Financial Matters The Concept Of Ajo System In The Nigerian Society

Ajo is a form of savings in which a group of people come together to contribute a fixed amount of money, either daily, weekly or monthly, depending in the agreement amongst contributors. Usually, this contribution is based on mutual trust and one of the contributors takes charge to ensure its smooth running. This communal financial practice involves a group of people contributing a fixed amount of money into a common pool, which is then given to one member of the group on a rotational basis. This system has evolved over time, adapting to modern financial needs while retaining its core principles of trust and mutual support. This group savings serve as a source of borrowing in emergencies, a way to grow savings and a means to achieve a communal goal, etc. At the heart of every collective saving scheme is the clan nature of its members.

Each one has its own variations but the general way it works is that subscribers contribute a fixed sum to a common purse and take turns collecting the money after an agreed period. Some work on a weekly or monthly basis and the cycle continues until every member has taken from the purse. It is often used to fund businesses or large-scale projects.

However, there are rules guiding the operation of the Ajo savings. These include: amount of money to be contributed by each member of the group; frequency of contribution and order in which members will receive their share when it is their turn. In English, one can refer to Ajo form of savings as micro or thrift savings. This savings scheme is called Ajo among the Yoruba (South West) ethnic group, while in the North, it is called Adashe and the Igbo (South East) word for it is Esusu.

Evolution of Ajo in Nigeria
The origins of Ajo can be traced back to pre-colonial Nigeria, where it served as a vital financial tool for communities. Initially, it was a simple system where members of a community would contribute money to help each other in times of need, such as weddings, funerals, or other significant events. Over time, Ajo has evolved into a more structured system with defined rules and regulations.

In the early 20th century, as Nigeria’s economy began to grow and diversify, Ajo adapted to meet the changing financial needs of its participants. It became a popular method for small business owners and traders to save money and access credit. The system’s flexibility allowed it to thrive in both rural and urban settings, providing financial services to those who were often excluded from formal banking institutions.

Madam Oluwatoyin Adedeji is an elementary school caregiver in Akute, a community in Ogun State of Nigeria. She coordinates a small thrift or Ajo group that consists of fellow teachers and parents of the school. She describes Ajo as very beneficial to its participants, as it enables them to easily acquire household properties, pay their children’s school fees and even pay in installments for a landed property. She however expressed fear at instances when there is default in chain of remittance from one or more contributors, either because of inability to pay, sickness or even death. She is however not perturbed about some inherent dangers involved, because according to her, trust and commitment from each member and even their spouses are obtained before enlisting a new person into the group.

Advantages of Ajo:

Financial Inclusion: One of the most significant benefits of Ajo is its ability to provide financial services to individuals, who are excluded from the formal banking sector. This includes low-income earners, small business owners, and those living in rural areas. By participating in Ajo, these individuals can save money, access credit, and improve their financial stability.

Community Building: Ajo fosters a sense of community and mutual support among its members. The system is built on trust and cooperation, which strengthens social bonds and promotes collective responsibility. This communal aspect of Ajo is particularly important in Nigerian society, where extended family and community ties play a crucial role.

Access to Credit: For many Nigerians, accessing credit through formal financial institutions can be challenging due to stringent requirements and high-interest rates. Ajo provides an alternative source of credit that is more accessible and affordable. Members can use the funds they receive from the pool to invest in their businesses, pay for education, or cover emergency expenses.

Savings Discipline: Participating in Ajo encourages regular savings habits. Members are required to contribute a fixed amount of money at regular intervals, which helps them develop financial discipline and build a savings culture. This is particularly beneficial for individuals who may struggle with saving money on their own.

Disadvantages of Ajo:

Lack of Regulation: One of the primary dangers of Ajo is the lack of formal regulation. Since Ajo operates outside the formal financial sector, there is no oversight to ensure that the system is managed properly. This can lead to issues such as mismanagement of funds, fraud, and disputes among members.

Risk of Default: The success of Ajo relies heavily on the trust and cooperation of its members. If a member defaults on their contributions or fails to repay the money they have received, it can disrupt the entire system and cause financial losses for other members. This risk is particularly high in larger Ajo groups where it may be more challenging to monitor and enforce contributions.

Limited Financial Growth: While Ajo provides a valuable source of savings and credit, it may not offer the same opportunities for financial growth as formal banking institutions. For example, members may not earn interest on their savings, and the funds collected may not be invested in ways that generate additional income. This can limit the long-term financial benefits of participating in Ajo.

Vulnerability to Economic Shocks: Ajo groups are often vulnerable to economic shocks and changes in the financial environment. For example, during periods of inflation or economic downturns, the value of the money contributed to the pool may decrease, reducing the overall benefits for members. Additionally, if members experience financial difficulties, they may be unable to meet their contribution obligations, further destabilizing the system.

In Conclusion, Ajo thrift contributions have played a significant role in Nigeria as well as Africa’s financial landscape, providing essential savings and credit services to individuals and communities. While the system offers numerous benefits, including financial inclusion, community building, and access to credit, it also faces challenges such as lack of regulation, risk of default, limited financial growth, and vulnerability to economic shocks. As Nigeria continues to develop its financial sector, finding ways to integrate and support traditional systems like Ajo will be crucial in promoting inclusive and sustainable economic growth.