On paper, Pakistan exhibits weak saving rates, especially in contrast to other developing nations in the region. However, this does not necessarily imply poor saving habits or an unwillingness to save within the country. In fact, Pakistan has a substantial informal economy that shapes the saving and borrowing habits of most of its citizens. One of the most popular saving and borrowing systems in Pakistan is the rotating savings and credit association (ROSCA). ROSCAs are not unique to Pakistan; they serve as an age-old mechanism prevalent in several countries around the globe, mainly in the developing world.

In Pakistan, ROSCAs are commonly referred to as the "committee" system. Committees involve a financial arrangement where a select number of participants contribute a fixed amount of money at regular intervals. At each interval, one member of the committee receives the entire lump sum of the total cash pooled into the system. The recipient is chosen either on a mutual basis or through a balloting system. This process continues until each member of the committee has received the sum at least once, after which the committee dissolves.

There are several reasons why informal saving and borrowing mechanisms thrive over formal financial institutions in Pakistan. Firstly, there is limited access to and knowledge of commercial banking services. Many rural areas in Pakistan do not have easy access to banks. Additionally, people from lower-income backgrounds find it particularly difficult to secure credit or loans from formal systems. This is where committees become highly relevant. Many committees are community-based, formed between friends, family members, or known networks of acquaintances and colleagues based on mutual understanding, providing easy access to all participants. As a plus, committees are interest-free.

Committees also help mitigate financial exclusion, especially for women. Statistics show that women have less access to saving services due to societal norms that contribute to gender gaps in wages, literacy, and workforce participation. As a result, women are more likely to participate in committees. Committees provide an opportunity to save a sizable sum of money for individuals in low-income settings, often considerably above their average earning potential.

Even though committees help people in low-income and rural settings save and borrow a considerable sum, research shows that in Pakistan, committees are equally common in urban areas among higher-income earners. This is primarily due to the interest-free nature of committees. Pakistan is a Muslim society, where the concept of interest is viewed as sinful and contrary to the basic ideology of Islam. Consequently, conventional banking systems are frowned upon by many. As a result, in addition to regular individuals, traders and businesses also participate in the committee system.

As argued, committee systems offer several benefits. They facilitate easy access to credit, risk-sharing, financial inclusion, financial education, and reduced dependence on formal financial institutions. Furthermore, they provide flexibility, and being community-based, they are more sympathetic to participants' needs. Committees offer an easy way to save for future healthcare needs and children's education, especially in economies where people rely on the private sector for their basic necessities. However, there are also several risks involved when relying solely on ROSCAs for saving and borrowing.

Committee systems are based entirely on trust and mutual understanding. Moreover, they are mostly cash-based, with no detectable money trail. This makes individuals highly susceptible to fraud. In fact, there have been several cases of fraudulent activities in Pakistan, many of which have been reported in the news. One such case involved an influencer named Sidra Humaid, who ran a Ponzi scheme and stole a collective sum of more than Rs. 4 million from several women. In an economy where people already suffer from financial exclusion, such schemes can place individuals in even more dangerous and vulnerable situations.

Since the money trail is difficult to trace, such cases are also extremely hard to contest in court, especially since individuals have willingly entrusted their money to such schemes. Sidra Humaid's case was exceptional because the committee system was operated in an online setting. However, fraud has also occurred in situations involving known family members and friends. Therefore, it is crucial for individuals to be cautious of others' intentions before participating in committee systems.

Additionally, since committee systems are interest-free, they do not account for inflation or currency depreciation. Many participants might find themselves at a disadvantage when they realize that the purchasing power of their savings has decreased over the committee cycle. Furthermore, as committees operate in the informal economy with generally untraceable payments, the money does not contribute to the country's overall economic development. Committee systems can also be misused for money laundering due to their unregulated nature.

The committee system is deeply rooted in Pakistan and offers several benefits to its participants, so it is likely to continue for a long time. However, efforts can be made to gradually promote financial inclusion in the country. It goes without saying that financial institutions and services need to be more accessible to the general population. Additionally, a middle ground to address the risks posed by traditional committee systems can be found in the form of digital committees. Digital committees can help create a traceable money trail and serve as a more centralized system, leading to greater transparency, security, and accountability.