Rotating Savings and Credit Association
A Rotating Savings and Credit Association or ROSCA is a group of individuals who agree to meet for a defined period of time in order to save and borrow together. "ROSCAs are the poor man's bank, where money is not idle for long but changes hands rapidly, satisfying both consumption and production needs." [F.J.A. Bouman, "Indigenous savings & credit societies in the developing world" in Von Pischke, Adams & Donald (eds.) "Rural Financial Markets in the Developing World" World Bank, Washington, 1983]
Meetings can be regular or tied to seasonal cash flow cycles in rural communities. Each member contributes the same amount at each meeting, and one member takes the whole sum once. As a result, each member is able to access a larger sum of money during the life of the ROSCA, and use it for whatever purpose she or he wishes. This method of saving is a popular alternative to the risks of saving at home, where family and relatives may demand access to savings. [Stuart Rutherford. "The Poor & Their Money" Oxford University Press, Delhi, 2000]
Every transaction is seen by every member during the meetings. Since no money has to be retained inside the group, no records have to be kept. These characteristics make the system a model of transparency and simplicity that is well adapted to communities with low levels of literacy and weak systems for protecting collective property rights.
The system further reduces the risk to members because it is time limited -- typically lasting no more than 6 months. This reduces the size of the loss, should someone take funds early and not pay back.
Diversity and Distribution
Variously called susus in West Africa and the Caribbean,
tontines in Cambodia, wichin gye in Koreaand djanggis in Cameroon, ROSCAs are informal or 'pre- co-operative' microfinancegroups that have been documented around the developing world. A famous early study by anthropologist Clifford Geertzdocumented the "arisans" of Modjokuto in Eastern Java. He described them as "an "intermediate" institution growing up within peasant social structure, to harmonize agrarian economic patterns with commercial ones, to act as a bridge between peasant and trader attitudes toward money and its uses." [Clifford Geertz. "The Rotating Credit Association: a middle rung in development". Cambridge/Ma./USA: Massachusetts Institute of Technology, Center for International Studies, 1956.]
The individuals in the ROSCA select each other, which ensures that participation is based on trust and social forces (see
Social capital), and a genuine commitment to participate.
Rotating or Accumulating?
ROSCAs can be compared and contrasted with Accumulating Savings & Credit Associations or
ASCAs. Documented extensively in South Asia by Rutherford, ASCAs are also time-limited, informal microfinance groups. Unlike ROSCAs however, they appoint one of their members to manage an internal fund. Records are kept and surplus lent out. After a pre-agreed period (often 6-12 months) all the loans are called back and the fund, plus accumulated profit, is distributed to the members. International developmentpractitioners have been intrigued for years by the potential benefits of attempting to link ROSCAs and ASCAs to formal financial systems. But such linkages tend to defeat the voluntary purpose of these groups and distort member incentives towards securing access to external funds. CARE, an American charity, has had some success with developing standardized ASCAs in Africa. [William J. Grant & Hugh Allen. "CARE's Mata Matsu Dubara (Women on the Move) Program in Niger". Journal of Microfinance, Brigham Young School of Business, Provo, Utah, Fall, 2002.]
Bond of association
Geertz, Clifford. "The Rotating Credit Association: a middle rung in development". Cambridge/Ma./USA: Massachusetts Institute of Technology, Center for International Studies, 1956.
Grant, William J. & Hugh Allen. "CARE's Mata Matsu Dubara (Women on the Move) Program in Niger". Journal of Microfinance, Brigham Young School of Business, Provo, Utah, Fall, 2002.
Rutherford, Stuart, "The Poor and Their Money" Oxford University Press, 2000.
Von Pischke, J.D., Dale W. Adams & Gordon Donald. "Rural Financial Markets in Developing Countries". EDI Series in Economic Development, World Bank, Washington, 1983.
* [http://www.gdrc.org/icm/suppliers/rosca.html A Typology of Informal Credit Suppliers: ROSCAs] - "The Global Development Research Center (GDRC)"
* [http://www.gdrc.org/icm/rosca-bibliography.html ROSCA Bibliography] - "The Global Development Research Center (GDRC)"
* - more information shared at Appropedia, the international development wiki
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