Can someone explain to me that "pool of money" thingy?

I'm sorry if my questions seems vague but it's very hard to explain. I came across many Vietnamese who told me they lost a lot of money by being betrayed by "friends" in some type of pool. My Vietnamese-Canadian friend tried to explain to me. It's something like you're in a pool of money with people, each of them have to pay some interest every now and then, but it has "good potential" and the money can grow over time... but my friend told me all it takes is one person to leave with all the cash and you lose all. Since gambling is very taboo in Vietnamese culture, and even though this is not strictly speaking gambling I have the feeling many people do this here but they won't talk about it.

Anyone knows what I'm talking about and could clearly shed the light of what scheme this is? My girlfriend currently has some money in this and I would like to understand fully before I scold her  :D

In other Asian cultures this is called tanamoshi.  If I had to guess I would say that the term is Japanese in origin but the word is used by both Koreans and Vietnamese in Hawaii as well as by Japanese.  It could be described as a sort of poor people's bank.

Let's say that there are 10 participants who each put in $500 each month.  The pool is $5000 and any of the group may bid to borrow the money, usually to start a small business.  Higher interest bid means a better chance to be the borrower.  Usually the loans are interest only.  The next month there is a new pool.   All ten must put up the $500, which is a sort of principal repayment for the first bidder,  but only the remaining nine may bid.  In the mean time the interest paid is added to the pot.  The cycle continues until all have had access to the pot.  One strategy, if you don't need to borrow the money, is to wait until the end and you may borrow interest free as you are the only bidder.  I am not sure how it all works in the end but everyone theoretically gets all of their principal ($500 over ten months = $5000) when they take a loan as well as their portion of the interest taken in.  Also the organizer takes a cut but I can't say how much that is.

The danger, as you alluded to, is if someone leaves town with the money.  This is particularly a problem in Hawaii because people can disappear to the US mainland fairly easily.  I would think in Vietnam where every one is in a hộ khẩu Red Book it is less likely.  If you disappear, you still have relatives who may be shamed into paying your bad debts.   There may be variations to the system in Vietnam compared to other Asian cultures but the basic idea is the same.

Man you're my hero. This is exactly what I was asking about. I have read your text quickly but will re-read.  I will be better equipped to handle what's to come. I'm supposed to buy a motorbike with her, 25 millions each, and that's where she's going to get her part of the money from. I'm not sure I like the idea.

I should have specified that I have never participated in a tanamoshi but only had it explained to me second hand.  Please don't hold my feet to the fire if I got some of the details wrong.    :sick   Otherwise glad to help.

Up to you but my experience is that there is no way to tell a Vietnamese woman how to manage her own money.  They can carry a load of numbers around in their heads and can usually tell you which markets have the best prices for which items.  In the same way, they also can probably tell who has taken money out of the pool and exactly how much interest they have paid.  If It's her money and not yours that she is putting in, better to just let her go.

What happens in your example when one month no one needs to borrow the money. The pool will then have $10,000 instead of $5,000 available to the next borrower? Also, do you have to borrow the full amount of the pool or you can simply borrow part of it? What if no one ever borrows from the pool?

THIGV :

I should have specified that I have never participated in a tanamoshi but only had it explained to me second hand.  Please don't hold my feet to the fire if I got some of the details wrong.    :sick   Otherwise glad to help.

Well I just wanted to get an overall idea, I will probably ask her in details, every cent and amounts and so on. I'm a very precise, meticulous person especially when it comes to money.

It's called hụi in the South and họ or hội in the North.  THIGV has already given a great explanation (90% correct) so I'm only expounding a bit to clarify the other 10%.  Since I'm living in the South, I'll use the term hụi.

The organizer is chủ hụi (chủ: owner, chief).  The more members, the better the collection for everyone.

On the first month, everyone pays her share into the pot.  Let's say the share is 5M and there are 11 members and 1 chủ hụi.  The collection on the first month would be 60M, untouched.

Starting on the 2nd month, any member who wants to hốt hụi (hốt: collect, sweep up) would submit a bid stating how much interest she's willing to pay to other members (IOW, how much she's willing to lose, as the interest is taken out of her collection).  The highest bid wins. 

If the highest bid is 5K, 11 members will pay 4.5M into the pot for that month instead of 5M.  The winner will collect:  5M x 11 members = 49.5M + her own share of 5M = 54.5M. 

The original 60M stays untouched.

You can see that the person who hốt hụi the earliest is the one who loses the most money.  While the other 11 members earn 5K of interest that month, she loses 5.5M.  Not only that, she must pay the full 5M into the pot every month afterwards as the interest on subsequent bids do not apply to her. 

You can also see that for each month passed, the pot becomes bigger because the number of members who pays the share minus interest is decreased and the number of members who pays the full share is increased.

The same scenario repeats itself every month until the last month.  The interest which the members who do not need to hốt hụi earn each month varies depending on the bid.

On the last month, no one pays her share because the original 60M is used for the last pot.  The last member standing collects the entire 60M while earning interest on the previous 10 months (first and last month do not count).

To answer your question of what would happen if/when no one bids on a certain month.  Rarely ever that happened, but if it did, the understanding is that chủ hụi must hốt hụi even if she didn't want to do so.  She would receive a compensation, however, by not having to pay interest to the other members since she didn't bid on the pot.

To the question of the possibility of collecting half the pot, the answer is no.  No way, no chance, no how.

I noticed that Ciambella chose to use the feminine pronoun.  From my observation, this is almost exclusively a feminine enterprise form.  Perhaps this is based on the fact that females did not traditionally have access to banks, in Asia or elsewhere.  Many international aid agencies are adopting a policy of mini-loans for women to start small village businesses in developing countries.  This tradition apparently serves a similar purpose.

THIGV :

I noticed that Ciambella chose to use the feminine pronoun.  From my observation, this is almost exclusively a feminine enterprise form.  Perhaps this is based on the fact that females did not traditionally have access to banks, in Asia or elsewhere.

Very true.  Hụi has been around forever, or at least almost 200 years AFAIK, since my father's time (he was born in 1902).  He told me his mother had always chơi họ (I'm switching to Northern dialect now as that's our family roots).  It's the most traditional saving account for people who didn't have a chunk of money to put in the bank.  The members are mostly women because they use leftover household money to pay their share monthly (or weekly).  With trusted organizers and trusted members, it's a great way to save money or having access to immediate funds.

Thank you my dear friends. I showed Ciambella's post to my girlfriend, she doesn't speak English but agreed with the Vietnamese words, that's exactly what she's doing. What's kind of "funny" is that she always says "no" when I say she makes money from other people's interest payments, but it seems to be exactly what it is, and there's nothing wrong with that.

From the wording of Ciambella, it seems to be a relatively safe system. I still don't like a system that's not protected under the law but I guess it's cultural, it's just something I'm not used to.

One more question: how is a person who don't pay her share dealt with? I'm guessing you can't really go to the police, so is public shaming enough? I'm also guessing you don't send someone to break women's legs in Vietnam :D

I know it a bit different then Ciambella, but my friend is Thai.

They do a circle for example for a year with 10 people. Every month they put 200 Eur. There is a minimum "interest" of 10% per month (based on the input). If noone wants the money it's random, but someone gets the money. Surprisingly, someone always wants it.
After they took it, they pay 220 (or more) until the end of the circle. In the end, they distribute it (I think equally).

WillyBaldy :

she always says "no" when I say she makes money from other people's interest payments, but it seems to be exactly what it is, and there's nothing wrong with that.

From the wording of Ciambella, it seems to be a relatively safe system. I still don't like a system that's not protected under the law but I guess it's cultural, it's just something I'm not used to.

You could say your gf makes money on other people's interest payments.  OTOH, she could say that the person who wants to hốt hụi pays a compensation to the other members in exchange for using the pot (everybody's share) that month.  It's a much fairer system than banking. 

In banking, the bank decides on the interest while the account holders have no voice.  With hụi, the person who needs the pot decides how much she wants to pay for the privilege.  She has the power albeit one that is constrained by her own circumstances that month.

In banking, the borrower pays interest for the life of the loan.  With hụi, she pays the same principal every month after collecting the pot.  The only interest she pays is on that one month, and she has the options to choose the month.  The longer she waits, the less interest she has to pay.   

If everything being equalled (meaning everyone involved is honest and trustworthy), I would say hụi is the bank of the people, by the people, and for the people while commercial banks are definitely not of, by, or for anyone but the bank owners and rich shareholders.

WillyBaldy :

how is a person who don't pay her share dealt with? I'm guessing you can't really go to the police, so is public shaming enough?

Public shaming is not that important anymore unless one lives in a small town.  But yes, even though the law doesn't really protect hụi system, you can go to the police to complaint about a person who doesn't pay her share after she already hốt hụi, or to sue a chủ hụi who giựt hụi (giựt: steal, snatch). 

Decree 144/2006 / ND-CP regulates on Họ, Hụi, Biêu, Phường (all terms that describe more or less the same system) indicated that  "In the event of a dispute that cannot be resolved by negotiation or conciliation, and at the request of one or more participants, such dispute shall be settled at the Court according to regulations and the law for civil matters."

How well the theory works IRL, I don't know.

To protect herself, a member of a dây hụi (dây: thread, rope, chain) should only works with a highly reliable chủ hụi.  She should look at all aspects of chủ hụi's life such as reputation, social standing, personality, family's finance history, and social behaviours.

She should know well, or if possible, have a hand in choosing other members.  Find out the source of their income and the level of their obligations.

Dây hụi must have a clear record wth full, accurate and detailed information on the members and how the hụi would process.  Every member should have an agreement on the procedures, payment cycle, amount of payment, form of payment, chủ hụi's responsibility, the rights and obligations of the members, and how dispute would be handled.  In short, the agreement should be similar to a loan contract in which members are both lenders and borrowers.

These are very important evidences that will serve as a basis for the Court to consider and settle disputes.

A new friend of mine here in VT has been making a good living since her separation from her husband 10+ years ago by being chủ hụi or a member of several dây hụi.   She does that full time and the interest makes up half of her monthly income. 

My mother and sisters all involved in họ at one point or another in their lives.  Myself, I've never done that as I only believed in stock market to augment my assets back in the day when money and material items still held important role in my life.  Without personal experience, I cannot strongly recommend nor can I be adamantly against chơi hụi.  But, as you acknowledged, "it's cultural, it's just something I'm not used to" and as THIGV spoke of his experience,  "there is no way to tell a Vietnamese woman how to manage her own money" (or the money you entrust her to manage), I think I would go with it if I were in your shoes.  However, I would insist that my SO exercises caution.  Investigate well to minimize risks is always the best policy no matter which method one uses to save and invest.

FWIW - my wife was explaining this to me last month because her cousin was the ring leader in one of these arrangements one of them ran off with the pot.  Her cousin ended up losing her real job over it because she convinced some co-workers to participate.  Based on my understanding, it is a way to get a loan for people who don't want to use or do not have access to traditional loans via a bank and probably safer than borrowing from your local loan shark.

Ciambella :

Without personal experience, I cannot strongly recommend nor can I be adamantly against chơi hụi

Thanks for all that information on the subject. I had a good talk about this with my girlfriend earlier. It's interesting because although it seems to be very common, she did not tell her parents she was doing this, so I'm guessing there's still some sort of stigma about this system in some families. I did not ask her to stop doing this but told her I still thought it was relatively risky, especially since she lost a big chunk of money a few years back loaning some money to a friend who disappeared. She said she'd stop doing this once she gets her share in June, but it's really up to her as I'm not trying to control her, I'm just trying to warn her about the potential danger.

By the way her "pool" has something like 80 people, and they all pay 300K every week. Seems to be huge!

vndreamer :

FWIW - my wife was explaining this to me last month because her cousin was the ring leader in one of these arrangements one of them ran off with the pot.  Her cousin ended up losing her real job over it because she convinced some co-workers to participate.  Based on my understanding, it is a way to get a loan for people who don't want to use or do not have access to traditional loans via a bank and probably safer than borrowing from your local loan shark.

There seems to be a lot of responsibility being the hủ hụi, I could never put up with all the pressure of having to handle so many people.

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