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Question

Difficulty: EasyNon-Bank Financial Institutions and Traditional Financial Systems

Which of the following traditional financial systems operates by a group of individuals contributing a fixed sum of money at regular intervals, with the total pool disbursed to one member at each rotation?

  1. Esusu systemAnswer
  2. B
    Open Market Operation
  3. C
    Hire Purchase agreement
  4. D
    Treasury Bill market

Answer

The Esusu system is a traditional rotating credit and savings scheme where members make regular fixed contributions that are distributed sequentially to one member per cycle.
The system described is an indigenous rotating savings and credit scheme where members pool fixed funds periodically to provide capital to one participant per cycle. In Nigeria and West Africa, this traditional mechanism is known as Esusu or Adashi.

Step-by-Step Solution

1
Analyze the core characteristics of the financial institution described in the prompt.
The prompt describes a traditional micro-financial arrangement involving periodic fixed contributions and rotating lump-sum collection.
Identifying structural features helps distinguish informal traditional schemes from formal banking or market mechanisms.
2
Match the features with West African traditional credit arrangements.
Esusu (also known as Adashi) directly matches this revolving credit description.
It enables informal capital pooling without requiring formal bank collateral or procedures.

Key Concept

Traditional Financial Systems (Esusu/Adashi)
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Topics

Non-Bank Financial Institutions and Traditional Financial Systems