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Paluwagan: How Does it Work in the Philippines?

Last updated: April 11, 2024
Written by: Alyssa Divina | Reviewed by: Digido Financial Writers Team

Key takeaways:

  • Paluwagan is a way of saving money through a group arrangement
  • Paluwagan is usually based on trust and social connections within the group
  • Paluwagan is often used as a way for individuals and families to save for important events
  • Paluwagan can be risky if one member fails to contribute or withdraws more than their share
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Saving money is a difficult thing to do. You need strict discipline to be able to do this. The good news is that Filipinos found an ingenious way to save money without the need for a bank. All it takes is a group of like-minded people to support each other.

In this article, we will show you how paluwagan works. We will answer questions like what is paluwagan, how does paluwagan work, and why is Paluwagan popular in the Philippines?

What is Paluwagan?

What is Paluwagan?

Paluwagan is a traditional savings system in the Philippines that is commonly used by individuals, families, and communities. It is also known as “cooperative savings” or “rotating savings and credit association” (ROSCA)  in other parts of the world.

Paluwagan is a process where several people give the same amount of money to a treasurer at a given interval. The treasurer keeps this money and also does the accounting.

Some paluwagan systems do not have a treasurer. Instead, the group of members share the accounting responsibility.

The goal of paluwagan is to ensure that the members get a lump sum. It is like saving, but then each member of a group gets money when his time or turn comes. In short, you will get a big amount of money even if you have not saved that money yet. That money comes from the members.

Paluwagan is also used by small businesses and communities as a way of accessing credit without going through formal financial institutions.

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Here are the basic rules of Paluwagan: 

  • Each member deposits money to the treasurer at a specific interval
  • All members must give an equal amount at each interval
  • At each interval, a member gets all that money
  • All members will pay until all members get paid

To understand it better, here is a table that can explain how it works:

DEPOSITOR Week 1 Week 2 Week 3 Week 4
Tony ₱1,000 ₱1,000 ₱1,000 ₱1,000
Matt ₱1,000 ₱1,000 ₱1,000 ₱1,000
Jimmy ₱1,000 ₱1,000 ₱1,000 ₱1,000
Carlos ₱1,000 ₱1,000 ₱1,000 ₱1,000
TOTAL ₱4,000 ₱4,000 ₱4,000 ₱4,000
PERSON TO GET MONEY Tony Matt Jimmy Carlos

A group of people will pool their money together and contribute a fixed amount on a regular basis, usually weekly or monthly. The contributions are then given to one member of the group on a rotating basis until everyone in the group has received their share.

In this example, there are four members. They agreed that they would deposit money each week. The agreement is that each member will deposit ₱1,000 per week.

In the first week, all members deposit ₱1,000 each, and the total amount is ₱4,000. In the first week, it is Tony who will receive ₱4,000.

On the second week, Tony and the rest will do the same thing, giving ₱1,000. However, it is not Matt who will receive the total of ₱4,000. The cycle will continue until everyone gets the lump sum of ₱4,000

A paluwagan system can happen daily, weekly, or monthly. The paluwagan rules depend on the team members who initiated it. 


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Here are some of the benefits of getting a Digido loan instead of joining a paluwagan:

  • You can get a loan for personal reasons
  • You can borrow PHP 1,000 to PHP 25,000
  • All operations are online
  • If approved, you get the money in your bank account in 10 minutes
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  • You can get a loan if you are a citizen of the Philippines, 21-70 years old and have a valid ID.

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Advantages of Paluwagan

  • Easy access to cash – all members will receive a lump sum on their turn; however, each member will pay his contribution on a monthly basis or a weekly basis. So, if you are the first to receive, you get a lot of money now, but then you must pay that all back later.
  • No interest rates – the team will not pay interest for the money they receive because it is not a debt. All people will get an equal share.
  • Builds trust and relationships – honesty is an important component of this system; it takes only one person to default his dues, and the system will crumble.
  • Helps with budgeting and saving – people can get a huge amount of cash. The only thing they must do is deposit a small amount of money weekly (or daily or monthly)

Another advantage of paluwagan is the ease by which you can do it. There are no documents required, and there is no involvement coming from financial institutions. 

Read about
How to Save Money From Salary in the Philippines

Disadvantages of Paluwagan

  • High risk of fraud or scams – you must be very careful who you trust. If a person gets a lump sum and disappears, the rest of the team who made a contribution will not be able to recover that money.
  • No guarantee of return – if people quit, and you are the last to receive your share, you may not get anything at all. You will have a hard time coming after them.
  • Can lead to financial strain or debt – you are “forced” to pay your weekly or monthly dues 
  • May strain relationships if someone defaults on payment – if somebody decides to quit, you have no course of action. You will lose your friendship over money.

The very disadvantage of a paluwagan system is the loss of funds. Just imagine if you paid your dues, and then some people who receive their lump sum ran away—there is really no way you can recover your contributions.

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How to Join Paluwagan

Here are some steps you can take to prevent being scammed.

  1. Find a trusted group or organizer – although formal paluwagan groups are rare, you may come across some groups on FB or other social media. Validate that they are for real. Only trust those that your friends recommended to you. Do not forget that social media can be an avenue of fraud.
  2. Understand the terms and conditions – you must attend the meeting and ask questions. Some paluwagan systems can take a year. Be ready for that commitment.
  3. Set a budget and payment schedule – do not join a paluwagan system if the deposit requirement is beyond what you can afford. If they need ₱1,000 each cycle and you cannot afford it, then don’t risk it.
  4. Keep accurate records – ask who the treasurer is going to be and what records they keep. More importantly, you should also ask how they intend to keep the records secure and free from fraud.

Whenever money is in the mix, keep in mind that money serves as a temptation. A paluwagan system may sound great because you will get a lump sum even before you actually pay in full. However, it can also be a source of financial tragedy, so be very careful.

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Tips for Participating in Paluwagan

Now, here are some tips to consider before you actually make a commitment to paluwagan systems.

  • Only join reputable groups – do not give your money to people you do not know; only join the groups where you actually know someone.
  • Understand the risks and benefits – you have a responsibility to pay every interval; do not make a commitment to a paluwagan if you have other debts. 
  • Avoid borrowing more than you can afford to pay back – do not join if the interval is too long. Once you get your lump sum, you will be forced to pay that until you pay it back in full. Consider your other financial obligations before you make a commitment.
  • Communicate with the group if any issues arise – you must ask questions and do not hesitate to raise your concerns if you think something wrong is going on.

The best thing you can do is join a paluwagan system where you know somebody. Money sounds attractive, but a system like this can also be a cesspool of financial crimes. Paluwagan is still widely used in the Philippines today, especially in rural areas where access to formal financial services is limited. Paluwagan can be risky if one member fails to contribute or withdraws more than their share. This can cause financial strain for the other members of the group.

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Summary of Paluwagan in the Philippines

Paluwagan is an excellent savings scheme if you have good and honest friends. However, some people can default, and you may not get paid. Remember the Paluwagan is based on trust and social connections within the group. This means that members must trust each other to contribute and withdraw money on time.

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  • What is paluwagan meaning?
    Paluwagan is a turn-based and contribution-based savings system. Each member contributes the same amount of money which another member will get.
  • What is the legality of Paluwagan in the Philippines?
    Paluwagan is legal in the Philippines, and it is a common practice among Filipinos as a way to save and access credit through a group arrangement.
  • How does paluwagan computation work?
    Members give the same amount of money at each interval. The number of members determines how much each recipient gets when his time comes.
  • Who can join paluwagan?
    Anyone can join paluwagan. Of course, the people who create the system will want to know if you really have the capacity to pay your financial obligations to the team.
  • How much can I get from paluwagan?
    The amount you get depends on the number of members and the minimum deposit required.
  • Who can I trust in paluwagan?
    You must only trust your friends. If you see online groups, be wary of them unless you know the people behind the group
Disclaimer and Editor’s note


Alyssa Divina
Author pages:
Alyssa Divina pens blog articles about a wide range of topics, such as money matters and government transactions in the Philippines. Prior to joining Digido Finance Corp., she served as a journalist for Charlton Media Group, a business news magazine, for two years. She holds a degree in Journalism from the University of the Philippines Diliman.
Digido Financial Writers Team is a team of experts in the field of finance and credit, specializing in writing articles for Digido blogs.

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