The bidding clubs have lost the scent of rice:
Whatever the origins of RCAs, one thing we can be certain of is that they have been widespread in China for over a thousand years. Originally they paid out money in rotation to family members who needed it for sacrificial rites, marriages, funerals and the like, with any disputes over precedence being arbitrated by the local elders; later people felt this method was not objective enough, so they drew lots to let the spirits decide; later still, a bidding system developed whereby the money pool goes to the person bidding the highest rate of interest. At this point the allocation of capital reached its most efficient.
Different areas have different names for rotating credit associations, depending on their form. The names include invitation clubs, lottery clubs (decided by drawing lots), bidding clubs (decided by the rate of interest bid), credit clubs, mutual aid associations, and monthly clubs; and in Taiwan, clubs, writing clubs, silver clubs and so on. They may take the form of cash clubs, which ordinary people usually choose, or the cheque clubs more often found among business people.
Farmers' bidding clubs have a style of their own. Apart from ordinary cash bidding clubs, there are also clubs where payment is made in kind, most often with rice.
Cake shop owner Chen Chen-chiang from Tali Rural Township in Taichung County farmed the land as a young man, and has participated in "rice clubs" amongst his relatives.
He describes how in agricultural society everyone was short of cash, and so they would organize bidding clubs after each harvest. The payments and interest would all be calculated according to the price of rice grain. For instance, if each person's payment per session was NT$3000, the leader would calculate the equivalent amount of rice, and after collecting it would hand it over to the bid winner, or else would use the rice mill as an intermediary, with the winner collecting the rice from the mill. With only two harvests a year, only about 12 to 16 people would take part, but even so it would take six to eight years to go the full round.
"In those days the people in the club were all relatives and neighbors, along with a few distant relatives such as husbands of aunts. Once the rice harvest was in we would 'eat on the club, ' with the leader setting up tables and laying on food for the guests, who would put in their bids, " Chen Chen-chiang recalls. He laments the fact that today human relationships and principles have become weaker, and not only do tricksters make off with club money, it is also very difficult to recruit members for a club with a life as long as six or eight years.
Civil servants were "off limits":
The risk of fraud is the reason why people's attraction to RCAs is tinged with fear. Around 1980 especially, Taiwan was rocked by a succession of RCA fraud scandals. Lin Kuang-yu, formerly of the First Commercial Bank's credit department, has calculated that in a period of little over two months from August to October 1979, over 10,000 people lost money in RCA frauds, with the sums involved totalling over NT$1 billion. In places such as Yunlin and the Chienchen district of Kaohsiung there were even whole series of domino-style failures.
"Later there was even a case with an enormous bidding club organization where the leader drove a Mercedes up and down the island collecting money, and eventually made off with several billion dollars. That case sent shockwaves through society for a long time," recalls Lin Wei-ke, General Manager of Taipei Business Bank's Secretariat Department.
In that jittery period, government agencies worried that it would damage their image if civil servants were involved in bidding clubs, and so some departments sent down orders forbidding civil servants to take part in RCAs. In recent years the number of defaults has gradually dropped off, and RCAs have been replaced as the "stars" of the underground financial system by underground investment companies and futures companies, which attract even greater sums of money, so that the ban has finally been dropped.
Supreme Court President Wang Chia-yi, who claims not to know the first thing about managing money, agrees to his wife putting their spare cash into mutual aid associations, but only on condition that if ever an association should collapse, she should on no account try to recover the money through the courts. This is because with his position in the judicial system, if she won people would say he had a hand in it, and if she lost people would make fun of him, saying he was ineffectual. With the prospect of losing either way, it is better simply not to fight such a case.
Because bidding clubs are not regulated or guaranteed by the government, for many young people with a modern education, who like to do everything by contract and written agreement, RCAs are an archaic way of managing money, and they prefer newer financial instruments such as shares, futures, mutual funds and annuities. One doctor of chemistry working at the Industrial Technology Research institute told his newlywed wife: "Don't talk to me about bidding clubs: I don't understand them and I don't trust them."
The survey by the Provincial Government's Department of Budget, Accounting and Statistics also showed that compared to a survey five years previously, although RCAs are still a major form of savings, with the sums invested second only to deposits with formal financial institutions, their share of the market has fallen slightly. This fall corresponds to a rise in the number of people who say they are "worried by the possibility of fraud."
A choice of gain and risk:
If people are aware of the risks, why are they still willing to take them?
One housewife says that since she does not go out to work, she has no concrete income to contribute to the family purse, and so has no sense of achievement. Saving some of the housekeeping money to put into an RCA and earn a profit is the only chance she has to build up any savings.
A taxi driver sees joining an RCA as a way of forcing himself to save. By putting in a little every month, after a time he will have a tidy sum; "otherwise I'd just spend it without thinking," he says.
"If you need some money you don't have to explain to anyone or win their approval," explains Fang Han-chang. People in business are often in need of some ready cash, but to borrow from a bank one has to meet all kinds of conditions and put up security, and the procedure is time-consuming and troublesome. If one tries to borrow privately, underground loan sharks' interest is too high, and ordinary individuals are not that trusting. But by joining an RCA, when one does not need the money one can save it, and when needs money one can bid for it. Everyone is happy, and it is very convenient. And if you want to avoid being tricked, all you have to do is be careful when choosing a club leader.
In fact, although RCAs create a loophole in Taiwan's financial management system, and people who become the victims of fraud may suffer severe financial loss, nonetheless healthy RCAs have undoubtedly made a great contribution to financing Taiwan's small and medium-sized businesses. It is not going too far to call them unsung heroes of Taiwan's economic miracle. Because the interest they pay is much higher (generally by two or three times) than the financial institutions, most housewives are willing to run the risk of being defrauded and invest their saved housekeeping money little by little in a mutual aid association. And small and medium businesses whose credit standing cannot match that of large companies and which therefore find it difficult to borrow from financial institutions, can use this channel to obtain funds to enable the business to operate and to grow.
Staying alive:
As a traditional Chinese financial institution, RCAs' existence has its value. The government's attitude has changed from a negative one to a positive one, and it has decided to amend the law in order to protect the interests of participants. The articles of the Civil Code regulating debt will now include provisions explicitly setting out the rights and duties of RCA leaders and members. The bill is currently in its second reading and once it becomes law, it will give RCAs a new modern face, enabling this Chinese "magic flute" to continue bringing mutual prosperity.
[Picture Caption]
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In the countryside of Pingtung County, one can still find "rice clubs," rotating credit associations which use grain instead of money. (photo by Cheng Yuan-ching)
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Before bidding begins for the right to borrow the RCA's money pool, each member writes his or her bid onto a slip of paper and folds it up. The slips are then arranged in a straight line, a horseshoe or a circle, and various methods such as adding the results of finger-guessing games or drawing dates at random from a calendar are used to find a number from which the order of opening the bids is decided. If two bids are the same, the first one opened takes precedence.
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This unusual poster was made by the Taipei Mutual Loan Company before it became a bank. It shows all the stages, from application to payment, involved in joining a rotating credit association run as a formal business.
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One of the legends concerning the origin of RCAs is that they were created in the Chin dynasty by the reclusive "Seven Worthies of the Bamboo Grove."
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Tihua Street is a center of Taiwan's underground financial system. Many business people are still members of mutual aid associations.
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That Chinese people have been able to establish themselves economically overseas has in no small part been thanks to the capital accumulated by RCAs.(photo by Cheng Yuan-ching)