The origin is not known but Thrift collection business has been with us for a very long time in Africa. The popular Alajo Shomolu, arguably the first known organised thrift collector to operate in Lagos, started his business in 1954. It is an old micro banking model which allows people to save in small amounts on daily basis for a period of time towards specific goals. Another name for it is Money Collection or Daily Contribution. The yorubas call it alajo, it is osusu in Igbo and Adashe in Hausa. In Ghana it is known as susu and tontine in Guinea.
How It Works
Someone agrees to save specified amount of money with the the Thrift Collector on a daily or weekly basis for an agreed period time, usually one month. At the end of the saving period, the Thrift Collector returns the total amount saved less his fee which is usually the equivalent amount of one day's depsit.
There are people who dismiss the alajo business as only suitable for old illiterate people. May be it was so in the past. These days this business attract young people and very educated professionals, particularly ex-bankers.
Reasons Thrift Collection business is Booming
Thrift Collection has remained a booming business for both practitioners and patrons in spite of increasing competition from the conventional commercial banks and even the micro finance banks. Most commercial banks now have a variant of esusu in their retail products bouguet.
So why is esusu still thriving is pite of these?
#1. Huge un-banked population - A recent world bank report shows that 118 million Nigerians are unbanked. Inspite of the efforts by the Central Bank to increase financial inclusion, conventional banking system has been largely unsuccessful in bringing majority of the adult population into the banking net. With only 40 percent of Nigeian adult population having access to banking services, it means the majority are left to patronize informal arrangements like thrift collection to meet their needs.
#2. Account Opening Requirements - The low income earning population find it difficult to mobilize the initial amount most commercial banks require to open savings account or the minimum balance required to maintained it.
Though some commercial banks are reducing their minimum balances, some even open new accounts with zero balances in order to encourage new customers; more and more people are still outside the net.
#3. Convenience - The market woman and the artisan ordinarily may not consider it economical to travel long distance to deposit money in their bank account. So t is more convenient for these category of people to patronize the thrift collector who will go to them every day to collect their saving at no extra cost. The thrift collector is always within reach and at the beck and call of the customer.
#4. Majority of the patrons of thrift collection business earn their income on a daily basis so it makes sense that they work with a service provider whose business model aligns with their income structure.
#5. The thrift scheme allows the patrons to save small amount of money that they may not be comfortable taking to the bank.
How To Start A Thrift Collection Business
It only takes a few simple steps to start a thrift collection business:
#1. Conduct your research to ensure that there is market for the services in the area you intend to cover.
#2. Register your business name - There are many Thrift Scheme Operators who conduct their businesses in their natural names. But if you want to be seen as credible and serious, register your business.
#3. Print Collection Cards - These card is like the good old bank pass book. It will have columns for date, name of contributor, amount deposited, and the signatures of both the contributor and the collector. The card is kept by the contributor while thrift collector enters same details in his register which he carries along.
#4. Rent An Office - If you have the resources, get an office otherwise, you can operate from home. However, when your business begin to expand and require that you recruit empoyees, then you must have an office. Having an office also adds some credibility to your business.
#5. Market Your Services - introduce your services to the market. Largely your market include shop owners, roadside stall operators, hawkers, artisans, market women, hair saloon owners, etc.
Words of mouth marketing is more effective and as you enrol one customer you will begin to get referrals based on the quality of your service.
All you need to commence this business include:
A Register - to serve as your ledger where you record details of individual customer contributions.
Contribution Cards - brand the card with your business name and logo and include details like your office address, telephone number and email. The inner part should contain the name of the contributor, columns to mark contribution for each day of the week, usually 31 and a signature space.
A Calculator - To enable you keep accurate records
A Bank Account - For the safe keeping of depositors monies. There are so many bank acount options to choose from. Take time to choose a bank that offer suitable retail products and establish a god relationship with the branch where your account is domiciled. This relationship will come handy when you need urgent liquidity to cover gaps.
Opening an account with a microfinance bank can be very helpful in this regard for the simple reason that they are small and can be accessable more than the big commercial banks.
Mobility - You will need a means of transport to make your collection rounds easy. In this regard a comfortable motor cycle is okay. However, this investment may wait until your business take strong shape and form.
How You Make Money
Thrift Collection business offers the operator the opportunity to make money from different revenue streams. These revenue streams are as identified in the following paragraphs. Get more creative to earn more with the people's money in your hands as long as you do so without being dubious:
#1. Fee Income - This is the major known source of income of thrift collecors. They receive one day's depsit on every account they maintain. The amount varies as contributors vary. If you have 50 accounts that deposit N500 each every day, in 30 days you will be making (500 x 25) N25,000 on these account in fee/commisision.
This shows that the amount of fee/comission you earn will depend on the number of accounts you are able to acquire. The market is large and you can have as many as 200 accounts or more if you work hard. A certain micro finance bank with which I have a relationship earn bulk of its monthly income from their esusu product. It is a cheap source of liability because it does not attract any interest cost.
#2. Interest Income - This is earned on the money you keep in your business bank account. To earn interest, do not keep your collections in current accounts, keep them in an interest bearing accounts. To optimise this source of income, you will have to analyse your collections and your customers' withdrawal pattern. The longer the customers wait to ask for their money, the better for you. This will afford you the opportunity to earn interest on the money for a longer period of time.
#3. Investment Income - An understanding of the maturity profile of your customers' savings is important for you to know the kind of things you will invest the money on. The trick is to invest the money in a vehilce that is very liquid so that you can exit on short notice in order to meet unplanned withdrawal by your customers.
#4. Lending - This is an easy and very profitable way of making a lot of money with the people's money. A lot of small traders need money to replinish their stocks, many other people need money to sort out urgent personal issues. They will come to you to borrow and you will charge them a flat fee for the period of time they borrow. The key to success is to have a select borrowing customers that you are sure will pay back so that you don't run into problems.
If you do not do it properly, lending will ruin your business but if done with care by putting into place proper risk management strategies, you will become very successful.
#5. Trading - This is another outlet you can explore in utilising your deposits to make more money before you return it to your depositors. The thing is not to open a shop and compete with your customers but to identify a fast moving consumer goods which you can buy and resell quickly, take your profit without failing to meet your obligations to your customers.
The opportunities are wide and only limited by the creativity of the operator. The key success factor here will be to mobilise longer tenured savings. Get your customers to save for longer time by offering them incentives such as interest free loans pegged at certain percentage of their savings and other schemes that are meant to reward loyal customers.
Risks, Challenges and how to mitigate them
Like any other business that has to do with money, there are risks there are risks associated with thrift collection business. The most common risk in this business is loss of money by the collector. Thieves can attack the collector on the way or cash may be misplaced while moving from one contibutor to another. To mitigate this risk, do not do collections late and always deposit your collections in your bank account as quickly as possible. Maintain a safe in the office or at home to securely keep monies that you are not able to bank each day.
Anoher risk is the risk of your borrowers' failure to pay back in time. A delay in your borrowing customers to pay back will impact negatively on your ability to meet withdrawal request and this will affect your relationship with your contributors. Avoid this by carefully selecting people you lend to and putting in place a strong collection strategy to ensure that every kobo lent is returned.
A typical challenge you may encounter is the possibility of a contributor asking for his/her saving before due date. This may affect your investment plans and disrupt your income projections for the period. But if you fail to meet the obligations, you may be risking the loayalty and trust of that customer. So it is in your best interest that you have a contingent plan at all times to meet such unplanned requests.
What you will need most to make a success of thrift collection business is integrity and honesty. You will need these to gain the trust of your contributors. Once it gets out there that you cannot be trusted, you are out of business.
You will have to be mentally alert and comfortable with calculation. If you do not have these two skills, your customers will cheat you and you will lose money. Always keep accurate records. As your business grows you will have to maintain a good accounting system.
Infact the business of thrift collection is becoming advanced and there are software in the market that are designed to enhance both field and back office operations. As you gain traction in your business, you will have to consider upgrading.
Hardwork! You will need a load of it to succeed in thrift collection busiess.