What Are Tandas and How Do They Work?

Tandas are an informal financial practice where individuals collectively save and lend money within a trusted group. This system allows participants to access a lump sum of funds at a predetermined time, fostering mutual financial support. Operating outside traditional banking systems, tandas rely on community ties and shared responsibility to provide an accessible method for saving and obtaining capital.

The Concept of Tandas

A tanda is a type of Rotating Savings and Credit Association (ROSCA). It serves as an informal mechanism for saving and lending among a specific group. The primary purpose is to allow members to pool their financial resources, creating a communal fund distributed in a rotating manner. This cooperative savings plan relies on mutual trust and the collective commitment of its participants.

Participants contribute a fixed amount of money into a shared pot on a regular schedule, such as weekly or monthly. Each member then takes turns receiving the entire accumulated fund. This practice is known by various names globally, including “sou-sou” in the Caribbean, “chit fund” in Asia, and “cundina” or “caja” in Latin America.

Operating a Tanda

A tanda group consists of a fixed number of participants, typically five to twenty individuals. Each participant contributes an identical, predetermined amount of money at regular intervals, such as weekly or monthly, into a central fund. For example, if ten members each contribute $100 weekly, the pot would be $1,000.

The order in which members receive the full accumulated pot is established at the outset. This order can be determined through a lottery, mutual agreement, or a pre-arranged sequence. Once a member receives the sum, they continue contributions until every other member has also received their turn. The cycle concludes when each participant has received the pot once. An organizer, sometimes called a “banker,” manages the group by collecting contributions and distributing funds.

Regulatory Landscape

Tandas operate outside the purview of formal financial institutions, such as traditional banks and credit unions. Due to their informal and community-based nature, these arrangements are not typically subject to the governmental oversight or consumer protection laws that govern regulated financial products. There are no specific federal or state laws that explicitly regulate tandas in the United States.

Participation in a tanda relies primarily on the mutual trust among its members rather than on legally enforceable contracts or regulatory guarantees. While generally legal in the U.S., their legality hinges on them not resembling or operating as pyramid schemes. The absence of formal regulation means there is typically no legal recourse if a participant fails to uphold obligations or if disputes arise. This contrasts with regulated financial services, where deposits are often insured and consumer rights are protected.