10 August 2015

Is 'PALUWAGAN' System A Good Or Bad Method?

Are you tempted to invest with high-return money without any risks? How does it possible? If it's good to be true, will you risk your money with this kind of system?

Photo by: Ken Teegardin / Flickr
If you have doubts, you should check this out and know it better.

Paluwagan is a matrix/cycle type of marketing plan in our country. Or it could be a simple form of  Money lending and savings system, and that is so popular in the Philippines.

Someone mentioned that in English, it is called, Rotating Savings and Credit Association or ROSCA. Ideally, it will work if there are at least three members. As such, there is no need for documentation or memorandum of agreement among both parties, because members know each other.

My mother joined this similar kind of system called HULOGA. Group members decided to pay an amount then you can lend the money and pay it for an interest rate. Do sounds like a loan?

Taken from: http://www.slideshare.net/jeromezinampaniris/victory-global-marketing-plan-jerome-iris

Paluwagan is allegedly guaranteed members high returns without supposedly any risks. Is it really possible? If a member is too skeptical about it, then there's really a problem.

In connection with, Paluwagan is a quite common topic among Filipinos, this commonly referred as a local saving method. Just recently, the Department of Trade and Industry (DTI), Paluwagan issued a warning about engaging Paluwagan system. Even though there's a warning advisory, still it exists in some part of the country.

Where did this system originate? Probably started in the family members wherein they make a plan to use the total amount of money collected in the members. So the magic ingredient of it is the TRUST.

TRUST is indeed a prime factor here. What if you don't trust any member? That's the worst scenario. Questioning trust can ruin the relationship. 

Paluwagan is an investment scheme which has similar to Pyramid Schemes. But they say, it's a way of saving with no talk of interest.

How PALUWAGAN works?

Paluwagan is mostly common with a group of friends, officemates, neighbors, and families/relatives.

A group of members decides to pay either Daily, Weekly, Twice or Thrice a month or Monthly basis to an appointed collector with a specified amount.

This collector will be responsible for the money collected and assured members to pay on time. (what if they don't pay on time? That's one problem).

Cashout will be paid on the desired date and time. Mostly at the end of the year. My mother joined somewhat like this system in our neighbor, they pay an amount, but they will get not cash, instead, Kilos of Pork and cases of Coke on the feast day (Month of April).

Sometimes it is a pool system.

The highest motivation is to get the first pot.

To illustrate how Paluwagan works, we will use 3 fictional names here.

1. Juan
2. Pedro
3. Diego

These three friends(members) decided and agreed to each pay Php 1,000.00 per week on a POT. In a week, it has a total of Php 3,000.00 collected. Right? One cycle will be completed in 3 weeks (because there are only three members).

The first week, a total of Php 3,000.00, the first member will get the first POT total of Php 3,000.00, that is Juan. In the second week, three members will pay Php 1,000.00 each, and Pedro will get the full amount. Lastly, in the third week, the same process, now, Diego will get the POT. That's how Paluwagan works, now, in social media, they tweak it as an investment. Here is an example:

Sample:
Online paluwagan ba ang hanap ung kasisimula lang pero madami na agad naka exit as in madami na araw araw may umeexit ung hndi talo ung ipe pay in mo pwes dto na kau 1500 nyo gawin nating 10k in just 3-5 days TAMA po 10k diba walang katalo talo... and PINAPANGAKO po namen hindi po ito isang scam or pyramiding.. Kakasimula lang po namen netong july 16 and napakarami na pong naka exit... paano??? Pm po kau.. sabihn ko po...
Question, is there a problem here? Basically, there is none. However, the first member will enjoy first the POT. What if in the next week, he/she will not pay?

Reason Why People Join Paluwagan

1. Trusted members (of course, people greatly know the characters of those members; as such, people will also know how bad reputation a member is)
2. For Savings (ideally for savings, but since it says it turns high returns, then that is the problem. No product. Just plain investment eh? )
3. No reason at all (just joining because it is mainstream or majority of the office mates or families engaged or joined)

Is it bad? Not, but in the long run, a problem will inevitably arise.

Paluwagan: DOWNSIDE

1. Problem with members not paying on time
2. If a particular member stops in the middle of the Paluwagan journey, it affects greatly to other members and its system
3. Ruined relationships (money is evil)

If you decide to join Paluwagan system even with its bad side, then you might check members by these following:

1. Determine if those members DON'T have Negative RECORDS. But it does not necessary mean that if they already had negative records, you will conclude that he/she will be a problem someday. Well, this is a good try or factor to consider. 
2. Determine if they have ESTAFA case in the past; if they had, then you need to think twice.
3. Ask for character references.
4. Determine if the members don't have a financial problem.

Watch DTI calls 'Paluwagan' a pyramid scheme



FINAL THOUGHTS
If you really want to invest and make your money grow, try with Mutual Funds, UITF, stocks, or business.

Trust is really a magic ingredient with this Paluwagan system if you think you and those members are qualified for the system, then take risks.

References: 

1. DTI: 'Paluwagan' is a pyramid scheme
2. All About Paluwagan!
3. What is a Paluwagan: a Money Lending and Saving System in the Philippines
4. http://www.abs-cbnnews.com/video/business/04/22/15/why-you-should-stay-away-paluwagan-schemes

updated: February 4, 2017

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