The Practice of Rotating Saving and Credit Associations and Interest Rate Liberalization—A Case Study of Wenzhou

Rongzhu Ke and Min Ye

Chinese Economy, 2019, vol. 52, issue 2, 155-170

Abstract: Rotating Saving and Credit Associations (ROSCA) is an important informal financial institution in developing economies. This article investigates the practice of ROSCA in Wenzhou as a case to explore how the interest rate is determined in a local credit market. We find that interest rates may vary across different purposes of credit demand (e.g., investment, insurance, or durable good consumption). The difference in credit demand may also drive participants to create alternative ROSCA and its implied interest rates are different accordingly. The case of ROSCA and its relationship with the local credit market may shed light on the financial market development and liberalization of interest rates during economic transition.

Date: 2019
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DOI: 10.1080/10971475.2018.1545355

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