In Tiago Oliva Schietti’s view, many people confuse the common fund with personal savings, as if each consortium member had an individual account holding their own money until it was time to use it. That is not how a consortium works, and understanding this difference explains much of the logic behind the awarding of credit.
Industry professionals often describe the common fund as the financial engine that supports the entire group: it is the source of the money used to award credit to participants month after month, until everyone has received their letter of credit.
What Is the Common Fund?
The common fund consists of the total monthly payments made by all participants in the group and is specifically intended to finance the awarding of credit. Each consortium member contributes a fraction of the asset’s total value, calculated by dividing that amount by the number of months in the group’s term.
Unlike individual savings, the money paid into the common fund is not set aside for the person who made that specific payment. Instead, it is pooled with the contributions of all other participants and collectively used to fund the letters of credit awarded at each monthly meeting.
For example, a group with a reference credit amount of sixty thousand reais and a sixty-month term would determine the common fund portion of the monthly payment by dividing that amount by the number of months. This results in one thousand reais per month allocated solely to the common fund, before adding the administration fee and any other costs established in the contract.
How Do Monthly Payments Become Credit for Selected Participants?
Each month, the total amount collected in the common fund makes it possible to issue one or more letters of credit, depending on the size of the group and the value of each quota. A larger group, with more participants contributing simultaneously, can generally award credit to more people each month than a smaller group.
This mechanism is what makes it possible to provide credit without charging interest: the money is already available because it comes from the participants’ collective contributions rather than from a bank loan that would need to generate interest. The trade-off, Tiago Oliva Schietti notes, is that consortium members do not choose when they will be awarded credit. They continue contributing until their turn comes, either through a drawing or a bid.
Because it depends entirely on the combined contributions of participants, the common fund also explains why payment defaults by some members are such a concern for consortium administrators: the less money that enters the fund in a given month, the lower the group’s capacity to award credit to new participants at that month’s meeting.
The Common Fund Is Not the Administration Fee or the Reserve Fund
It is common to confuse the common fund with other components that also make up the monthly payment. The administration fee compensates the company responsible for managing the group, while the reserve fund serves as an additional safeguard against defaults or unforeseen financial circumstances.
Tiago Oliva Schietti points out that this distinction matters because each of these amounts serves a different purpose at the end of the contract: the common fund is used to provide letters of credit to selected participants, the administration fee goes to the company, and any unused balance in the reserve fund is generally returned to the participants.
Understanding This Structure Changes How You View the Monthly Payment
When receiving their monthly payment notice, few consortium members stop to determine how much of the total payment is allocated to each of these purposes. Breaking down these amounts helps participants understand the actual cost of the consortium and clarifies why the money they pay does not simply sit idle while they wait to receive their own credit.
For Tiago Oliva Schietti, this transparency also helps explain why larger, better-organized groups tend to have more predictable monthly meetings: the more stable the flow of contributions into the common fund, the more consistent the pace of credit awards throughout the contracted term.
