The Iquub: A ROSCA among Ethiopian Taxi Drivers
Part 2 of a two-part series on Ethiopian mutual aid associations. Click here to download the full paper from which these entries are drawn.
According to Yohannes, the motivation to start an iquub came from a desire to carry on with a tradition that came from “our father’s fathers and their fathers.” He and Girma were among the original founders of an iquub among Ethiopian taxi drivers that began 20 years ago (1993). Both Yohannes and Girma came to Boston on student visas around 1974, shortly after the Ethiopian revolution. While attending university both worked part time as taxi drivers. After earning a degree in mechanical engineering, Yohannes worked as an engineer for seven years before going back to driving a taxi. When I asked him why he left his career as a mechanical engineer, he raised his hands and exclaimed, “For the independence, you see!” Twelve years ago, Yohannes purchased a taxi medallion. Like Yohannes, Girma was attracted to the taxi business for the freedom it offers. After earning a degree in political science, he started driving a taxi on a full time basis. In 1982, he purchased a taxi medallion for $33,000, which is valued at $600,000 today. Ten years ago Girma also opened a limousine company.
The iquub is a type of ROSCA present throughout urban and rural Ethiopia. It is not uncommon for people to belong to multiple iquubs as it is a major component of Ethiopian social life. As a university student in Ethiopia, Girma was not part of an iquub but was familiar with how it worked due to his family’s participation in his neighborhood iquub. Girma explained that the way iquub is practiced in Ethiopia is quite different from how it is practiced among immigrants in the United States. According to Girma’s description of iquub in Addis Ababa, it is usually composed of 100 to 200 people, most of whom are business people or members of the elite. Amongst large iquubs in Addis Ababa, membership is usually limited to those from wealthier households, as collateral (usually a house) is needed for participation. In contrast, Girma explained that iquubs in Ethiopian immigrant communities are usually smaller and more heavily based on trust. Additionally, Girma and Yohannes affirmed that in both Ethiopia and abroad, iquubs have a strong social function. Prior to coming to the United States, Yohannes had not participated in an iquub in Ethiopia since he was serving in the navy. He explained that iquub does not take place within the military and only exists in civilian life.
Structure and Operation
The iquub that I researched is largely informal in structure and operation and has no official name. It is one of several iquubs that exist among Ethiopian taxi drivers. Unlike the iddir, it is not a registered organization. There are no written rules. Nor are there specifications for how the funds should be used. As in Ethiopia, there is one main leader known as the dagna (the judge) who oversees operations and keeps track of who receives the payout each month. The dagna is also responsible for ensuring that everyone contributes. There are currently 11 people in the group and each person contributes $1000 per month, for a total of $11,000 each month. The group meets monthly to conduct the lottery, which is facilitated by the dagna. Late arrivals are penalized by a $20 fee. At the meeting, member names are placed into a hat and the name drawn by the dagna wins the payout, known as ita. The cycle continues for 11 months, with winners from the previous months removed from each round. Payouts are given strictly on the basis of a rotating lottery and are not determined by need. If someone from the group needs the ita for a particular purchase one month, he or she must discuss it with the lottery winner to work out a deal. After each person has received ita, the iquub starts over and a new dagna is elected by the group. Girma noted that the flexible and informal nature of this system has worked quite smoothly throughout the life of the iquub.
The group formed by Yohannes and Girma has consisted of 10 to 11 members over the last 20 years. During this time, people have joined and left the group several times, however a core group of five members has remained intact. Originally, the group was composed only of taxi drivers but now includes several non-taxi drivers. Though primarily comprised of men between the ages 50 and 65, the group has included women and members as young as 25 years old. As explained by Girma, all taxi drivers are medallion owners and other members are either business owners or professionals. All members have formal bank accounts. Both Girma and Yohannes mentioned that they could not let “just any taxi driver” in the group—individuals have to own a taxi medallion or other assets that guarantee their ability to pay. Moreover, risk is managed by requiring that the person who wins the payout provide a cosigner as collateral for the other participants who have not yet received their ita. Additionally, new members are automatically required to receive their payout at the end of the iquub cycle.
Trust is arguably the most important component of the iquub. When I asked Yohannes if he was ever worried about someone in the group running off with the payout before contributing his turn, he laughed and responded with, “Don’t you see? This would never happen. Our trust is up to the roof!” He emphasized this last point by raising his hand above his head and pointing to the ceiling. In addition, Girma explained that trust was the main reason for the group’s longevity and success. He further explained that it was this tight-knit network of trust that allowed the group to offer both security and flexibility. In the event that someone cannot pay one month due to special circumstances, group members contribute on the person’s behalf. High levels of trust allow for such flexibility in group operations.
Benefits of Participation
Interestingly, when I asked Yohannes and Girma about the main benefits of iquub, the first thing they each noted was the group’s social benefits. Yohannes said that going to monthly iquub meetings was a way to relax and “leave the pressure of life behind.” Monthly meetings usually take place on Sunday afternoons at a group member’s house and often resemble a party like atmosphere with food, beer, wine, and music. Group members each contribute $25 towards food and drink. Only group members attend these meetings—spouses and children are not invited. The lottery happens amongst discussions about sports, politics, and community news.
Although the financial benefits of iquub seem that they would be the greatest motivation for participation, I was surprised that these benefits were not immediately addressed by Girma and Yohannes. Rather, they both spoke at length about the group’s social function. My guess is that they did not immediately address iquub’s financial benefits because they seemed obvious or because they did not want to discuss private financial matters, such as their use of payout funds. However, I gained some insight upon further probing. Girma noted that it was a fast, fun and secure way to get money. He also said that iquub provides a savings discipline that is difficult to uphold on your own and it has helped him achieve financial goals. Both Girma and Yohannes said that iquub was a better option than a bank loan as they could borrow without interest. Girma also noted that the iquub system could be particularly useful for newcomers who lacked a credit history and could not obtain loans from the bank. Such statements reveal iquub’s powerful role as both a savings and credit tool.
In what ways has the iquub helped members achieve their goals? Girma noted that a monthly payout could be used immediately to put a down payment on a car or towards wedding expenses, but not for bigger purchases like a house. For larger investments, such as a house or taxi medallion, group members would save the lump sums from iquub over several cycles and let it accrue in a bank. Girma believes that more often than not, iquub funds are used for long term savings, however, he noted that group members usually do not discuss how they use their payout. Girma has used his payout to buy plane tickets to Ethiopia, which range from $1200-$2500, take vacations with his wife, send lump sums to his family back in Ethiopia, and cope with family emergencies. Yohannes often contributes his payout towards his business expenses, such as annual taxi insurance of $5000 and the purchase of a new taxi. Taxis need to be replaced every six years, which can cost up to $30,000. Recently, Yohannes was able to buy a new taxi in cash using money from his savings and his $11,000 iquub payout.
Amongst Ethiopian communities, both within Ethiopia and abroad, informal savings groups play a significant role in generating social capital and providing unique financial tools. Within Ethiopia, community savings groups provide a way to strengthen social ties, cope with emergencies, and overcome the limitations of formal financial institutions. These groups provide a similar function among Ethiopian immigrants within the United States. From the financial perspective, the iquub offers Ethiopian taxi drivers a superior financial product than those offered in the formal banking system. Moreover, this tool provides them with the additional benefit of community support.
The individuals I interviewed share common characteristics, which seem to provide insight on both Ethiopian taxi drivers and the role of informal savings groups. Independence and flexibility were key themes that underpinned the choices made about their professions and financial tools. Although each driver was university educated and had the choice to work in their field of study, they both preferred the freedom that comes with driving a taxi. Both drivers noted that it provided greater flexibility in their schedules (allowing them to take vacations to Ethiopia at their discretion) and offered greater pay. Similarly, while both drivers had formal bank accounts and access to more sophisticated financial products, the iquub allowed them to handle their finances in a more independent and flexible manner. Finally, given that taxi drivers primarily operate in a cash economy with high money velocity, the iquub seems to fit well within their lifestyle.
Elizabeth Mengesha is a recent graduate of the Fletcher School of Law and Diplomacy. She holds a Master of Arts in Law and Diplomacy with concentrations in human security and international development.
Reader Comments (1)
This post is remarkable. It shows the persistence of these clubs and their social uses. It seems a pity that Americans who do not have this tradition in their families are not give the tools to learn about them and master their own practices to better their lives. The practice is simple enough but clearly years of honing its interpretation is what keeps this particular ROSCA going. Thanks for researching the historical roots of this important savings and money circulation device.
Mon, June 3, 2013 | Kim Wilson