A theoretical risk analysis of the "Adogbè" savings product as alternative and decentralized microenterprise financing

Babarindé René Aderomou

Journal of Credit Risk

Abstract: Small businesses are shunned by the traditional banking system. In this context, microentrepreneurs are constantly developing tools to ensure the financing of their activities. Local financial engineering has led to the creation of the Adogbè savings product in Benin. This paper provides an overview of and identifies the risks of the “Adogbè†savings product, using a theoretical approach. By including the possibility of analyzing trade credit via informal savings products, the description of the Adogbè product in this paper extends the reverse trade credit theory and hyperbolic discounting and regular installment theory. The paper analyzes the Adogbè savings product as both a liability (for a fixed regular deposits collector, usually a supplier) and an asset (for a saver, usually a customer). The theoretical contribution of this research uses predictions obtained via Frank and Goyal’s 2007 trade-off theory to advise microenterprises on how to achieve a balance between the benefits and costs or risks of using the Adogbè savings product as a financing method. Adogbè is both an effective strategy for sustainability and a risk factor for microenterprises. A new theory called “Adogbè club hyperbolic discounting and regular installments†is formulated.

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