What Is A Money Circle And Should I Join One?

Money circles are groups of people who pool money together. They’re also known by dozens of other names around the world, including esusu, ajo, and contributions.

Money circles have lots of names because they’re a central part of many communities. While they’re not widely used in the UK, they’re becoming more popular, thanks to our growing multicultural society.

So what exactly is a money circle, and how do they work? In this article, you’ll learn everything you need to know about money circles, including:

• Who can join a money circle
• The pros and cons of joining a money circle
• Whether a money circle is the right way to pool funds for you

What is a money circle?

A money circle consists of individuals who each contribute to a common fund on a regular basis. One member receives a payout equal to the whole fund at each interval.

Money circles date back centuries, and they’re still widely used today. It’s a popular concept because you’re accountable for how much you contribute and you can uplift your whole community in the process.

How does a money circle work?

Money circles work like this:

1. You and four friends agree to pay £200 into your circle every month, giving you a monthly total of £1,000.
2. In month one, you receive the payout, and get £1,000.
3. In month two, your friend receives the payout. They get £1,000.
4. This repeats until month five, when everyone has a) received their payout and b) contributed £1,000 in total.

The great thing about a money circle is that your group has total control over the amount you pay in and the payment intervals. You could decide to contribute £5 a week, or £500 a quarter — it’s totally up to you.

In some countries, centrally organised money circles (such as the Mission Asset Fund in the US) will help you find a group to join. This gives you a little less control over who you contribute with, but means you don’t have to set up and manage the circle yourself.

Is a money circle a loan?

No! Bloom Money does not offer or provide loans or credit services. However, we help to facilitate the arrangements so that (in accordance with your instructions) your money is pooled together with the contributions from other circle members and paid out to each circle member according to the agreed-upon schedule of the circle, facilitating group payments and financial management.

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The pros and cons of joining a money circle

If you’re thinking of starting or joining a money circle, it’s important to understand the benefits and drawbacks of this arrangement. Here are the major pros and cons of lending circles.

Advantages of money circles

• You won’t generate interest. Riba is haram in Islam, so money circles are popular with Muslims who don’t want to earn interest on their funds or pay interest on a loan.
• Only trusted people can join your circle. You can pool with friends, family members, colleagues, and anyone you trust.
• Setting up a money circle is low to no cost. In its most basic form, a money circle is free to set up. (You might need to pay a small fee to use tools that help you manage your circle.)
• There’s no credit check. People with low or no UK credit score can still join a money circle, making it an accessible way to save even if you haven’t been in the UK long enough to establish a credit score.

• There are no application forms. You don’t need to complete any forms to join a money circle; you can easily set up a circle with the people you know.

Drawbacks of money circles

• You won’t generate interest. This is a pro and a con, depending on your perspective. Those who don’t have an ethical or religious objection to earning interest may find this isn’t as lucrative as savings account alternatives.
• You need to agree terms with other members of the group. Other members’ needs can dictate the terms of the circle. For example, if another member wants to commit to a lower contribution, it will limit the overall payout for all members.
• It can be risky. Money circles are an informal way to pool funds, so most informal money circles are not protected by the Financial Conduct Authority or other financial protection organisations. Make sure you trust other members to make their contributions on time.

Who are money circles for?

Anyone can join or set up a money circle. Unlike more established types of saving, in which you need approval from a bank or credit union, you can start your own money club with the people you trust.

Can you join an existing money circle?

Yes. If a circle invites you to join, you can contribute to their fund. Joining an established circle means you’ll probably need to agree to their existing terms.

Can you set up your own money circle?

Yes, you can create your own money circle. If you want to start in cash, all you need to get started is a group of people you know and trust.

Bear in mind that running a money circle in cash can get complicated. You’ll need to collect contributions and make payouts in person, and store the money somewhere safe. So it’s much safer and more convenient to manage your money circle online.

Bloom is designed to make managing your money circle easy and secure. Find out how Bloom works. Or, if you’re new to money circles, read our step-by-step guide to starting a rotating money club.

Money circle alternatives

Money circles are a great way to pool money, but they're not for everyone. There are other ways to boost your funds. Here are some money circle alternatives to consider:

• Earn extra money — There are plenty of opportunities out there, from freelancing to pet sitting to selling goods online. Price your services based on your time and experience as well as the service or product you provide.
• Make use of benefits you’re eligible for — If you’re eligible for Universal Credit or another type of benefit, make sure you’re claiming them. You can get help with housing, food, healthcare, and other essentials.
• Ask for help — Consider reaching out to friends or family members for financial assistance. Approach the situation with care, sensitivity, and no expectations. Be prepared to discuss repayment terms and any other relevant details.
• Apply for a personal loan — If you’re not worried about paying interest and you have a decent credit score, you may be able to get a personal loan from a bank or another lender. (Make sure to avoid payday loans, which can quickly spiral into debt).

Should you join a UK money circle?

Money circles are a brilliant way to uplift your friends and family while boosting your own financial future. They’re ethical, traditional, accessible, and easy to set up. So if you’re in the financial position to commit to regular contributions, money circles can be a great way to get started.

Money circle FAQs

Here are some of the most commonly asked questions about money circles.

Is there a minimum or maximum amount I can pay into a money circle?

No. The terms are set by the members, so as long as the agreed amount is affordable for all contributors, you can contribute as much or as little as you like.

Where can I find a money circle to join?

There aren’t any centrally organised money circles in the UK. So you’ll need to set up your own circle, or find a local group to join. Bloom makes it easy to set up and join your own money circle.

Money circles are common in minority communities in the UK, so it’s a good idea to speak to others in your community if you want to join an existing group.

What’s the difference between a money circle and a funding circle?

Money circles are for individuals who want to boost their personal funds. Funding circles, meanwhile, work in a similar way, but are usually geared towards investment funding.