Family funds: a viable alternative to bank loans in Saudi Arabia?
With the difficulty of getting bank loans and high interest rates, family members are looking for alternative ways to help each other not get in debt.
Funds that family members contribute toward are becoming increasingly commonplace to help with the rising cost of living and provide an alternative to bank loans.
Many families were driven to create family funds because of the pressure they endured getting bank loans or from buying through installments.
Family funds are created to help family members in need. A member of the family, usually an elder, would be in charge of collecting a fixed amount of money from all family members participating in the fund.The amount is decided based on the financial circumstances of each family member.
Usually, the amount is paid on a monthly basis. Those contributing to the fund are eligible to borrow money from it interest free. The amount is then paid back in installments, negating the need to go to the bank to take out loans or borrow money from strangers.
Faisal Abdulrahman Eshfaqa, who has six brothers and three sisters, said their family fund represents a show of solidarity.
He said: “We have family members who cannot face the rising costs of living."
“Since the establishment of this fund, the condition of my poor brothers has improved."
“One of my brothers goes to the bank each time he faces a financial problem, which charges high interest."
“My brother suffers all the time when paying back his loan."
“Sometimes he borrows money to end the loan and free himself from the bank."
“Our idea, which started four years ago, liberated them from the need of having to get a bank loan.” Eshfaqa also said that there are conditions for obtaining a loan from the family fund."
For example, a family member needs to provide a valid reason for wanting money, whether it is for medication, to pay debts, get married or pay off credit cards. If family members want to replace their furniture or use the money to travel for vacation, then the request will be denied.
He said that money is only used for certain cases.
Abdulmuhsin Fadel, a father of three who contributes to a family fund, said that family funds are the best way to escape from banks.
He said: “A bank charges me 4.5 percent interest rate, which is very high compared to my salary."
“In order to get the loan, a lot of time is wasted on getting paperwork done and going back and forth from the bank."
“It is a humiliating procedure."
“The family fund is a very successful idea.” Fadel also said that all his family members agreed that the loan from the fund will be given only to pay debts and there will be no personal loans given in cash for any other reason."
Saleh Al-Ghamdi, another Saudi who contributes to a family fund, said the little monthly amount paid by each contributor will one day help save a family member from trouble. He said that he and his brothers, sisters and some cousins vowed to boycott bank loans and only rely on the family fund for financial help.
He believes that the family fund is a form of solidarity.
He said that many family members nowadays are busy with their daily affairs and the fund brings them together. He said: “It is a very helpful idea that should be adopted by all families.
“One thing that people should be careful of is not to disagree over the management of this fund."
“All family members should agree on under what conditions the family funds will be used, to avoid fights in the future."
“Family funds should bring people together and not separate them.”
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