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Co-operatives are all about people working together to overcome a common challenge. What happens when that challenge is a banking and credit system that doesn’t work for you? A growing trend is to start a Rotating Savings and Credit Association – otherwise known as a ROSCA.
What’s a ROSCA?
A ROSCA is an informal alternative to financial institutions that allows people to contribute and withdraw funds. They’re most commonly found in parts of Africa and Asia where there’s limited access to banks and credit unions. The idea is simple: members contribute a portion of their earnings to the ROSCA which creates a pool of funds. Any member can apply for a loan to cover unexpected expenses or big purchases and then repay their loan. Other ROSCAs, sometimes called “savings associations”, act as investment clubs where members pool money to invest in new businesses or real estate.
Why start a ROSCA?
So why are we seeing these organizations pop up in Canada where we have a strong banking system and (arguably too much) access to debt? The answer is simple: our banking system doesn’t work for everyone, especially newcomers. New Canadians may not have a credit score here that will allow them to secure a loan from a bank, for example. And some want the sense of community that comes from investing in each other, together.
Unfortunately, setting up a ROSCA is a little trickier in Canada than elsewhere. Canada’s banking and securities regulations are complicated and expensive to comply with. This means ROSCAs need to be creative when building their operating model. At Co-operatives First, it’s our goal to demystify the start-up process, to remove barriers, and help entrepreneurs take their co-op from an idea to an operating business. The ROSCAs we’ve supported take two approaches depending on their goals:
- If their goal is to invest collectively, the group forms a community investment co-operative
- If their goal is to build credit and access shared funds, the group forms a community service co-operative and partners with a financial services provider
Community Investing
Community Investment Co-operatives have gained popularity in Canada in recent years in small towns and among those seeking to support renewable energy projects. Now communities of newcomers, like the Afripride Women Cooperative (AWC), are adapting the model to reflect their economic circumstances, investment goals, and community aspirations.
The AWC raises money from members to create a pool of funds that can be invested in member-led projects. The co-op ensures Afro-Canadian women can access the capital they need, which reflects their goals to “overcome financial barriers and achieve economic independence…and contribute to the overall well-being and prosperity of our community.”
Savings and Credit
To pool funds and issue credit-building loans to members, a co-op would need to work with a partner that can provide the financial services they need. Canada’s savings and loan industry is tightly regulated, and partnering with an existing operator saves the co-op a lot of time and money.
In Vancouver, the By Faith Community Service Co-operative is working with Woveo, which offers an application to groups seeking to support one another financially. This app complies with Canadian regulations, saving the co-op the costs they would have to pay to be compliant otherwise. The co-op hopes to provide other supports to newcomers in the lower mainland and has registered as a community service co-op to seek grant funding.
Getting Started
Starting a new co-operative or navigating financial regulations sounds intimidating, but we’re here to help. At Co-operatives First, we can work with you to navigate the start-up process and build solutions. Give us a call to get started. And, if you need some help getting your ideas in order, check out our Introduction to Co-operatives course for some inspiration.
Disclaimer: Incorporation of a ROSCA with the assistance of Co-operatives First does not affirm compliance with applicable securities or banking laws. Co-operatives First does not provide any legal advice or assurances in this regard. We advise all clients to seek independent legal advice.
