Giving You The Business
an old african custom might be just the cure for good old american capitalism
2007-10-15
By Donna Johnson and Boyd Klingler

Who says TV isn’t educational? We first heard of sou-sou while watching an episode of the People’s Court. It didn’t surprise us that Judge Marilyn Milian was familiar with the concept of sou-sou, her being Cuban and all. But when we asked some of our well-heeled Wall Street friends about it, we found that many of them knew nothing of this mostly obscure, off-the-books type of banking. Those who did only sniffed dismissively at what some call a "poor people’s banking system." But sou-sou has a street cred all its own.

Said to be centuries old, sou-sou originated in Africa. From that time it has undergone many evolutions since immigrating to this country with its practitioners. Sou-sou has been adopted in various forms by Caribbean, Asian and Latino communities in America as well.

The way sou-sou works is through a savings arrangement where a group of people each pool an equal amount of money for a period time which could range from two weeks, a month, even up to a year. After that time expires, one person in the group gets all the money. The members continue making equal contributions until everyone gets their turn receiving the full lump sum at least once. The size of the fund is typically modest, varying from a few hundred to a couple thousand dollars. This investment was usually done to procure a down payment for a house, legitimately enroll a larger sum into a traditional bank account, pay for educational advancement, or to launch a business.

New arrivals to this country often engaged in sou-sou because they lacked a basic understanding or held a certain mistrust of the prevailing American banking system. Carried over from their native experience, many also felt that working people did not have fair and equal access to money. Additionally, banks were not and still aren’t in the habit of lending small amounts of uncollateralized money. For their notions, real or perceived, the decision to practice sou-sou has basically been fueled by a language or cultural barrier that discouraged potential customers from joining traditional savings & loans.

The most compelling and uniting factor about sou-sou is that it revolves around an inviolable trust—a breach of which found its way before Judge Milian and the People’s Court. That trust is subsequently enforced by a social contract. Because participants in the Sou-sou are usually comprised of close friends and extended family members, there is an unspoken pressure to honor the commitment. Failure to do so would be tantamount to defaulting on a loan, inconvenience the rest of the group, dishonor your family, and unless you left the country, you could expect to be ostracized by the rest of the community.

It’s been well-documented, most recently by the Brookings Institution, that low-income households often pay more for financial services than their higher-income counterparts. Meaning of course, that those among us who can least afford to pay more for buying credit are the ones who usually do. By contrast, the sou-sou does not earn interest for the money each individual invests, but neither does it charge its members for the amount they borrow.

By all accounts sou-sou is rarely practiced anymore, but well before there were payday loans, pawnshops and car-title lenders, there was a mutually trustworthy form of borrowing and lending in the community. While sou-sou will never be a challenge to the multinational financial institutions that regularly rip us off with overdraft fees, late fees, and other fine-print charges, it could be a healthy alternative to the parasitic lenders who daily prey upon the most vulnerable in our community.

Donna Johnson and Boyd Klingler are Giving You the BusinessSM, in an occasional column for EbonyJet.com. Send your business and finance-related questions to our e-mailbag.