Invest in Trust (and Hope It Works)

Published August 10, 2015 in Episode 16

In a society where people make as little as 2 U.S. dollars a day, it may seem impossible to fathom that anyone can afford to pay for his or her child's education or for a new house.  Yet, many Vietnamese families make it happen, thanks to a system called hụi. It’s an open secret among Vietnamese people.

“The first time when we had hụi, it happened in the countryside, where in the old times, the bank system hasn’t been operated yet,” recounts Kim Phạm, a retired social worker from the U.S. state of Texas. “That is very common, in the old times, like my grandparents, my parents, everybody knows about that.”

Hụi roughly translates to “mutual aid society.” It’s basically a loan or money-pooling club. Phạm, has been “playing hụi”, as the Vietnamese call it, for 15 years.  Her name has been changed at her request due to the sensitive nature of playing hụi.  She explains:

Hụi is investing one’s small savings, to raise capital through an informal borrowing and lending system among friends, among different people in the family, like sisters or brothers - usually a group of 10 people of more.

 “The ideal number is from ten to 15 members,” she adds.  

Many people, including many new immigrants, who don’t have access to a bank or do not have credit, benefit from this alternative method of financing. Koreans have a similar system called kye, and Ethiopians have one known as ekub. Even when they do have access to a bank or have credit, some people may still prefer to raise money from a hụi group, because of the personal connection.

Phạm mentions the ideal number of members, ten to 15, for a number of reasons. Hụi members contribute monthly to a common pool, which is given on a rotating basis to every member.  So if there are 12 members, each member can claim the pool only once a year.  As you can see, the larger the number of members, the longer it’ll take for you to have your turn at claiming the pool again.  

More importantly, the larger the number of members, the greater the risk for a breach of trust. Trust is a key element of a successful hụi.

“I can tell you that the friends here, it has to have trust,” Phạm says. “Everybody trusts each other and have the friendship. So they have to think about the other members’ benefit.  Whenever you think about other people, other members, the system will work.”

To start a hụi club, an organizer simply invites others to chơi hụi, or play hụi. He or she becomes the hụi owner and is responsible for collecting the money.  The hụi members agree on a monthly contribution to the pool, and there is a designated day for hụi collection, such as the first of the month. The member to claim the pool is chosen based on need.  

Phạm explains a typical hụi experience: "I am in a group of friends, about 10, and we work together; we know each other. We have a monthly income, but everybody can save only about $100 a month. And one day, something comes up, one of us needs $1000 to fix her car. You know what?  Everybody just put $100 of savings together, and let, you know, the person who is in need the most get that money and then later on pay it back: $100 a month.  And it works.”

This type of hụi is known as unprofitable, where nobody pays nor receives interest.  In this example, the “loan,” or raised capital, was 10 times the amount the member collecting the pool originally put in.  

Another type of hụi involves interest.  Multiple members in need of immediate money secretly bid for the pool, offering a certain amount of interest.  The member who offers the highest amount wins the bid and gets to claim the pool.  However, the other members’ monthly contribution for that month is now less the winner’s bid amount, which results in a lower pool amount for the winner in this round.  With this type of hụi, the member who claims the pool first will lose a percentage in interest, and the person who claims the pool last will get the full pool amount, because there is no one to bid against and thus, no interest to pay out; All the other members have already claimed their pool.  So, there is a reward with holding out to the last moment, or "saving."

Does all this sound too good to be true? You borrow a large amount of money in a quick fashion; it’s not only tax- and interest-free, but also paperwork-free. If you don’t have credit or do not want to have your credit checked, this method helps you obtain a hassle-free loan.  However, there are potentially disastrous disadvantages. If a member stops paying back his monthly contributions he borrowed from the pool or if the hụi organizer steals the members’ contributions without appropriately giving it to the member in need, the system collapses.  Again, trust is key.

Still, Phạm is a fan. “To me, I love to play hụi because that is only way we can meet together with the members, who are our friends, at least once a month,” she says. “So, to me, we did have a good time when we play hụi; we feel closer to each other.”

With all its risks and benefits, hụi continues to be a popular method of financing, from those making $2 a day to those making $2000 a month, or even $200,000 a year.  When played right, it can enrich lives in many ways.