How does a Money Pool work, and what are its benefits?
What Is a Money Pool?
One of the oldest ways to save money in the world is through a money pool, in which everyone contributes the same amount of money each month for a set amount of time. The pool amount is distributed to each member in turn.
Savings plans of this kind are most common in developing nations with limited access to credit. A fundamental illustration of peer to peer lending or people helping people is the money pool, which continues to be a way of life.
Read: First Ever Social Community for Our Money Solutions
How does a Money Pool Work?
Online and offline money pooling are the two options. Let's take a closer look at these approaches:
Offline Money Pool
In the offline method, a group of people, typically friends, neighbors, and family, pool money. They decide how much each member needs to put into the pool each month. One group member receives the pooled amount each month, based on the lot system or draw, and sometimes even on mutual agreement. The procedure continues until all group members at least once receive the funds.
Online Money Pool
The Money Club is a platform for online money pools with the same concept and procedure as offline schemes. An online platform is used instead of physically forming a group and pooling money. The group is created online, and members periodically contribute the specified amount for the same amount of time as the number of participants. The amount in the pool is decided through an open auction. Members bid on the pool amount during the auction, and the person who agrees to claim the lowest pool amount wins. A separate commission must be paid to the Money Club by the winner.
Example: Let's say a money pool scheme has 20 members and each one contributes Rs 500 per month to get a Rs 10,000 first-month pot. Let's say the winning bidder wins 8,000 of that month's total pool value; After deducting the fees incurred by the online money pool organizer, the remaining 2,000 is divided equally among the remaining 19 members.
Read: How Saving Money Becomes Easy With The Help of Community?
Who Uses a Money Pool?
People have been pooling money for over seven centuries in India, and even today, it’s a very popular saving and borrowing scheme among the following people:
Lower-income group
People with bad CIBIL credit score
People who don’t have access to banking facilities
People worldwide living in poverty
People looking to borrow or save money
What are the Benefits of a Money Pool?
Trusted Financial Community: People form groups with the people they trust, which they can use when there is a financial crisis.
Zero Documentation: To borrow money from the money pool, there is absolutely no paperwork required.
Save with discipline: People are encouraged to set and achieve savings goals by participating in a money pool group.
Dual Advantage: The money pool can also be used as a powerful borrowing and savings tool.
Lower Interest Rate Loans: The participants, not a third party, decide the borrowing interest rate, allowing them to set a rate that is significantly lower than the banks'.
Higher Profit: When compared to Fixed Deposits or Recurring Deposits, these schemes offer higher contributions returns on money invested.
Read: Financial Communities That Will Help You Get Better With Money
Financial Problem Solving Strategies