Ray Peter is looking forward to his Mediterranean cruise. Like many of his public sector colleagues, the 52-year-old youth worker from Hackney is wary of the impending public sector spending cuts and has to count the pennies. Yet Peter is confident he will be able to afford the holiday’s hefty price tag thanks to the proceeds from his Paadna, a collective saving scheme popular among the Afro-Caribbean community in the UK since the days of the Windrush.
The idea behind the Paadna (also called SuSu) is simple. A group of people, the ‘partners’, agree to pay a regular sum (or ‘hand’) to a trusted person (or ‘banker’, usually an older, respected member of the community) on a weekly basis. Every week, one member of the group receives the total amount (or ‘draw’) contributed by all partners. In other words, if 10 partners save £50 a week over 10 weeks, each will receive £500, either at the beginning of the Paadna (effectively a £500 loan) or later in the scheme (effectively £500 in savings). For the system to work, the number of partners must be the same as the number of weeks the scheme lasts.
The banker selects the order in which partners are paid their ‘draw’, and will normally give priority to established members, paying newcomers (or those deemed less reliable) at the end. Paadnas last from a few weeks to six months, with some schemes lasting over 12 months. No interest is payable on an early ‘loan’, or receivable for the later ‘savings’, and all moneys paid in are returned (except in some schemes where bankers receive one ‘hand’ from each member for their services).
In the UK, the system has a history going back to the 1950s and 60s when immigrants were virtually excluded from mainstream banking. Sam King, an early Windrush pioneer was one of many West Indians who used Paadnas to save for goods that would normally have remained outside their reach.
In the Windrush Legacy (produced by Black Cultural Archives and Lambeth Archives), he recalls “We were the second black family to buy a house in Camberwell, this was 1950. Over the next 12 years my family played a part in buying about half of all the property owned by blacks in Camberwell. Because we couldn’t get mortgages we pooled all our money together to help others. We called it a ‘partner’ which is the same in Jamaica, and it worked very well.”
The system has remained popular to this day because of its informality, allowing poorer members to draw ready cash in emergencies, or when their credit status would make them ineligible for loans from high street banks.
But what if things go wrong? According to Peter, bankers have been known to disappear with funds, but such cases are rare. “It only happens if you make somebody young and poor a banker. Being given all that money can tempt them to take a permanent holiday,” he laughs. “But 99.9% of Paadnas are safe, as safe as any established bank.”
An added attraction for members is the peer pressure of ‘having to save’, a feature many members prefer to the interest they would get from high street banks. “I don’t think I’d have the discipline to pay into a regular savings account,” Dawn Jarrett, another Paadna saver, says. The 43-year old adventure playground manager from Islington is saving for a new washing machine. “Knowing that the banker will come round on the first of the month to collect your hand really helps you stick to the plan.”
The recent global financial upheaval has brought about much innovation in financial matters, especially in poorer communities. While schemes like Bangladesh’s Grameen Bank made global headlines (and earned its inventor, Mohammad Yunus the 2006 Nobel Peace Prize), in the UK the Paadna has seen such a boost in popularity that the established loan industry is taking note.
As the Jamaican National Building Society is planning to make their Paadna Plan available to UK savers, small companies are also jumping on the bandwagon. Portia Grant, who is running the UK’s first commercial Paadna, already offers additional services to members such as ‘brawtas’ (interest payments) and the option of late ‘hands’ in case of financial difficulties. “We started out in 2005 with five family members paying £20 a week. Now we have over 500 partners and a lot more financial flexibility,” she says.
For Grant, one key advantage of the scheme is mutual trust. “If you talk to any of my members, especially from the Afro-Caribbean community, the most important issue is integrity because there are a lot of scams out there. So finding someone you can trust with your money is vital,” she says.
That trust is key, and breaking it could be a potential pitfall of the scheme. Impartial advice bodies like the Money Advice Trust suggest caution. “Paadna schemes are not regulated and so the money you’ve saved is not covered by the Financial Services Compensation Scheme, which protects bank, building society and credit union savings of up to £85,000 per person. There have been cases where these schemes haven’t paid out or where the savers have lost money. Even if you trust the banker and the other partners you could still lose out,” the official advice reads on the trust’s website.
Portia Grant is aware of the issue. “In the past, schemes have failed when one or several partners suddenly couldn’t pay their hand because of changes in their circumstances. But with my scheme, members don’t lose out because we guarantee the final payout by personally underwriting all sums handled. In other words, if a partner can’t pay, I’ll cover the sum from my own pocket.”
In addition to this safety net, Grant believes that her scheme has the benefits of peer pressure of joint saving and the informality of arrangements which make the system attractive to people who can’t access mainstream saving. “When you give that person your money it’s like paying your rent - once the money is handed over your mind is at ease. A lot of people find themselves in debt because of short-term temptations that will draw that money from them. Paadna schemes make it easy to save and not spend what you haven’t got.
“A lot of my clients are people on benefits. And there are others who don’t even have a bank account - for them it’s an attractive way to save money on a cash basis. It’s the future for savings and loans,” Grant sums up.
It’s a prediction the loan industry should take seriously. “The Paadna is all about trust,” Ray Peter concludes. “When Jamaicans first came to this country, they didn’t trust the banks with their money. And after recent events, that feeling of mistrust is on the rise again.”