If you work in a Philippine office, school or parish, someone has probably asked you to join the sinking fund. Every payday you put in a fixed amount. Members can borrow from the pot and pay it back with a little interest. When the cycle ends, often in December, everyone gets their money back plus a share of that interest.
Search for "sinking fund" online, though, and most guides describe something else: money you save on your own for a planned expense. This guide explains both meanings, then shows how a group sinking fund works with real numbers, the rules to agree on before you start, and how to keep the fund honest.
What Does "Sinking Fund" Mean?
The term has three common meanings. All three share one idea: setting money aside, bit by bit, for something you know is coming.
- A personal sinking fund is money you save on your own for a planned expense, such as tuition, a new phone or Christmas gifts. An emergency fund is for surprises; a sinking fund has a purpose and usually a date.
- A company or bond sinking fund is money a company or government sets aside to pay off a debt over time. This is the original meaning: Britain used a sinking fund from 1716 to reduce its national debt.
- A group sinking fund is the Filipino version. Members of an office, school, church or community pool their contributions into one fund, lend it to each other with interest, and share the result when the cycle ends. In Davao and other Bisaya-speaking areas it is also called a bu-bu-ay, and some groups call it a sosyo.
The rest of this guide is about the group kind.
How a Group Sinking Fund Works
A group sinking fund runs in cycles, usually a year, and every cycle follows the same four steps.
- Members contribute. Each member pays an agreed amount on a set schedule, often every payday (kinsenas) or once a month.
- The fund lends. Members, and sometimes outside borrowers the group accepts, borrow from the pooled money. Borrowers pay interest at a rate the group agrees on, usually charged each month on the amount still owed.
- Repayments go back into the fund. Principal and interest return to the pool, so the money can be lent out again.
- The cycle closes and everyone is paid. All loans are settled, the treasurer counts the cash, and each member receives their contributions back plus a share of the interest the fund actually collected.
Then a new cycle begins, usually with most of the same members.
A Worked Example
Here is a small office sinking fund with four members and a 12-month cycle. The names and numbers are made up, but realistic.
Contributions
- Ana: ₱1,000 a month, ₱12,000 for the year
- Ben: ₱500 a month, ₱6,000
- Carla: ₱500 a month, ₱6,000
- Dan: ₱250 a month, ₱3,000
Together they contribute ₱27,000 over the cycle.
One Loan
Midway through the year, Ben borrows ₱10,000. The group's rate is 2% a month on the amount still owed.
- When the loan starts, the interest is 2% of ₱10,000: ₱200.
- Ben pays the ₱200 interest plus ₱2,000 of the principal, so he now owes ₱8,000.
- The next month's interest is 2% of ₱8,000: ₱160, not ₱200.
Charging interest only on what is still owed is fair to the borrower and rewards paying early. Across all its loans that year, the fund collects ₱2,700 in interest.
Sharing the Interest, Two Ways
When the cycle closes, the fund holds ₱29,700: the ₱27,000 contributed plus ₱2,700 in interest. Groups usually split the interest in one of two ways.
Evenly. Every member gets the same share: ₱2,700 ÷ 4 = ₱675.
- Ana: ₱12,000 + ₱675 = ₱12,675
- Ben: ₱6,000 + ₱675 = ₱6,675
- Carla: ₱6,000 + ₱675 = ₱6,675
- Dan: ₱3,000 + ₱675 = ₱3,675
By contribution. Each share follows how much the member put in. Here the interest is 10% of everything contributed (₱2,700 ÷ ₱27,000), so every member gets 10% on top of their own money.
- Ana: ₱12,000 + ₱1,200 = ₱13,200
- Ben: ₱6,000 + ₱600 = ₱6,600
- Carla: ₱6,000 + ₱600 = ₱6,600
- Dan: ₱3,000 + ₱300 = ₱3,300
Both ways add up to ₱29,700. An even split favours members who put in less; splitting by contribution is fairer when amounts differ. Choose one before the cycle starts and write it down.
Sinking Fund vs Paluwagan
People often mix the two up, but they work very differently.
- In a paluwagan, members take turns receiving the whole pot. If ten people each put in ₱1,000 a month, one person takes home ₱10,000 each month until everyone has had a turn. Usually nobody earns interest; an early turn works like an interest-free loan from the members who come later.
- In a sinking fund, the money stays together in one fund for the whole cycle. It grows through interest on loans, and everyone is paid at the end.
A paluwagan is simpler to run. A sinking fund needs careful records, because every loan, every interest charge and every member's share has to be tracked all cycle long.
Rules to Agree On Before the First Contribution
Most sinking fund arguments start with a rule nobody wrote down. Settle these at your first meeting and put them in writing, even if it is only a message pinned in the group chat.
- Contribution amount and schedule: how much, how often, and the last day to pay.
- Cycle dates: when the cycle starts, when it ends and when the payout happens.
- Who can borrow: members only, or outside borrowers too, and whether an outsider needs a member to vouch for them.
- Loan limits: the most one person can borrow, for example up to twice what they have contributed so far, and how long they have to repay.
- Interest: the rate, and whether it is charged monthly on the amount still owed or as a flat amount.
- Late payments: what happens when a contribution or a loan payment is late.
- Leaving early: whether a member who leaves mid-cycle gets their contributions back right away or at the payout.
- Sharing the interest: evenly, or by contribution.
- Who handles the money: a treasurer, plus a second person who checks the records and counts the cash with them.
Keep the interest rate modest. It should reward the members without burying a co-worker in debt.
Keeping the Fund Safe
A sinking fund runs on trust, and trust needs records. The usual problems are easy to prevent.
- Records only the treasurer can see. Give every member a way to check their own contributions and loans, not just a total announced at the end.
- Unpaid loans at payout time. Don't close the cycle until every loan is fully paid, or until the group has agreed how to handle the one that isn't.
- Cash that doesn't match the records. Count the cash with a second person before the payout, and explain any difference before anyone is paid.
- Changes nobody can trace. Fix a mistake with a new entry instead of erasing the old one, so everyone can see what changed and why.
- Promises of big returns. A real sinking fund earns only what its own loans bring in. Be wary of any "fund" that guarantees high returns or pays old members with new members' money. That is how schemes like KAPA drew people in, and the SEC has warned Davao residents about copycats since.
Run Your Sinking Fund on Tinubuan
Tinubuan is a record-keeping app made in Davao City for exactly this kind of group.
- The treasurer records contributions, loans and payments on a laptop or in the Android app.
- Tinubuan charges each loan's interest monthly on the amount still owed, so nobody works it out by hand.
- Every member sees their own savings and loan on their phone, and can ask the treasurer for a loan in the app.
- Every change stays in the group's activity history, corrections included.
- The cycle can't close until every loan is paid and the cash has been counted, with any difference explained. Then Tinubuan works out each member's share, evenly or by contribution.
Tinubuan never holds, sends or lends your money: your group keeps its own cash, and Tinubuan keeps the records. It's free for 30 days, then ₱99 a month or ₱899 a year for the whole group.
Start your group, free for 30 days
Frequently Asked Questions
Why Is It Called a Sinking Fund?
The name comes from its original use: paying down debt. Governments and companies set money aside regularly so that a debt would shrink, or "sink", over time. The name stuck for any fund built up bit by bit for a planned purpose.
What Is the Difference Between Savings and a Sinking Fund?
Savings is money you put aside in general. A sinking fund is savings with a purpose and a date, such as tuition in June or gifts in December. A group sinking fund adds lending: the pooled money earns interest from members' loans before it is paid out.
What Is an Example of a Sinking Fund?
A personal one: ₱1,000 a month set aside for next June's tuition. A group one: the worked example above, where four co-workers contribute ₱27,000 over a year and share ₱2,700 in interest.
Is a Group Sinking Fund Safe?
It is as safe as its records and its treasurer. Written rules, a second person who checks the cash, and records every member can see prevent most problems. Remember that the fund is the members' own money, and nobody guarantees it.
What Happens If a Borrower Can't Pay by the End of the Cycle?
Agree on this before it happens. Some groups take the unpaid balance out of the borrower's own payout; others carry the loan into the next cycle. Tinubuan won't close a cycle while a loan is still open, so the question gets settled before anyone is paid.
Does the Cycle Have to Be One Year?
No. Many groups run January to December, but others start mid-year or run longer. In Tinubuan a cycle can run from 1 to 24 months.