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The Roots of Microfinance: ROSCAs & Credit Cooperatives

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

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The Roots of Microfinance: ROSCAs & Credit Cooperatives

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  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

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