I got into an argument with a family member about a loaning mechanism they and their friends are using. They detailed it this way: in a group of 5, every member submits $200 to a safe keeper in the group (including the safe keeper themselves) monthly, then each month and based on a simple rotation, one member will get the entire sum of $1000.
They argued that it's totally legal, and has a much-needed benefit of getting that big cash inflow once every 5 months which can help organize your spending. They also mentioned that it can act out as a zero-interest loan.
I argued on the other hand that:
It's not that useful to get only $1000 once every 5 months as I can easily save that up myself in the comfort of my wardrobe; so it won't serve me a lot as a zero interest loan and as the loan amount itself.
I also argued that raising the pooled amount to something like $1000 per member would result in more risks for the safe keeper to save that money and for every member to be willing to give that amount. The same can be said about increasing the number of members as that will increase the rotation cycle and make the whole thing very unappealing.
So my question here is does this act of funds pooling has a name already? And seeing the arguments made above, does it make sense to be part of it or even multiple groups like that at the same time?