August 23, 2013

What is a Paluwagan: a Money Lending and Saving System in the Philippines

Paluwagan definition: this is a Filipino term for a form of money-lending scheme that is very popular in the Philippines. It's a very common practice among friends and co-workers. It's an informal form of saving and lending money. For a paluwagan system to exist, there should be at least three people involved. In most cases, these paluwagan agreements don't even require documentation or paperwork because the members are often close to each other. There doesn't seem to be a term for paluwagan in English.

How it works:
As was mentioned earlier, there should be at least three people for a paluwagan to work. Basically, all the members in the paluwagan will throw in a fixed amount of money into a pool of funds. This will then be received by one of the members. The process will be repeated as often as the number of members in the paluwagan. The pooling of money will happen on a schedule. It could be weekly, monthly, quarterly, every two weeks, etc.

So for a paluwagan system to exist, the following factors should be present:
1. At least three members
2. A schedule of payment
3. A fixed amount to be contributed by each member every payment schedule

Here's an illustation of how the paluwagan system works:
1. Let's say three co-workers decide to enter into a paluwagan. Let's name them James, John and Mark.
2. They agree on paying money to a pool every week.
3. The amount they agreed upon is $1000 per member.
Since this example has three members and the agreed-upon payment schedule is weekly, one cycle of the paluwagan will be completed in three weeks. So here's how the system works. On the first week, all three members will put $1000 each on the pot for a total of $3000. James will receive the cash. On the second week, all three members will again contribute $1000 each. John will receive the cash. The same process will be repeated in the next week and the weeks after that. The only thing that will be changing is the recipient of the pot.

So there you go. That's how paluwagan works.

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