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Why Use ROSCAs When You Can Use Banks? Theory and Evidence from Ethiopia

Abbi Kedir (), Richard Disney () and Indraneel Dasgupta ()
Additional contact information
Richard Disney: University of Nottingham

No 5767, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Much of the existing literature on the use of informal credit arrangements such as ROSCAs (Rotating and Credit Saving Associations) theorises the use of such institutions as arising from market failures in the development of formal saving and credit mechanisms. As economic development proceeds, formal institutions might therefore be expected to displace ROSCAs. We show, using household data for Ethiopia, that in fact use of formal institutions and ROSCAs can co-exist, even in the same household. We examine usage of both formal and informal institutions across the household income gradient, and provide a theoretical model consistent with these empirical facts.

Keywords: household saving; credit institutions; ROSCAs; Ethiopia (search for similar items in EconPapers)
JEL-codes: O16 O17 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2011-06
New Economics Papers: this item is included in nep-afr, nep-ban, nep-dev and nep-mfd
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Working Paper: Why use ROSCAs when you can use banks? Theory, and evidence from Ethiopia (2011) Downloads
Working Paper: WHY USE ROSCAS WHEN YOU CAN USE BANKS? THEORY AND EVIDENCE FROM ETHIOPIA (2011) Downloads
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