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Wednesday, September 27, 2023
PORT OF SPAIN, Jan 25 1997 (IPS) - The sheen is wearing off the Caribbean financial sector after a boom decade when banks and insurance firms almost drowned in cash. A leading economist and intellectual believes this offers an opportunity to take a fresh look at an age-old practice.
Lloyd Best, an economist and commentator, says the sou-sou system used in many communities across the region and in some parts of Africa, could the underlying principle for a new type of banking.
Credit unions, for example, could incorporate the basic principles involve in sou sou in ensuring access by the poor to funds, he says.
Sou sou is a system of community banking. Widely employed throughout the islands of the eastern Caribbean, it involves a central personality — usually a well respected community leader — receiving cash deposits from participants on a weekly basis. These funds are then disbursed on a rotating basis, in a lump sum, to one person per week.
Beneficiaries of the system have to await their turn after drawing numbers at the start of a new round of activity. This person is entitled to the entire pool of funds called a “hand.”
Variations of the system exist all over the Caribbean, though different names are used, such as “partner” in Jamaica.
The person running the sou sou makes his or her money by extracting a fee upon the payment of any “hand.” Contributions to sou sou can range from five dollars a week to 100 dollars. An average of about 20 persons usually participate in a single pool.
Best’s proposal comes amid serious concerns here and elsewhere in the region over the state of the financial sector. Recently the Trinidad and Tobago Miniser of Finance warned that the very integrity of the financial sector could be undermined by recent developments.
This involves a war of words and legal challenges between Republic Bank and Colonial Life Insurance Company over board appointments at the bank following a shareholders’ meeting last month.
In Jamaica, the government is under pressure from depositors following the closure of a big commercial bank, Century National (CNB). Several insurance companies and merchant banks which were bloated during the roaring eighties have been under severe pressure recently as interest rates fluctuate and depositors become nervous.
Best acknowledges that there will be many problems with the system because of the colonial mentality that still persists in these islands.
“It will be problematic in a country such as this with a colonial culture as we have here, a kind of self-contempt,” he says. “People won’t trust it and you won’t be able to get enough insulation in a situation where you aren’t large enough, remote enough or socially strong or distinct enough to erect effective barriers to the outside world.”
One 45-year-old businesswoman in the town of St Joseph nine kilometres east of Port of Spain, who wants to be known as Ann, says her passion for the system has remained undiminished for the past 10 years — even through a three-year stay in New York in the United States. “I showed my American friends how to do it and now they are running their own sou sou,” she says.
Ann believes sou sou provides access to large amounts of cash many poor people would not have otherwise been able to procure. People use the money for everything from buying school books to paying for major purchases such as a car.
“I think it is one of the best things poor people could do for themselves,” Ann says. “If the banks could operate so then people will really have a chance in life.”
Best once led an effort to encourage the now defunct state- owned National Commercial Bank (NCB) to integrate the services of sou sou into the commercial banking environment. “In a place like the West Indies where you have a thoroughly developed banking system as well as an informal financial sector, you would probably have to evolve a hybrid system,” he says.
Best says he had attempted to have NCB encourage the people who run sou sous to deposit their funds in the bank. “It would have worked and you could have built up resources which could have become a kind of indigenous unit trust,” he says.
He says sou sous should be encouraged to thrive not only in geographical communities but “in any community people feel encouraged to join.”
The sou sou concept is employed by a private corporation, Sou Sou Lands Limited, which is involved in acquiring large parcels of land and re-selling them in smaller plots with some basic infrastructure in place. The scheme has been largely successful but has not always received active support from either government agencies or the banks.
Housing Minister John Humphrey was once a leading member of the company. While serving as miniser between 1986 and 1988 he attempted to relate the concept to the work of his ministry by de- emphasising the building of houses and promoting the acquisition of land and the erection of “starter” housing units designed to be expanded as the individual became better equipped to do so.
“Sou sou needs to be developed in the Caribbean much more,” he says. “Certainly the small business financial institutions, credit unions and unit trusts and all the so-called institutions that are meant to help small savers should understand the principles which have made the sou sou successful in its home environment in some African countries and to some extent in the West Indies as well.”
Caribbean sou sou systems have largely been left underdeveloped as a result of what is described as “self contempt” for indigenous forms of financial management. Record-keeping is rudimentary. Much of the relations among sou sou participants are informal or familial.
Since her return from the United States recently, Ann says she has been very careful about re-entering the sou sou arena without observing closely what is happening in her community.
As a sou sou leader, Ann would need to have a clear picture of the employment and financial standing of her community to assess the degree of risk. Should someone default, as sou sou leader she would have to fork out her own funds to make up the shortfall.
Like many other persons operating sou sous, Ann has always otherwise held down a steady job. She says she would not pass up an opportunity to do it full-time but that difficult national economic circumstances are not encouraging.
“When somebody loses their job where I going to get the money from to pay the man or woman whose hand is due?” she asks.
Best’s proposal would solve that problem by integrating the “minor” sou sous into the larger financial system. He says sou sou people and regular depositors can then be encouraged to invest a portion of their deposits into unit trust investments which would ensure premium returns of their money.
But he contends that such developments should take place as part of a fundamental restructuring of the financial sector with credit unions playing a greater role. He says credit unions should become the main outlet for mortgage funds with access to national insurance money which now filters through the banking system.
“What is happening now is that national insurance contributions paid by poor people are being lent to the wealthy to build houses,” he says. “If you change the role of credit unions, poor people can benefit from contributions they themselves make.”
He contends that the sou sou concept of saving provides a workable model for changing the face of the troubled financial sector.
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