What Is A Committee System?
The Committee System is where a group of people (can range from 10-20) come together to form a “Committee” and each person contributes certain amount of money towards a corpus of funds. It is used by people to save money and meet their debt requirements. This is so because the traditional means of getting debt at a lower level involves either dealing with a bank (which grants loans based on lots of financial criteria) or borrowing from a friend (lot of trust involved if you ask for a big amount) or the local money lenders (which charge huge interest).
All of these are difficult options for people in the lower middle class and lower income class. Additionally, the PPF and Post Office Savings are the only investment options available. Probably for these reasons, this one-of-a-kind approach to investing and raising debt was developed. It is most importantly useful for those who can’t get debt from banks.
The committee system is very different from the banking industry in that it does not require collateral to raise money. There is a group of people and a leader who runs the committee and collects money from each member each month. Each time, the full amount is given to a specific person, and this continues until all members receive a single payment in full.
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How Does A Committee System Work?
Suppose there are 10 members in a group and each one of them is interested to put/save 10000 a month in a committee system. So, there is a cashier outside the group who collects the money from all the participants and creates a pool of 1 lac rupees every month. Now to take this 1 lac rupees bidding takes place between the members and the member who places the highest bid will be winning that round and he has to repay it in subsequent rounds. So, the bid amount is nothing but the cost that you are willing to take right away.
Suppose you bid for like 18000 rupees in a round so you will be getting 1 lac minus 18000 rupees that is 82000 rupees in that round and this 18000 rupees will be shared equally by the remaining 9 members so that each one of them gets a profit of 2000 rupees in that round. Now the key point is that one person can win only one time and each one of the members gets a chance to win the pool one time. So this will be taking you 10 rounds so that each one of them will win it one time in future. This way, the last person will be picking up the fund at zero cost because there is no one eligible for bidding and he will be the most benefited person as he is sharing 9 rounds of profits and also picking up entire 1 lac rupees at no cost.
Read: How Saving Money Becomes Easy With The Help of Community?
Risks Of Using A Committee System To Raise Money
- Currently, the biggest drawback of using a committee system to raise money is scams. Sometimes, the leader takes your money and you can’t do anything about it because there is no legal work involved.
- A person who receives the initial payment may refuse to make subsequent installments.
- Sometimes the people involved may not be of good ethical behavior, they may be goons who try to blackmail you.
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How to Avoid those Risks?
To avoid those risks you must ensure that you are doing with trustworthy people. Do a background research of all the members and initially start with small amount. If possible always do it among relations or friends.
However, there is an alternative to this committee system which is an online committee system. Money Club is one such online committee system which runs on the same principle but with many advantages. The Money Club is a safe and secure mobile app based on the concept of Committee system and the users can save, invest or borrow sitting at home without the hassle of documentation.
Online Committee System
Money Club follows the same concept but with some modification on the platform.
- The very first difference is that we are not acting as the cashier. That means you don’t have to deposit any money with us. You directly transfer your contribution to the winner. In return, you have to confirm your transaction id on the Money Club app so that we have proof of your payment.
- The second difference is bidding takes place online so you don’t have to go anywhere. Suppose we schedule a bid timing of like 9:30 PM then everyone in your group will be coming online on the Money club app at 9:30 Pm and there will be a live bidding portal on the app. You can just open it and participate in the bidding process. Bidding runs for 15 minutes only and at the end of 15 minutes whoever has placed the highest bid will be winning the round and everyone else will be seeing his name and bank details on their screens. This way you can directly transfer your funds to the concerned person.
We verify all the users who apply to join a Money Club. Members who successfully complete their verification become eligible to join the real clubs. Money Clubs will only be formed by the Money Club team. Members have to go through the screening process and different levels of verification. Level 1, their PAN number is verified and in level 2 which is done for a bigger club amount, their bank statement, credit report and ITR is checked.
Read: Know Your Money Club platform Journey On The Money Club App
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