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Article
Publication date: 10 July 2017

Seyed Kazem Sadr

Several indigenous credit and savings schemes have been accredited recently in developing countries for the benefit of households and entrepreneurs alike. Famous among…

Abstract

Purpose

Several indigenous credit and savings schemes have been accredited recently in developing countries for the benefit of households and entrepreneurs alike. Famous among them are the Rotating Savings and Credit Associations (ROSCAs) that exist in almost all continents currently. The rapid development of ROSCAs and their varied structures in many countries have been the subject of numerous studies. What has not been thoroughly analysed is the optimum size of these associations and the fact that lending and borrowing is without interest. The aim of this paper is to present a model that would determine the optimum size of ROSCAs and deal with the following issues: how the group size varies with changes in the income level of the members, the demand for the loan, the size of the collected loan and its duration. Further, the question of whether or not lending to the association in return for obtaining larger sums is a violation of the qarḍ (loan) contract is dealt with, and several Sharīʿah compatible formulations are provided.

Design/methodology/approach

Economic analysis has been applied to show the optimum size of Qarḍ Ḥasan Associations (QHAs), which are the Sharīʿah-compliant equivalent of ROSCAs, and the Sharīʿah rules of the qarḍ contract to illustrate the legitimacy of group lending.

Findings

The major findings of this study are determination of the optimum size of QHAs, the factors that affect the size and suggestion of alternative legal forms for group financing.

Research limitations/implications

Inaccessibility to sources of data to test the hypothesis that has been put forth is the main difficulty encountered when conducting research on the subject.

Practical implications

The paper concludes that the development of informal interest-free ROSCAs in both Muslim and non-Muslim countries is an efficient informal microfinance scheme and that it is compatible with Sharīʿah rules.

Originality/value

The optimum size of ROSCAs and QHAs has been presented in this paper.

Details

ISRA International Journal of Islamic Finance, vol. 9 no. 1
Type: Research Article
ISSN: 0128-1976

Keywords

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Book part
Publication date: 11 June 2021

Dina Rabie

Rotating Savings and Credit Associations (RoSCAs) are informal lending groups widely found in many developing countries around the globe. This chapter studies the…

Abstract

Rotating Savings and Credit Associations (RoSCAs) are informal lending groups widely found in many developing countries around the globe. This chapter studies the interest-free RoSCAs in Egypt and how it compares to other RoSCAs in Africa. The chapter also examines the possible motives for RoSCA participation employing a primary dataset collected from Cairo, the Egyptian capital. The motives studied include access (or lack thereof) to the formal banking sector, religiosity, self-control, and social preferences. Trust and trustworthiness among RoSCA participants are also studied. The chapter shows that RoSCA participation is very popular among the sample respondents regardless of income levels, access to formal banking and religious views. RoSCAs, however, are shown to play an important role as a commitment device for savings and investment, including human capital accumulation when the self-control level is moderate or low. Social preferences and trust levels, on the other hand, are not found to be significantly different for RoSCA and non-RoSCA participants.

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Article
Publication date: 1 January 2006

Elsa Bawani Satkunasingam and Bala Shanmugam

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.

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.

Details

Journal of Money Laundering Control, vol. 9 no. 1
Type: Research Article
ISSN: 1368-5201

Keywords

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Article
Publication date: 28 March 2019

Habiba Ibrahim

Guided by the institutional theory of savings, the purpose of this study is to assess the institutional elements of rotating, savings and credit associations (ROSCAs) that…

Abstract

Purpose

Guided by the institutional theory of savings, the purpose of this study is to assess the institutional elements of rotating, savings and credit associations (ROSCAs) that enable participants to save.

Design/methodology/approach

The study used data from in-depth qualitative interviews (N = 10) conducted among the ROSCA group leaders from African immigrant communities in the USA.

Findings

The primary goal for joining the ROSCA group among participants is to achieve economic stability. The results of the study postulate that, through institutional mechanisms and social networks, ROSCAs create an environment for families to save and invest. The emphasis on the concept of “you cannot save alone” underscores the importance of supportive structures to enable low-income households to save. Although “alternative savings programs” such as ROSCAs are imagined as something that less well-to-do persons use, the findings from this study demonstrate that such strategies also appeal to some people with higher socioeconomic status. This appeal and utility speaks to the importance of ROSCAs as an institutional response, rather than just an informal arrangement among persons known to each other.

Research limitations/implications

It is prudent to bear in mind that the study sample is not nationally representative, and therefore, the results presented cannot be generalized to immigrants across the country. However, as one of the few ROSCA studies in the USA, the findings from this study make generous contributions to the immigrants’ savings and ROSCA practices literature.

Practical implications

ROSCAs could be used as a bridge to the formal financial institutions. Non-profit agencies working with these communities could work with these groups to report ROSCA payments to the major credit bureaus, to help them build a credit line in their new country.

Originality/value

Previous studies of ROSCAs have assessed ROSCAs as community support systems and social networks. The current study has analyzed ROSCAs from an institutional perspective by examining the institutional characteristics of ROSCAs comparable to the institutional determinants of savings that enable savings among the participants.

Details

Journal of Enterprising Communities: People and Places in the Global Economy, vol. 13 no. 3
Type: Research Article
ISSN: 1750-6204

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Article
Publication date: 26 June 2009

Jacob Tche

The aim of this paper is to establish an original database from fieldwork on microfinance institutions in Cameroon.

Abstract

Purpose

The aim of this paper is to establish an original database from fieldwork on microfinance institutions in Cameroon.

Design/methodology/approach

The main method used for the research involved statistical analysis of an original survey data. The latter fieldwork analysis has enabled us to test the hypothesis of neoclassical and neo‐structuralist economists advocating a significant relationship between microfinance savings and liberalised real bank deposit interest rates.

Findings

The statistical analysis carried out indicated that microfinance savings are associated to variables other than the rate of interest. The failure of a liberalised interest rate policy to cause a significant portfolio shift from microfinance into the banking system does not support the interest responsiveness of savings as advocated by the McKinnon‐Shaw school. This paper supports, therefore, the neo‐structuralist analysis of financial development where microfinance institutions are an important structural feature of financial systems in many developing countries.

Research limitations/implications

It would be interesting to extend statistical analysis undertaken in this paper to other African countries.

Practical implications

The main policy issue affecting microfinance from the empirical analysis is the need to mitigate the extremely high interest rates utilised by microfinance. Banks may be encouraged to undertake a series of measures such as guaranteeing of future loans to their customer by linking savings and loans to attract microfinance members.

Originality/value

The contribution of this paper, therefore, is to provide a unique opportunity to investigate the association between microfinance institution assets and real interest rates in an African country.

Details

International Journal of Development Issues, vol. 8 no. 1
Type: Research Article
ISSN: 1446-8956

Keywords

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Article
Publication date: 7 January 2020

Martinson Ankrah Twumasi, Yuansheng Jiang, Frank Osei Danquah, Abbas Ali Chandio and Wonder Agbenyo

The purpose of this paper is to examine the effect of savings mobilization on access to credit among smallholder farmers’ in the Birim central municipality of Ghana.

Abstract

Purpose

The purpose of this paper is to examine the effect of savings mobilization on access to credit among smallholder farmers’ in the Birim central municipality of Ghana.

Design/methodology/approach

A cross-sectional primary data set was used to estimate the factors influencing smallholder farmers’ access to credit and size of loan to be borrowed using the IV-Probit and IV-Tobit model.

Findings

The results of the study revealed that savings mobilization has a positive significant impact on access to credit and the total amount of credit one can borrow as well. Other control variables such as transaction cost and farm size depicted a negative significant impact on access to credit. Land ownership, member of an association, household size, years of farming experience and education also showed a positive significant impact on access to credit.

Research limitations/implications

The paper only examined the savings effect on credit accessibility among smallholder farmers in one of the municipality’s in the Eastern region of Ghana. Future research should consider all or many municipality for an informed generalization of findings.

Practical implications

This paper provides evidence that smallholder farmers knowledge on the financial market is poor and it would require the policymakers or NGOs to organize financial management training programs so that the farmers high ignorance of the financial market will significantly reduce.

Originality/value

Although existing studies have examined smallholder farmers’ access to credit, the unique contribution of this paper is the analysis of the impact of saving mobilization on credit accessibility in Ghana, a major access to credit determinant in the financial market. In addition, those researchers who factored in savings as an access to credit determinant did not also consider the casual relationship between these two variables, thus, the present of endogeneity of which this paper does.

Details

Agricultural Finance Review, vol. 80 no. 2
Type: Research Article
ISSN: 0002-1466

Keywords

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Article
Publication date: 30 June 2020

Nguyen Huu Thu, Pham Bao Duong and Nguyen Huu Tho

This study aims to examine the accessibility, loan purposes and effects of informal credits on poor households in Northern mountainous Vietnam.

Abstract

Purpose

This study aims to examine the accessibility, loan purposes and effects of informal credits on poor households in Northern mountainous Vietnam.

Design/methodology/approach

This study used primary data collected directly from surveying 402 poor households in Thai Nguyen province using a well-designed questionnaire. The probit model is employed to specify which factors affect access to informal credit, the tobit model is used to estimate the borrowing functions specified. In addition, descriptive statistical analysis is also used to describe the accessibility, purposes and effects of informal credit on poor households.

Findings

The results show that there is a considerably high proportion of informal borrowings from relatives, neighboring villagers, professional moneylenders, rotating saving and credit groups, trade credits and mortgages. Labor force ratio, social capital and residential land areas are the key determinants of poor households' informal borrowings. The purposes of borrowing are diverse. The informal loans also have certain significant effects on poverty reduction and the welfare of poor households.

Research limitations/implications

The effects of the informal loans on house welfare should be quantitatively evaluated.

Practical implications

The findings from these analyses allow us to draw relevant policy implications for the development of rural finance in other low-income, developing countries.

Originality/value

This research contributes to the body of published literature in several ways. Firstly, it provides understanding of the performance of the informal financial subsector. Secondly, the informal subsector of rural finance is evaluated in close relation to the formal subsector.

Details

Agricultural Finance Review, vol. 81 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

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Book part
Publication date: 19 May 2009

Kristiano Raccanello, Jayant Anand and Patricia Arroyo Martínez

The literature on Rotating Savings and Credit Associations (ROSCAs), commonly known as tandas in Mexico, indicates a higher participation of women but generally fails to…

Abstract

The literature on Rotating Savings and Credit Associations (ROSCAs), commonly known as tandas in Mexico, indicates a higher participation of women but generally fails to detect the reasons thereof. This chapter partially bridges the gap by considering the role of social capital in these organizations. The findings of this study show that socioeconomic factors, the gender of the member majority, and acceptance levels in the group influence the higher participation of women. However, access to formal credit markets does not influence this behavior. Moreover, trust in women-based groups and the benefits obtained from membership further contribute to higher participation of women. The participation of men in ROSCAs seems to be related to motivational factors that are different from those for women. For women, social capital is especially relevant for gender-based group formation.

Details

Economic Development, Integration, and Morality in Asia and the Americas
Type: Book
ISBN: 978-1-84855-542-6

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Book part
Publication date: 14 December 2020

Ogechi Adeola, Uchenna Uzo and Adedeji Adewusi

The Igbo people of south-eastern Nigeria are generally acknowledged as traders and astute entrepreneurs. Extant literature has investigated the various indigenous…

Abstract

The Igbo people of south-eastern Nigeria are generally acknowledged as traders and astute entrepreneurs. Extant literature has investigated the various indigenous practices of Igbo entrepreneurs that ensure business success. Despite these efforts, knowledge of their financial practices has been limited. This chapter provides insights on the financial practices that are common amongst Igbo micro-entrepreneurs and the immense benefits of the practices. To unravel these practices, in-depth interviews were conducted with 15 micro-entrepreneurs involved in supermarket, spare parts and food items businesses in Lagos, Nigeria. Using a grounded theory approach, four significant financial practices such as rotating financial contribution, deferred financial arrangements, financial settlement practice and financial prudence common among the Igbo micro-entrepreneurs were identified. Based on the findings, relevant recommendations were made for financial educators and the management of modern financial institutions to adapt and incorporate some of these indigenous financial practices in teaching curricula and financial product designs.

Details

Indigenous African Enterprise
Type: Book
ISBN: 978-1-83909-033-2

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Article
Publication date: 10 April 2009

Malimba Musafiri Papias and P. Ganesan

Like other developing countries, Rwandan rural credit market is repressed, shallow, segmented, inefficient and dual structured where both formal and informal financial…

Abstract

Purpose

Like other developing countries, Rwandan rural credit market is repressed, shallow, segmented, inefficient and dual structured where both formal and informal financial systems operate side by side. While the later has been playing a predominant role, cooperative societies have emerged as an apt method of increasing the delivery of formal rural credit and savings facilities on sustainable and non‐exploitative terms albeit of financial imprudence stemming from poor credit repayment records. Thus, the purpose of this paper is to examine the factors contributing to credit repayment behaviour among the members of savings and credit cooperative societies in rural Rwanda.

Design/methodology/approach

Both exploratory and descriptive designs are used for primary data collection on variables contributing to the repayment behaviour in savings and cooperative societies. Thereafter, a binary logistic regression empirical model is employed to estimate the contribution of each variable to credit repayment rate.

Findings

The results from the tested empirical model show that age, gender and size of the household, purpose for credit, interest rate charges and number of official visits to the credit societies, have a strong effect on loan repayment performance (statistically significant at p<0.05) whereas size of credit disbursed, credit processing and disbursing time, borrowers' market place and income transfer from relatives and friends are more or less statistically significant at p<0.20 level. The remaining factors have logical and explainable sings but are not statistically significant.

Research limitations/implications

The primary limitation of this study is the scope and size of its sample as well as absence of income factor as one of important variable influencing repayment behaviour. These limitations may have an effect on the lending policy of the cooperative banks.

Originality/value

An understanding of the socio‐economic factors affecting repayment behaviour of rural clients is essential for the outreach and sustainability of the mushrooming cooperative societies in the country. Hence, this paper contributes to the empirical literature on the provision of rural financial services in African countries south of Sahara and Rwanda in particular.

Details

International Journal of Social Economics, vol. 36 no. 5
Type: Research Article
ISSN: 0306-8293

Keywords

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