A blockchain-based app for saving circles
For billions around the world, access to traditional financial services, such as loans, are not an option. As such, many have implemented community-based methods for saving money and issuing loans for the benefit of those in the community. A common community-based approach is what is referred to as a “saving circle”, or “tandas” in Mexico.
How “tandas” work
A tanda is a type of “rotating savings and credit association” (ROSCA). In Mexico, almost a third of the population participates in one of these groups which are typically made up of family or friends who the members can trust. In these groups, members get together regularly and contribute a certain amount of money, which is agreed upon by the group, to a pool which is then paid out to one member each time. This enables participants to get interest free loans, such as for large purchases, or forces them to save money while awaiting their turn to receive the payout. The order in which individuals receive the payout can be decided at random or chosen ahead of time.
No matter when one receives the payout, there are benefits to a tanda:
For an example of this in practice, let’s say that a group of 10 friends from a community in rural Mexico all want to purchase solar panels for the roofs of their home to help provide reliable power to their community. The solar panels cost about $1000, so each person contributes $100 every month for 10 months, and one person is selected each month to receive the total of $1000 collected, which they can then use to purchase the panels for their home. This continues until the 10 months has ended, at which point everyone has received $1000 and purchased the solar panels for their own home.
One issue with tandas is that the administration can be challenging, as it requires follow-up with participants to ensure payments are made on time and in the appropriate amount, and record keeping to ensure disbursements are made appropriately. BX Smart Labs addresses this problem by using a decentralized blockchain based application and smart contracts to automate the process and make it as simple, secure, and trustworthy as possible.
How it works
BX Smart Labs uses a decentralized application built on a blockchain to enable ROSCAs to be implemented remotely, securely, and with a high degree of transparency. As it is built on a blockchain, it is also highly scalable and would allow more people to make use of this technology with low fees.
It makes use of smart contracts to automize the payments and withdrawals for each period to ensure all participants receive the funds that they are entitled to. This automation also helps make the process much simpler and addresses the challenges of administration with tandas as highlighted above.
The BX Smart Labs solution helps modernize a practice that is so important in many developing countries, and remains a main method of community financing. Furthermore, the technology is open source which allows the community to contribute to this important project.
With two billion unbanked people worldwide who lack access to loans through traditional financial service providers, and given the fact that savings circles are widely used in the developing world, the opportunity for scaling of this solution is immense. That being said, it will be exciting to see this project roll out, and it’s definitely worth keeping an eye on!
What do you think about the potential of this technology to support unbanked populations? Tweet us at @Crypto_Altruism, we’d love to hear from you.
