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Question

Difficulty: EasyNon-Bank Financial Institutions and Traditional Financial Systems

A trader regularly contributes a portion of her daily income to a trusted traditional thrift collector who retains a fixed fee as commission before returning the accumulated funds at the end of the month. Which traditional financial system is being practiced?

  1. Esusu (or Ajo)Answer
  2. B
    Open Market Operation
  3. C
    Hire Purchase Scheme
  4. D
    Commercial Bank Credit Creation

Answer

The traditional financial system described is Esusu (or Ajo).
Esusu (or Ajo) is an informal traditional financial scheme prevalent in West Africa where individuals make periodic (daily/weekly) contributions to a collector or collective pool, providing micro-liquidity and disciplined capital accumulation outside the formal banking system.

Step-by-Step Solution

1
Identify the key characteristics described in the scenario
Regular daily contributions to a thrift collector with commission deductions for eventual repayment.
Understanding the operational mechanics helps categorize the financial institution or system.
2
Match the mechanics to the appropriate financial institution or traditional system
The practice of daily savings collection by informal collectors is widely known as Esusu or Ajo in Nigerian traditional finance.
Traditional non-bank systems rely on informal trust structures rather than formal banking licenses or central bank regulatory instruments.

Key Concept

Traditional Financial Systems (Esusu / Ajo)
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Topics

Non-Bank Financial Institutions and Traditional Financial Systems