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Rotating savings and credit associations (ROSCAs) constitute one of the most commonly found informal financial institutions in the developing world. ROSCAs are known by many different names, such as susu in Ghana, tontines in franchophone Africa, gamias in Egypt, njangis in Cameroon, upatu in Tanzania, ekub in Ethiopia, chilemba in parts of East Africa, hagbad in Somalia, chit funds in India, cheetu in Sri Lanka, pasanakus in Bolivia, cundina in Mexico, kye in Korea, arisan in Indonesia, pia huey in Thailand, kou in Japan, hui in China, and altin gunu in Cyprus. The origins of ROSCAs are unclear, but records show that they have existed since premodern times in China, the ninth century in Japan, the seventeenth century in Korea, and the early nineteenth century in many parts of Africa. ROSCAs are particularly prolific in Africa, where they have exceptionally high membership rates (between 50% and 95% of the adult population in many countries). In many rural areas, these associations are the sole saving and credit institution. It has been estimated that the annual sums mobilized in these associations amount to more than 25 percent of national credit for countries of Africa, South Asia, and East Asia. Although ROSCAs are most common in very poor areas of the world, there are places where they exist alongside more formal financial institutions, and where they are sometimes preferred. ROSCAs are also popular among immigrant groups in developed countries.

In these associations, a group of individuals gather for a series of regular meetings, at which each person contributes a predetermined amount into a collective pot, which is then given to a single member. This person is subsequently excluded from receiving the pot in future meetings, while still being obliged to contribute to the pot. The meeting process repeats itself until all members have had a turn at receiving the pot. The frequency of the meetings, the amount of the contribution, and the number of members determine the total group savings for each ROSCA cycle. Essentially, members take turns in benefiting from collected savings. Members who receive the pot early in the cycle are in debt to other members until the last contribution, while the last member to receive the pot is a creditor to all other members throughout the ROSCA cycle. As a result, the order of turns is an important component of ROSCAs, and there is substantial variation in its determination. At the start of the scheme, the order of such turns is decided either by a lottery draw, a bidding process, or according to a predetermined pattern.

ROSCAs are usually viewed as a way for individuals with little or no access to formal credit markets to save up for the purchase of indivisible durable goods. There is no interest to be gained by saving in a ROSCA since, over the ROSCA cycle, individual participants contribute the total funds that they, in turn, withdraw from the association. The question, therefore, is why do individuals choose to save through a ROSCA instead of individually accumulating savings? Several rationales for ROSCA formation have been put forth. Timothy Besley and colleagues point to the gains from reduced delay: the participants, on average, expect to enjoy the benefits of savings sooner than if they had saved on their own. Other rationales point to the insurance role of ROSCAs. Stefan Klonner notes that when ROSCA funds are allocated by a bidding process, the participants can use ROSCAs to insure themselves against idiosyncratic risks. Other explanations refer to the savings commitment role of ROSCAs. According to Mary Kay Gugerty, if individuals face self-control problems and are unable to credibly commit themselves to future behavior, then ROSCAs can serve as a collective savings commitment mechanism. A related explanation is that, in many cases, ROSCA participants are predominantly women. In a 2002 article, Siwan Anderson and JeanMarie Baland pointed out that when men have a greater preference for present consumption, relative to women, then women can use ROSCAs as a forced savings device to hide money from their husbands in order to accumulate savings.

In spite of their organizational simplicity, ROSCAs do suffer from incentive problems. Because of the rotational structure of ROSCAs, the incentive for members who receive the pot earlier in the cycle to default on their later contributions is high. A ROSCA cannot function unless all members continue to maintain their obligations throughout the cycle. Since ROSCAs are typically formed by a relatively small group of individuals who live in the same area, it is generally assumed that the threat of social sanctions by the other members of the group are sufficient to deter opportunistic defection. Therefore, social collateral and trust among members seem crucial to the success of these organizations. To this end, as Ngina Chiteji points out in Promises Kept (2002), ROSCAs typically organize along ethnic lines or bring together friends and neighbors, for whom existing social capital circumvents inherent problems of enforcement.

SEE ALSO Finance; Informal Economy; Loans; Trust


Anderson, Siwan, and Jean-Marie Baland. 2002. The Economics of Roscas and Intra-household Resource Allocation. Quarterly Journal of Economics 117 (3): 963995.

Besley, Timothy, Stephen Coate, and Glenn Loury. 1993. The Economics of Rotating Savings and Credit Associations. American Economic Review 83 (4): 792810.

Chiteji, Ngina. S. 2002. Promises Kept: Enforcement and the Role of Rotating Savings and Credit Associations in an Economy. Journal of International Development 14: 393411.

Gugerty, Mary Kay. 2006. You Cant Save Alone: Commitment in Rotating Savings and Credit Associations in Kenya. Evans School Working Paper 200608. Seattle: Evans School of Public Affairs, University of Washington.

Klonner, Stefan. 2003. Rotating Savings and Credit Associations When Participants Are Risk Averse. International Economic Review 44 (3): 9791005.

Siwan Anderson