historically helped communities maintain not only a sense of unity, but also as a means to encourage economic activity.
The biggest drawback to a susu is the notion that all members will contribute equally to the susu. At first glance this concept seems beneficial as it promotes a sense of equality. But the reality is that equal payments by all members creates an inequitable situation where those who receive the communal fund sooner hold a great advantage over those who have to wait to get their portion. Essentially, the man at the end of the line has to pay his share every week and in the end only gets back what he put in. The man at the beginning gets paid first without any personal contribution to the fund and then has the full length of time of the susu to repay the group. In a society where there are inflationary pressures, spikes in the prices of commodities, and monetary unknowns; this means of communal credit is hardly that attractive.
The Progressive Susu
The Progressive Susu solves the problem by requiring every member to increase their periodic contribution by a set equal amount, thereby creating a sufficient rate of return for the members who wait until the end to receive the total amount of the fund. Let’s take our earlier example of the eleven people who had agreed that their weekly contribution would be $10 per week. What if they decided to do a progressive susu instead where the first week the contribution amount would be $10, but every week through the eleventh week the amount would go up by $1. The following table shows what the results would be:
Week 1-$10 ($10 x 10 people = $100)
Week 2-$11 ($11 x 10 people = $110)
Week 3-$12 ($12 x 10 people = $120)
Week 4-$13 ($13 x 10 people = $130)
Week 5-$14 ($14 x 10 people = $140)
Week 6-$15 ($15 x 10 people = $150)
Week 7-$16 ($16 x 10 people = $160)
Week 8-$17 ($17 x 10 people = $170)
Week 9-$18 ($18 x 10 people = $180)
Week 10-$19 ($19 x 10 people = $190)
Week 11-$20 ($20 x 10 people = $200)
In this example, the eleventh person to receive the fund receives $200 in the eleventh week, but he only had to pay out $145 in total. This represents a gain in interest of 37.93%! This example shows that in a progressive susu there is a major financial advantage to being the person receiving the fund at the end of the susu period. The inverse is also true, that the first person to receive the fund receives $100, but has to pay out $155 in total. This represents paying interest of 55% on the amount he originally received. This example may look like an extremely harsh penalty, but it can be tweaked by changing the amount of weekly increase during the susu period. What if instead of one dollar per week in increase we simply increased the contribution amount by $0.25? The following table shows what the results would be:
Week 1-$10 ($10 x 10 people = $100)
Week 2-$10.25 ($10.25 x 10 people = $102.50)
Week 3-$10.50 ($10.50 x 10 people = $105.00)
Week 4-$10.75 ($10.75 x 10 people = $107.50)
Week 5-$11 ($11 x 10 people = $110)
Week 6-$11.25 ($11.25 x 10 people = $112.50)
Week 7-$11.50 ($11.50 x 10 people = $115.00)
Week 8-$11.75 ($11.75 x 10 people = $117.50)
Week 9-$12 ($12 x 10 people = $120)
Week 10-$12.25 ($12.25 x 10 people = $122.50)
Week 11-$12.50 ($12.50 x 10 people = $125.00)
In this example the eleventh person to receive the fund receives $125.00 and had to pay $111.25. This represents a gain of interest of 12.359%. The first person to receive the fund receives $100 and pays out $113.75. This represents paying interest of 13.75% on the amount he originally received. When you consider that the average credit card APR is more than 24.75%, then the advantage of paying into a progressive susu is evident.
Susu or Credit Card?
The benefit of the Progressive Susu credit strategy is that your community becomes both your creditor and your debtor. You set the terms with other members of your susu in regards to payment amount, dates to make the payments, dates to receive the fund contributions, term of the susu, and countless other conditions of the susu. There are no onerous rules or hidden fees. You come to a meeting of the minds with members of your community who you trust enough to enter into this type of financial arrangement. It can be both financially rewarding and gratifying to provide communal credit that sustains you and those around you by financial arrangements that you entered into collectively.
The flexibility of a Progressive Susu is another added benefit of this type of financial strategy. If you have ten other people who want to join your susu, you can simply make an eleven week susu. Or if you want to extend it longer you can make it a twenty-two week susu, so everyone can receive funds twice. The point is that you are the rule maker and the flexibility to pay as much as you are collectively comfortable with for a time period you are collectively secure about is essential.
To Trust or not to Trust
The biggest deterrent towards people beginning a susu is not economic, it is mental. Most Americans probably spend at least $30 per week on lunch, so contributing that amount or less to a mutually beneficial Progressive Susu every week is not a stretch. Yet, when most people are presented with this idea they would probably think, “Sounds good, but how in the world can I trust someone else with my money!” “What if someone in the group gets their money and refuses to pay their share?” “What if there are disputes along the way?” These are legitimate concerns, yet they can be overcome in a few simple steps.
Step 1. Communicate, communicate, communicate. Think of the people you want to be in a susu with and their trustworthiness. Discuss the idea with them and set up a meeting/meetings with the other members of the group. At the meeting discuss your plans for the susu, your personal goals, your fears about the whole process, and whatever else comes to your mind. Make sure to have the personal contact information for every member of the group. Throughout the process keep an open and honest line of communication with every member of the susu.
Step 2. Prepare for War in times of Peace. Imagine that you join a susu and you are the only one who pays, or you have a guy who never pays on time, or you never hear from Joe Anonymous after Week 1 when he receives the fund without paying into it. What would you do individually and what would the group do? Before you pay one cent into a susu make sure you have the answer to these questions from every member of your susu and you know where you each stand. If you want a more formal setup, you could construct a written agreement amongst yourselves that formalizes your decisions in regards to the terms of the susu and how you would resolve disputes. The point is that you plan for problems before they happen so that if they do occur you are well prepared.
Step 3. Perfect practice leads to perfect performance. I strongly recommend not starting a Progressive Susu cold, without first trying a susu period where no one takes anything from the fund. As an example, if you and ten of your friends want to start a Progressive Susu that would last eleven weeks, start at $10 in week 1 and increase by $0.50 each week, and allow one of you to receive the fund each week while ten of you contribute; then you should each pay $10 into the fund for eleven weeks with no one receiving the fund. Why? So that you can see how it works when you commit to paying $10 into a susu for eleven weeks. Who is constantly late in paying into the fund? Who is hard to get in contact with? Who gets frustrated easily and constantly threatens to leave the susu? This exercise is fundamental in establishing the rhythm of your susu and showing each of you that it is possible to do consistently.
It is also important to create a nest egg for your susu for unforeseen circumstances where a member/members can not make the necessary periodic contribution and some money is needed to fill the gaps. It will make you feel more secure when you are in the actual Progressive Susu period when you have a monetary cushion to sustain the susu when one or more members miss a contribution date. You do not want to take this money for granted and needlessly use it, because you or other members do not feel like contributing their fair share; but having it as a safety net is a great idea. There is also the added benefit that at the end of the Progressive Susu period, you all can divide the money as you please to further increase the savings you individually experience.
I will be updating my ideas about the Progressive Susu every week, and discussing developments in creating a forum for those interested in the idea to bring it into fruition for their community.
---Richard McCray II, J.D.
