This essay has been submitted by a student. This is not an example of the work written by professional essay writers.

Overview of Rotating Savings and Credit Association (rosca)

downloadDownload printPrint

Pssst… we can write an original essay just for you.

Any subject. Any type of essay. We’ll even meet a 3-hour deadline.

Get your price

121 writers online

Download PDF

Rosca’s are locally organized groups that meet at regular intervals; at each meeting members contribute funds that are given in turn to one or more of the members. Once every participant has received funds, the Rosca can disband or begin another round Besley, Coate and Loury (1993). In joining a Rosca, an individual agrees to a schedule of periodic payments in return for which she receives a lump-sum payment at a future date. Roscas often pay no interest and participants may have little or no control over when they receive the funds.

Participants also bear the risk that other participants may not fulfil their obligations. According to Besley, Coate, & Loury (1993), individuals may join Roscas to finance the purchase of an indivisible durable good, taking advantage of the gains from intertemporal trade between individuals. All individuals except the last improve their welfare by joining a Rosca, as each receives the indivisible durable goods sooner than by saving alone. ROSCAs play in important role as a risk management tool; they can offer an insurance mechanism against income shocks, provided that these shocks are not correlated among participants. They are an extension of traditional savings groups which, as documented by Maloney and Ahmed (1988) are constituted of individuals who regularly or irregularly, deposit funds with an individual or a subset of the group. Funds are returned to individual savers at the end of a given period, and there is no systematic rotational distribution mechanism. Although there are significant financial reasons to join a ROSCA, the main defining characteristic of a performing association lays in the reduction of the risk of opportunistic behavior that result from the peer pressure for performance by all members.

Although ROSCAs are financing instruments mostly used by the poor, they are not exclusively so, contrary to microfinance. According to Adams and Canavesi de Sahonero (1999), the most likely ROSCA subscribers in developing countries can be found among white-collar workers in large cities. Nevertheless, the ROSCA appears as a fairly inflexible system of credit delivery, whose survival relies almost entirely on the use of social pressures to ensure the preservation of the personal resources of group members within the association. Informal finance groups face many challenges due to the fact that their activities and operations are very informal. These challenges include: delayed payments, poor management and governance of the groups, mismanagement of funds and theft. According to Siwan et al. (2003) in Kenya, it shows that ROSCA groups encounter two main problems: there are members who do not regularly pay their contributions and there are members who stop contributing after receiving the pot. Another challenge is the element of negotiability that these systems allow which enables powerful individuals to manipulate the groups to their personal advantage. Also, a few powerful community members take advantage of the weak systems; by quickly setting up a group, collecting funds from other members, taking big loans for themselves and defaulting to pay.

According to FinAcess report (2016), most of the groups reported members leaving the group, followed by those who reported members not paying contributions. These experiences were the most common across all types of groups. The implication of this is that there would be strong effects on cash flow within the group and the reliability with which members receive their payouts. Anderson et al. (2004) also discusses the problems of contributions faced by ROSCAS in Dagoreti and Kibera slum, Kenya finding in particular that those who were late in the order or who had already received the pot often failed to pay. The power dynamics of the social relations in which these systems are embedded are also a key source of their failure. Instances of ROSCA failure due to default suggest the influence of power relations in their operations.

Remember: This is just a sample from a fellow student.

Your time is important. Let us write you an essay from scratch

experts 450+ experts on 30 subjects ready to help you just now

delivery Starting from 3 hours delivery

Find Free Essays

We provide you with original essay samples, perfect formatting and styling

Cite this Essay

To export a reference to this article please select a referencing style below:

Overview Of Rotating Savings And Credit Association (ROSCA). (2020, July 14). GradesFixer. Retrieved October 25, 2021, from
“Overview Of Rotating Savings And Credit Association (ROSCA).” GradesFixer, 14 Jul. 2020,
Overview Of Rotating Savings And Credit Association (ROSCA). [online]. Available at: <> [Accessed 25 Oct. 2021].
Overview Of Rotating Savings And Credit Association (ROSCA) [Internet]. GradesFixer. 2020 Jul 14 [cited 2021 Oct 25]. Available from:
copy to clipboard

Sorry, copying is not allowed on our website. If you’d like this or any other sample, we’ll happily email it to you.

    By clicking “Send”, you agree to our Terms of service and Privacy statement. We will occasionally send you account related emails.


    Attention! This essay is not unique. You can get a 100% Plagiarism-FREE one in 30 sec

    Receive a 100% plagiarism-free essay on your email just for $4.99
    get unique paper
    *Public papers are open and may contain not unique content
    download public sample

    Sorry, we could not paraphrase this essay. Our professional writers can rewrite it and get you a unique paper.



    Please check your inbox.

    Want us to write one just for you? We can custom edit this essay into an original, 100% plagiarism free essay.

    thanks-icon Order now

    Hi there!

    Are you interested in getting a customized paper?

    Check it out!
    Having trouble finding the perfect essay? We’ve got you covered. Hire a writer

    Haven't found the right essay?

    Get an expert to write you the one you need!


    Professional writers and researchers


    Sources and citation are provided


    3 hour delivery