Tandas: Informal loan clubs where trust meets need
As savers go, I'm somewhere between decent and so-so…or at least that's what I thought until I saw a 22-year-old neighborhood kid who used to work with me saving $800 a month with his earnings, plus furnishing his own rental apartment (in New York!) and buying a piece of land in Mexico.
Our other neighbor has three kids and she earns a pretty humble salary taking care of babies and cleaning houses—yet she too saves $800 a month. And her cousin-in-law (also a house cleaner) is always the neighborhood go-to lady for loans, because she has stashed away thousands in extra cash. Meanwhile, if I can save $250 in a month, I consider myself golden.
“What is going on with all of these people being able to save so much, when they earn half of what you and I do?” I asked a friend from Puebla, Mexico (his cousin is the loan lady). He thought for a minute and then answered: “I think it's the tandas.”
Of course, I was eager to hear about this magical thing that made people be incredibly responsible.
Was a tanda some savings police who forced you to eat (non-organic!) macaroni and cheese until you stashed away your money instead of eating out?
Actually, it turns out, a tanda is something much nicer: A group of trusted friends gets together and agrees to contribute a certain amount of money weekly to a group savings pool. Weekly, one of them takes home the whole pot. Repeat, until everyone has taken home the group savings during one week or another.
One person is the president—a big responsibility, because if anyone fails to contribute, the president has to make up the missing cash. But normally, no one fails to pay in. The stakes are too high—you'd be disappointing your friends and family, and everyone in the neighborhood would hear about it.
“Your ‘collateral' is based on your trustworthiness,” explains the man who probably knows more about tandas than anyone else in the world: Dr. Carlos Vélez-Ibanez, a former University of California Riverside anthropology professor who has studied the groups and even wrote a book about tandas. “That trust can't be violated, since it would violate all of the relationships in the network making up the tanda.”
In the case of my 22-year-old landowning neighbor, that's exactly what makes the tandas so helpful. (His name is Gerardo, and he's a nice kid from Guerrero, Mexico, who loves soccer, coaches children, and works as a porter in a New York City apartment building.)
“If I have the money on my hands, I will spend it,” he told me—and I actually do remember the days when we'd get our pay envelope and he'd be headed to Niketown to blow it all on new sneakers.
But in his tanda, his aunt invited him to join, and vouched for him to the other members. He can't let her down—his grandmother in Mexico (also a life-long tanda participant) would hear about it. So, now, “instead of spending every week, in the tanda, I'm paying every week.”
In his group, 17 neighbors and relatives each kick in $200 weekly, so by the time each one gets the payout, they're taking home $3400. Gerardo usually takes the last week's payout, which forces him to save.
The tanda is also a good way to get a loan, he explains: if you need a refrigerator or a bed, and you've seen it on sale, you can take one of the tanda's first payouts, and pay back the group (interest free) instead of paying Macy's 27 percent APR credit card interest.
While it may sound risky, in all my neighborhood questioning, I only ever heard of one woman (of dozens) who didn't pay all of the tanda. This Yolanda was infamous, and I finally understood why people even refused to sell her Herbalife or Avon makeup: no one trusted her anymore to pay up. In a close-knit neighborhood, she was as good as bankrupt.
All this means the tanda is almost universally trusted—and it ends up having a huge impact—While the average American saves only five percent of their income yearly, immigrants send an estimated 11.5 percent of their dollars back to their home countries, not to mention what they're putting aside here in the U.S.
Dr. Vélez-Ibañez and others believe that's thanks in great part to the tanda habit, and not just among Mexicans. Dominicans have their sociedades, the Caribbeans have their “susu,” Koreans have “kye,” and the Brazilians their “pandeiro”. Chances are, when you eat in any immigrant-owned restaurant, the place was opened in part with tanda-type savings.
Some non-profits have even created the tanda's fancier cousin: “Rotating Credit Associations”— tandas, but with contracts and financial education classes. Payments get reported to the credit bureaus, so eventually members can boost their scores by 100-200 points after a year of tanda-ing. (Find one of these formal tandas or lending circles in your city here.)
But I do have to wonder—can a tanda really work with people you don't know that well?
When I was finally ready to try one, my friend hooked me up with his cousin Oneida. She had two middle-school-aged sons and always made me good chicken with mole sauce whenever I came over. She'd babysat my daughter a few times. I knew I could trust her, but could she trust me?
With eight of her friends, we started a $150-a-week tanda. My goal was simple and not that noble: I wanted to buy a plane ticket for my vacation before the prices went up. So I took the number for week #3 of the tanda, and ended up saving $200 on the airfare.
The rest of the weeks were hard though. Towards the end of each month, I was already pretty broke after paying all my bills. And at the start of the second month, I knew I was going to a wedding and really wanted to buy a new dress. But I thought about Oneida. If I failed, she'd have to make up for me. And her two boys were growing out of clothes fast—plus her savings goal was to send money home to her elderly mom.
In a way, Oneida was counting on me. So I put the dress out of my mind, and headed over to her house once again to hand over $150 cash, even if it meant macaroni and cheese for the rest of the week. The magic of the tanda had reached even spend-thrifty U.S.-born me.