The Roots of Microfinance: ROSCAs & Credit Cooperatives

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Presentation transcript:

The Roots of Microfinance: ROSCAs & Credit Cooperatives Lecture 4 Week 2

Structure of this class The simple analytics of ROSCAs The limits of ROSCAs Credit Cooperatives Credit Cooperatives and Savings Credit Cooperatives and Peer Monitoring Concluding Comments

The simple analytics of ROSCAs A group of individuals self select themselves and agree to contribute pre-determined amounts of money to a common “pot” on a regular basis e.g., $20 monthly per individual The sum of the contributions in the pot is then allocated to one individual at each meeting 3 ways of allocating the pot: (1) Random (2) Bidding (3) Pre-determined Exist all over the developing world. Also known as hui, tontines, tandas, pollas, susu, merrry-go-rounds…

Participation, frequency and wealth

Salient features

Credit Cooperatives

Concluding comments: In what way are group-lending microfinance institutions “superior to ROSCAs and Credit Cooperatives? Peer monitoring is induced via GLJR Microfinance institutions mobilize resources from outside the village GLJR implies “social sanctions” and (also) “bank sanctions might be a more powerful way of preventing “defaults” However, savings at its infancy in microfinance Next class: Armendariz- Morduch, Chapter 4 : Group Lending

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