<\/p>\n
Mixing friendship and finance can be messy, but for many Canadians who take advantage of peer lending and savings, it works.<\/p>\n
The concept involves groups of friends or acquaintances pooling money together to provide funding in situations where traditional financial institutions won’t or don’t work.<\/p>\n
Rahma Mohamed, who lives in Edmonton, started participating in groups like this – called hagbads in her Somali community – once she was old enough to start working.<\/p>\n
For 10 months at a time, she and about a dozen other women would agree to save together, contributing equal amounts every month and taking turns withdrawing largers sums made up of everyone’s contributions. The system was based on trust: a newcomer to the group could not withdraw right away, but only after a history of making payments.<\/p>\n
Thanks to these groups, Mohamed said she saved enough to pay off nearly $30,000 in student loans within three years of graduating from university.<\/p>\n
Beyond giving her a social structure to save, she said the groups helped strengthen friendships and community ties, as women confided in each other and worked together toward achieving their goals.<\/p>\n
“It feels almost like people are paying into your dream, even though it’s your own money that you’re getting at the end,” she said.<\/p>\n
Academics call groups like this rotating savings and credit associations, but they are known by many different names in Canada and around the world.<\/p>\n
“It’s very interesting and a relatively simple mechanism for allowing small amounts of money to be accumulated within a group that has group responsibility and also has regular, agreed-upon payout schedules,” said Susanna Khavul, a professor in the Lucas College and Graduate School of Business at San Jose State University.<\/p>\n
Now alongside the COVID-19 pandemic, peer lending – in many forms – is becoming more mainstream as some groups move online, entrepreneurs seek alternative funding sources and tech companies design platforms to cash in on these valuable peer networks.<\/p>\n