Islamic Finance

This paper analyzes the economic role and performance of a type of financial institution which is observed worldwide: rotating savings and credit associations (Roscas). Using a model in which individuals save for an indivisible durable consumption good, we study Roscas which distribute funds using random allocation and bidding. Each type of Rosca allows individuals without access to credit markets to improve their welfare, but under a reasonable assumption on references, random allocation is preferred when individuals have identical tastes.

This paper investigates individual motives to participate in rotating savings and credit associations (roscas). Detailed evidence from roscas in a Kenyan slum (Nairobi) suggests that most roscas are predominantly composed of women, particularly those living in a couple and earning an independent income. We propose an explanation of this based on conflictual interactions within the household. Participation in a rosca is a strategy a wife employs to protect her savings against claims by her husband for immediate consumption.

The purpose of this article is threefold: first, to summarize recent research that helps distinguish chronic from transitory poverty in South Africa; second, to identify groups that are especially prone to chronic poverty in South Africa, and venture estimates as to how many such people there are; and third, to examine how an understanding of chronic poverty could enhance the fight against poverty generally.

Financial self-help groups in low-income countries consist of two basic types, Rotating and Accumulating Savings and Credit Associations, or ROSCAs and ASCRAs. In the ASCRA, funds are not immediately withdrawn but are left to grow for loan making. Comparing the two groups, the author finds similarities and differences. Efforts to rectify the ROSCA's shortcomings have prompted many innovations, and given birth to a hybrid preserving the best of both types, in constant adaptation to changing environments. © 1995.

A study was performed to examine the reasons why individuals develop and maintain local-level financial savings organizations known as rotating savings and credit organizations (Roscas). Data included Rosca participation and design from a sample of 70 Roscas and 1,066 Rosca participants in rural Kenya. The Roscas, located in Busia and Teso districts in western Kenya, were all run by local women's self-help groups.

This paper examines the allocative performance of rotating savings and credit associations (roscas), a financial institution which is observed world-wide. We develop a model in which individuals save for an indivisible good and study roscas which distribute funds using random allocation and bidding. The allocations achieved by the two types of rosca are compared with that achieved by a credit market and with efficient allocations more generally. We find that neither type of rosca is efficient and that individuals are better off with a credit market than a bidding rosca.

Using a unique sample of rotating savings and credit association (Rosca) members from Jamaica, we provide the first econometric tests of the recent theoretical advances in the literature on Roscas, and find considerable support for an economic theory of Roscas. We find, for example, that payments to the Rosca leader significantly enhance the sustainability of the Rosca, and that the contractual relationship between the leader and other Rosca members is 'transaction cost minimizing' - when the degree of asset specificity is higher the contract is more flexible.

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Little is known about informal financial markets in developing countries. This paper analyzes participation in rotating savings and credit associations using a national household survey from Taiwan. We find that participation is highest among high-income households. There is some evidence that income stability may play a role as well. Life cycle differences suggest a role in funding durables purchases. Our evidence indicates that roscas may be an alternative savings device to the formal financial sector.

We consider a model in which people with limited self-control can sign binding financial agreements among themselves, thereby forming coalitions. We show that these financial agreements may help them to alleviate their self-control problems. We then demonstrate that there exists a stable structure of coalitions in which people form rotating savings and credit associations (roscas). We therefore provide a behavioral rationale for one of the most prevalent and puzzling financial institutions in developing countries. Finally, we derive and discuss some empirical predictions.