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

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

3. 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…

4. Participation, frequency and wealth

5. Salient features

6. Credit Cooperatives

7. 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