Esusu (Nigeria)

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Esusu" (also known as "adashi", "etoto" and by other names)
Location: Nigeria and other West African countries
Nigeria map.png
Author: Evans Osabuohien and Oluyomi Ola-David
Affiliation: Covenant University, Nigeria

Original text by Evans Osabuohien and Oluyomi Ola-David

Esusu describes traditional forms of cooperation in African societies whereby groups of individuals contribute to informal savings and credit associations for their mutual benefit. These associations are found mainly in agricultural production and credit financing, and they substitute for and complement modern cooperative institutions and formal financial systems.


The practice is believed to have originated among the Yoruba people of Nigeria and to have spread from there to Liberia, the Democratic Republic of Congo, and most of the West African countries (Seibel 2004[1]). While known as esusu or esu among the Yorubas in south-western Nigeria, the practice is called etoto by the Ibos in south-eastern Nigeria; adashi by the Hausa people in northern Nigeria; dashi by the Nupe people of Nigeria’s Kwara and Niger States; osusu by the people of Ogoja in Cross River State; isusu by the Igbos from Abia, Anambra, Ebonyi, Enugu and Imo States; asun by the Ishans of Edo State; etoto by the Ibibios of Akwa Ibom State (Nigeria Real Estate Hub 2014[2]); bam by the Tivs of Benué State (Seibel 2004[3] Mimeo, University of Köln. </ref>); tortine in Cameroon and Niger; and susu in Ghana (Iganiga and Asemota 2008 [4]). The term refers to the funds collected, not to the contributors themselves (Bascom 1952[5]; see also obshchak in this volume).


Outside Africa, esusu practices can be found in the Caribbean Islands, where they presumably migrated at the time of the transatlantic slave trade. Maynard (1996[6]) documents the translocation of the Yoruba esusu rotating-credit association in Anglophone Caribbean. In Jamaica, the practice is called partner, while in other Caribbean Islands it is called syndicate. Migrants were also instrumental in establishing contribution societies in several American cities (Bascom 1952[7]).


Among the Yorubas, traditional cooperatives known as aaro, owe, esusu and ajo are common. Aaro refers to a cooperative agricultural arrangement in which peer farmers form ad hoc groups and work on one another’s farms at peak periods on tasks such as land preparation, planting, weeding and harvesting, until all the members of the group have been serviced (see pomochi in this volume). Owe is another form of agricultural cooperation whereby physically capable members of the community (usually young or middle-aged men) unite to assist the needy, elderly and chieftains on their farms.


Esusu and ajo describe means of informal financing, whereby individuals come together to further their individual and collective interests. This may take several forms. First, there are units that are aimed at mobilising savings but that engage in little or no lending. Second, there are lending units that engage in little savings mobilisation. Third, there are groups that engage in self-help finance and involve various types of savings, including rotating ones as well as those provided by licensed cooperatives (Ojenike and Olowoniyi 2013[8]). In the literature on informal finance, esusu is generally associated with rotating savings and credit associations (Seibel 2004[9]).


Among the Yorubas, esusu cooperatives operate as follows: a group of people team up to contribute a fixed and equal sum of money at specific intervals – daily, weekly, fortnightly, monthly or bi-monthly – enabling each member to collect the entire sum in rotation. When everyone in the group has benefited from the pool, a new rotation cycle is launched. The order in which people get to draw the money is usually decided by means of a ballot or by consensus.


In urban areas, the Yorubas distinguish between esusu and ajo. In ajo, a professional collector, the alajo, goes round to collect contributions, usually on a daily or weekly basis, and is paid a small commission for this service. This is more personal than the formal financial system, since no-one needs to go to the bank to make a deposit. At the same time, it is less personal than esusu associations, since ajo contributors do not necessarily know the other contributors. Rather, their relations are mediated by the alajo, who keeps a record of contributions. Each contributor must make regular contributions within a given period, but is at liberty to contribute according to their budget. In certain circumstances, such as an emergency, a contributor may ask the alajo to return a certain amount of their contribution; this is what distinguishes ajo from esusu. In some cases, the alajo has a bank account, in which he or she deposits the funds until the end of the collection cycle, at which point the money must be paid to the chosen contributor. The decision on how and when the contributor gets the money from the alajo is mutually agreed between the two of them. For instance, if the contributor contributes daily (which is popular among traders and small business owners) and the contribution ‘matures’ at the end of the month, the alajo will, after subtracting his or her fee (usually equivalent to one of the rounds of the total contribution) returns the rest of the contribution to the contributor.


It is left to the alajo’s discretion whether or not to use a bank account for the collected funds. Many Nigerians are reluctant to subscribe to formal financial services. In southern and northern Nigeria, for example, street traders resort to informal means of credit and savings mobilisation because they do not trust most formal microfinance institutions (Oloyede 2008[10]). When an alajo chooses to use a bank account, however, this means that informal finances enter the formal financial system, and creates a link between the formal and the informal systems. This coexistence has been recognised under the concept of financial dualism (Osabuohien and Duruji 2007[11]).


Esusu operates outside the formal legal and financial systems and tends to function solely on an oath of allegiance and mutual trust. This ensures that members of the association who have collected their funds early do not pull out of the system, causing other members to lose some or all of their contributions. As for ajo, the credibility of the alajo plays the key role in preventing risk and ensuring continued patronage.


Esusu remains popular despite the establishment of formal microfinance institutions in Nigeria. It is used by workers of the informal sector, market places, rural and urban communities and religious groups. It is particularly popular among low- and middle-income earners. Many rural workers rely on it because they are poorly paid and therefore do not have access to the formal financial system. Esusu, by contrast, tailors its financial services to the real, day-to-day needs of each member of the group. With esusu, saving is more convenient and credit is less costly than it would be in the formal financial system (Oloyede 2008[12]). There are also cost-related incentives for joining an esusu group: it is interest free. Gender also plays a role: Nigerian women are more likely to use esusu as an informal means of saving than are men (National Bureau of Statistics 2013[13]).


While esusu is largely an informal practice, it also penetrates formal work settings and serves individuals and groups within business organisations. Engaging in esusu is often seen as supplementary to other means of obtaining credit (such as cooperatives). Many people engage in esusu in order to pursue a specific objective such as purchasing assets, starting a business or expanding their trade. Informal business operators often resort to esusu since they find it hard to obtain loans from banks.


Empirical studies of informal finance, financial exclusion, modern cooperatives, poverty alleviation, micro-financing and savings mobilisation in Nigeria recognise the significance of esusu and its variants and acknowledge its impact. Legal aspects and trust issues around the practices of esusu are less straightforward. Nonetheless, esusu practices in Nigeria and beyond are based on trust and on the integrity of the contributing members (Fukuyama 1996; Hofstede 1980). Comparative research into the origins and instruments of informal financing in a cross-country or a cultural-type perspective may bring interesting, if unconventional, results.



Notes

  1. Maynard, E. S. (1996). The Translocation of a West African Banking System: The Yoruba Esusu Rotating Credit Association in the Anglophone Carribean. Dialectical Anthropology, 21(1), 99-107.
  2. NREH. (2014, February 14). History of Cooperative Societies. Retrieved from Nigeria Real Estate Hub (NREH) Web site: http://nigeriarealestatehub.com/historyofcooperativesocieties
  3. Seibel, H. D. (2004). Microfinance in Nigeria: Origins, Options and Opportunities. Journal of Social Sciences, 17 (1), 63-71.
  4. Iganiga, B. O., & Asemota, A. (2008). The Nigerian Unorganized Rural Financial Institutions and Operations: A Framework for Improved Rural Credit Schemes in a Fragile Environment . Journal of Social Sciences, 17 (1), 63-71.
  5. Bascom, W. R. (1952). The Esusu: A Credit Insititution of the Yoruba. The Journal of the Royal Anthropological Institute of Great Britain and Ireland, 82 (1), 63-69.
  6. Maynard, E. S. (1996). The Translocation of a West African Banking System: The Yoruba Esusu Rotating Credit Association in the Anglophone Carribean. Dialectical Anthropology, 21(1), 99-107.
  7. Bascom, W. R. (1952). The Esusu: A Credit Insititution of the Yoruba. The Journal of the Royal Anthropological Institute of Great Britain and Ireland, 82 (1), 63-69.
  8. Ojenike, J. O., & Olowoniyi, A. O. (2013). Estimating Growth in Investment of Micro and Small Scale Enterprises in Nigeria. Asian Economic and Financial Review, 3(1), 111-123.
  9. Seibel, H. D. (2004). Microfinance in Nigeria: Origins, Options and Opportunities. Mimeo, University of Köln.
  10. Oloyede, J. A. (2008). Informal Financial Sector, Savings Mobilization and Rural Development in Nigeria: Further Evidence from Ekiti State of Nigeria. African Economic and Business Review, 6(1), 35-63.
  11. Osabuohien, E. S., & Duruji, M. M. (2007). Bank Consolidation and Informal Financial Sector Analytical Perspective of Linkage Effects. In I. Akpan (Ed.), Readings in Banking and Finance (pp. 25-45).
  12. Oloyede, J. A. (2008). Informal Financial Sector, Savings Mobilization and Rural Development in Nigeria: Further Evidence from Ekiti State of Nigeria. African Economic and Business Review, 6(1), 35-63.
  13. National Bureau of Statistics. (2013). Use of Financial Services in Nigeria. Abuja: NBS & World Bank.