Frequently Asked Questions
- Frequently Asked Questions
What is e-Link eSuSu?
What is traditional eSuSu?
Esusu describes traditional forms of cooperation in African societies whereby groups of individuals contribute to informal savings and credit associations for their mutual benefit. You have it in Nigeria and similar variations called Ajo or Adashe however you can find variations of it in several places. It’s known as Nago in Ivory Coast, Yesyes in Togo and Susu in Ghana. Esusu is a form of micro-finance savings, where you pool periodic (e.g. weekly) cash contributions with other people, in which you all take ‘turn’ to receive the pot. Think of it as an interest-free savings account.
What are the problems with traditional eSuSu?
- Credit Default: it does not solve the non-payments risk by one or more members. This is an issue that has resulted into failure of the traditional forms.
- It is not an investment: It is a pure exchange of cash and does not compensate the participants that receive the pot later in the in revolving circle.
- Time value of money: It does not compensate participants for inflation and it does not take into account that as a result of inflation the value of goods and services may cost more in the future.
- Payment is an administrative burden and is not automated: The organiser may need to send reminders for money to be sent to an account for disbursement to the next member to receive the pot which introduces administrative burdens and may result into a risk for the group.
- Does not meet regulatory compliance: It is informal and as such does not have regulatory approval as default does not have a negative consequence to the defaulter
- Does not improve the credit history of participants: Since it is an informal loan it is not reported to the credit bureaus, as such does not help participants to build their credit history
- Does not provide access to credit from banks: Participation does not qualify for a bank or cooperative loan
How is e-Link eSuSu different from traditional eSuSu and other online eSuSu platform?
- An Investment Platform: e-Link is an investment platform approved by Central bank of Nigeria to conduct the repurchase agreement transaction. The regular eSuSu is consumption based. Cash put in is cash received. e-Link e-SuSu allows participants to build an investment portfolio with initial equity contributions invested in fixed income government securities which earn interest income and compensated investors for the time value of money. The equity contribution can be increased at the discretion of the group.
- An exchange of cash for securities: involves an exchange of cash at zero interest between members of the group. On e-Link eSuSu it is an exchange of cash from third party investors (i.e. banks) and the securities that belong to the eSuSu group at an interest rate (i.e. repurchase Other forms of esusu agreement transaction), with group members continually earning interest income on their investment in bonds.
- A securities lending platform: Other forms of esusu, members contribute cash into a common pot with one member receiving the cash at each contribution. On e-Link eSuSu members contribute cash to buy federal government securities (i.e. bonds) and lend the securities to a member that utilises the pool of securities to get cash from a third-party investor. The group may decide to charge/not charge an interest rate for lending securities. Either way members will still earn interest income from their equity investment in government bonds.
Who are the parties on e-Link eSuSu?
Funders and investors maybe individuals, cooperative associations, financial institutions and companies. Funders (i.e. Issuers) can issue debt, warrants or notes backed by financial assets owned by Funders.
What is a cooperative?
Cooperative society is the commercial effort by people living in a community engaged in same trade, occupation or effort at assisting one another to improve on their economic output, common need or goal for the mutual benefit to all members, through the contribution of money into a common pool which is then distributed according to their predetermined sharing formula.
How does the international Labour Organization(ILO) define cooperative society?
An association of person usually of limited means who voluntarily, democratically come together to achieve a common economic and social objective of its members by making equitable contribution to the capital required and accepting a fair share of the risks benefits of the undertaking
What is the history of Cooperative and where can they be found in Africa?
They are found across the world and Africa. In Kenya they are known as SACCO “saving and credit Cooperative”, in South Africa they started out as STOKVEL and has existed informally Nigeria as Esusu, Ajo or Adashe. Cooperative are entities that enjoy the protection of government and the law.
What is the motivation for forming cooperative?
By people coming together to scale volume and demand this will provide access to lower rate for loans, products and services
What is the regulation in Nigeria for cooperatives?
The Nigerian Cooperative Society Decree 90 of 1993 is an Act to provide for the registration and operation of co-operative societies throughout the Federation and for related purposes.
What services are provided by e-Link eSuSu to the public?
- Join existing cooperatives
- Create a group financial fund
- Invite friends to join group to contribute funds towards the equity capital of the financial fund
- Provides an online community for members to chat and blog for the purpose of investing and issuing debt
- Setup a custody and trading account with a custodian bank
- Members lend bonds to other members
- Make contributions electronically, request funds, setup roster for fund distribution, vote to see which member should get pool of bonds
- Members can trade in financial contracts provided on the platform
- Provide insurance products to reduce risk of default from members
- Members build credit history as financial transactions are reported to the credit bureaus
- Members can apply for reduced security and unsecured loans from financial institutions
What are the benefits of e-Link eSuSu to Funders?
- Funders can purchase and invest in financial instruments
- Funders can borrow funds securely from commercial banks and third-party investor
- Funders can issue debt issues of Funder backed by financial assets
- to create a group for the purpose of raising funds (i.e. a group financial fund)
- invests individual member contribution in the purchase fixed income money market instrument such as government instruments (e.g. Federal savings bonds, treasury bills), A-rated Corporate commercial paper (e.g. CPs), Commercial Bank Certificate of Deposits
- Members can lend their financial instrument to 1 or more members periodically.
- The economy of scale of pooling of financial resources by lending financial instruments among members, allow access to funds higher than they would have been able to access individually from investors on the platform
What are the benefits of e-Link eSuSu to Investors?
- Investors to invest in debt issues of Funders backed by financial assets
- Risk free investments backed financial securities of funders
- Can become dealers by providing liquidity trading on a two -quote basis borrowing from investors and lending to funders
- Provides financial hub for cooperatives to offer loans to its members electronically through e-Link eSuSu website and App
- Allow friends who are not member of a formal cooperative to form groups to meet a financial need
- Provide a platform for members of the public to interact with investors that can fund their financial need
- Provides and investment platform for members of the public to invest if federal government of Nigeria bonds
- Provides an investment platform for members come together in a group and agree of a periodic contribution amount that can be utilised to purchase financial instruments individually for members and ultimately can be lent to other members of the group in a safe manner by providing access to custody services provided by banks. And providing insurance service that protect members from risk events.
What are the benefits of e-Link eSuSu to cooperatives?
- Allow cooperatives to expand the reach of membership across the local community
- All benefits to funders and investor listed above and in addition to facilitate the goals, objective and motivation for the creation of cooperatives providing access to credit and loan products to their members
- Members of the public, commercial banks, other financial institutions and corporates can find and participate in debt issued by cooperatives as investors
- Members of the public can apply and join cooperatives and participate in funding products setup by cooperatives for its members
- Cooperatives can setup 1 or more groups for its members according various criteria such as frequency of periodic contributions, amount of periodic contribution, target group fund, age, gender and vocation.
- Provides and investment platform for cooperative to invest the debt issues of other cooperatives or funding groups
- Provides a platform for cooperative members and cooperatives to invest in financial instruments
- The provides a platform for members of the cooperative to form groups and make contributions towards the investment in securities that can be utilized to borrow funds securely from the cooperative
What are the benefits of e-Link eSuSu to Banks?
All the benefits to investor as listed above
What is the investment risk on the invested financial instrument?
The risk of to funders is the risk of the financial instrument that has been invested in. For federal securities is the risk of the government going bankrupt and paying coupons and the face value of the bond. For commercial papers of corporates is the credit risk that the company, for bankers’ certificate of deposits it is the credit risk of the bank
What is the risk of lending financial instruments to member of a group?
This the risk of members that has received financial benefit from an investor not making current contribution as at when due. Which will result reduced cash flow into the group custody account and the inability of the group to buyback financial instruments securing the cash benefit received by the member. All members that made the current contribution receive their individual securities back. The securities of defaulting members are sold by investors to recover their funds. However, the non-defaulting members are at the risk of reduced future cash flow as a result of default from member
How does e-Link Markets mitigate against the risk of future contributions?
a. In order to join a group, members have to submit a credit report which is evaluated by investors on the platform and to protect group members from credit risk
b. Group members can purchase insurance products to mitigate life event risk such as loss of job, sickness or accidents
c. Suggest new member to reduce the risk of loss of future contributions