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Underground banking in Malaysia: a case study of ROSCAs

Elsa Bawani Satkunasingam (School of Business, Monash University Malaysia, Selangor, Malaysia)
Bala Shanmugam (School of Business, Monash University Malaysia, Selangor, Malaysia)

Journal of Money Laundering Control

ISSN: 1368-5201

Article publication date: 1 January 2006

1281

Abstract

Purpose

To provide arguments in favour of legalising rotating savings and credit associations (ROSCAs) as they play an important role in savings and credit for women in Malaysia.

Design/methodology/approach

The paper refers to previous studies on ROSCAs in Malaysia and extracts information that shows that ROSCAs are used mostly by women as a method of forced‐savings, credit and insurance against uncertainties. It suggests different methods that can be used to make ROSCAs more efficient. Finally, it provides suggestions for amendments to existing legislation which will not interfere with the social structure that supports ROSCAs, yet permit participants to sue defaulters.

Findings

The findings show that ROSCAs are widely practised in Malaysia especially in the rural and suburban areas. The participants are mostly women from middle income and low‐income groups who used it as a form of savings or credit. The benefits of permitting ROSCAs outweigh the risks. Legalising ROSCAs will not remove the benefits but will substantially reduce the risks.

Originality/value

This paper provides arguments to legalise ROSCAs in Malaysia and provides suggestions to ensure greater efficiency and a lower default rate. It also suggests amendments to the legislation to enable participants to take quick and cheap legal action against defaulters.

Keywords

Citation

Bawani Satkunasingam, E. and Shanmugam, B. (2006), "Underground banking in Malaysia: a case study of ROSCAs", Journal of Money Laundering Control, Vol. 9 No. 1, pp. 99-111. https://doi.org/10.1108/13685200610645256

Publisher

:

Emerald Group Publishing Limited

Copyright © 2006, Emerald Group Publishing Limited

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