Economics of savings-based finance: an interest-free model of rotating savings and credit association in Turkey

Purpose The emerging markets have been witnessing a remarkable revival of rotating savings and credit associations (ROSCAs) serving as alternative informal financing and investment platforms, also known as savings-based finance (SBF) in Turkey. The purpose of this study is to present the SBF model mathematically, analyse the performance of the SBF sector and propose a new Sharīʿah-compliant SBF model for the acquisition of durables. Design/methodology/approach The paper thoroughly reviews the concept and practice of ROSCA across the globe, mathematically models and empirically analyses the performance of Turkish SBF companies using a unique data set. Findings The study formulates a two-person SBF model and proposes a Mudarabah-Wakalah hybrid model with a new investment feature. It is found that the concept of ROSCA is being operationalized in 105 countries across the globe under different names with slight business model modifications. The research also reveals that the demand for financing of durables in Turkey significantly increased in recent years with the demand for housing is twice greater compared to vehicles. Most importantly, a strong significant inter- and intra-comovement is observed between these durables implying that the success of the sector in one segment has attracted the customers to other SBF products. It shows that the SBF institutions can effectively serve as the alternative financing houses for pooling savings and financing the durables, and they have strong potential to capture a larger financial market share in Turkey and even globally. Originality/value The study constructs mathematical models and proposes a new investment wing to an existing SBF wealth fund.

EXITING POVERTY THROUGH SELF-EMPLOYMENT: THE GRAMEEN MODEL AND ROTATING CREDIT ASSOCIATIONS AS ALTERNATIVE STRATEGIES

Self-employment in the informal sector keeps poor people alive, but it rarely enables them to exit poverty. To exit poverty through self-employment, poor people require monetary and non-monetary resources which they overwhelmingly lack. To escape this dilemma, the owners of survivalist business firms need to band together in order to assemble a minimal resource base on the strength of which they can together upgrade their partnership. Because resources are scarce in poverty populations, this task is exceptionally hard to accomplish. Rotating credit and savings associations (ROSCAs) can enable individuals to exit poverty through self-employment, but ROSCAs only work in the most-resourced, upper tier of a poverty population. In the lower tier, Grameen model banks inject organizational, educational, and financial resources that enable impoverished individuals to exit poverty by upgrading a survivalist business.

Rotating savings and credit associations as traditional mutual help networks in East Asia

This paper presents micro finance as a traditional system of mutual help networks in East Asia. These are called “Rotating Savings and Credit Associations” (ROSCAS) and can also be seen in other areas. Micro finance means that invested money is small and managed by members. Mutual help actions are divided into three categories: reciprocal, redistributional, and unidirectional action. The content of redistribution is labor, goods, and money. ROSCAS are the distributional action of money. It has been called tanaomoshi or mujin in Japan. ROSCAS have different names: South Korean ke, Chinese kai (huì), and Taiwanese hyokai (biāo huì) can be compared with the already well-studied Japanese case through the results of an interview survey and fact-finding fieldwork study. The purpose of the paper is to show that ROSCAS are important not only economically but also socially in terms of friendship and bonds. The economy is embedded in social relations and institutions. Although ROSCAS have almost disappeared from modern life and some are interest-oriented, they contributed to sustainable communities and can still be identified in East Asia. The paper concludes that modern societies might do well to reconsider ROSCAS as mutual help networks in search of ways of reconstructing communities.

Linking mobile money networks to “e-ROSCAs”: An experimental study

We present results from a study in the Democratic Republic of the Congo that uses mobile money networks to run rotating savings and credit associations (ROSCAs), peer-to-peer finance groups ubiquitous across the developing world. We find high rates of contribution and ROSCA success. The unexpected success of such e-ROSCAs and their potential to extend banking to the bankless poor necessitate further exploration.

The Economics of Rotating Savings and Credit Associations (ROSCAs) and Poverty in Indonesia

Arisan or Rotating Savings and Credit Associations (ROSCAs) constitute one of the most commonly found informal financial institutions in the developing world. This study aims to analyze the effect of Rotating Savings And Credit Associations (ROSCAs) on poverty in Indonesia using panel data sourced from the fourth and fifth wave of the Family Life Survey (IFLS). This study used a conditional logit or fixed effect logit to see the effect of Rotating Savings and Credit Associations (ROSCAs) participation and control variables, which include individual, household, and community characteristics on poverty variables that are binary or categorized. The results showed that Rotating Savings and Credit Associations (ROSCAs) participation can reduce poverty. Meanwhile, this study shows that women who participate in Rotating Savings and Credit Associations (ROSCAs) can reduce poverty significantly. Keywords: poverty, ROSCAs, IFLS, conditional logit Ekonomi Arisan dan Kemiskinan di Indonesia Abstrak: Arisan atau Rotating Savings and Credit Associations (ROSCAs) merupakan salah satu lembaga keuangan informal paling umum yang terdapat di negara berkembang. Penelitian ini bertujuan untuk melihat pengaruh arisan (ROSCAs) terhadap kemiskinan di Indonesia dengan menggunakan data panel yang bersumber dari Indonesia Family Life Survey (IFLS) gelombang keempat dan kelima. Metodologi yang digunakan dalam penelitian ini adalah Conditional Logit atau Fixed Effect Logit untuk melihat pengaruh variabel partisipasi arisan dan variabel kontrol yang meliputi karakteristik individu, rumah tangga, dan komunitas terhadap variabel kemiskinan yang bersifat biner atau kategori. Hasil penelitian ini menunjukkan bahwa partisipasi arisan dapat mengurangi kemiskinan. Selain itu, penelitian ini menunjukkan bahwa perempuan yang berpartisipasi dalam arisan dapat mengurangi kemiskinan secara signifikan. Kata kunci: Kemiskinan, arisan, IFLS, conditional logit

WORKING CAPITAL FINANCING PREFERENCE AMONG SMALL BUSINESSES IN CAMBODIA

The purpose of this paper is to investigate working capital financing preference among small businesses in Cambodia using a quantitative and qualitative approach. Small business often relies heavily on internal finance as a major source of short-term finance for working capital needs. This is because small businesses are likely to face problems associated with their size when accessing external finance, such as information asymmetry and higher agency costs. Interestingly, using descriptive statistics and inferential statistics, the findings lead us to believe that these firms mostly relied on internal sources (retained profit, early settlement discount, delayed payment to suppliers) of finance as compared to external sources (bank loan and equity). In some cases, they have to rely on informal sources (private, family, friend, money counting/lenders, funds/wealthy families, rotating savings and credit associations) to finance working capital requirement. These results suggest that firms experience significant information costs that prevent them from gaining access to traditional sources of financing. The findings of the study will be useful to the financial institutions that fund SMEs and can help the policymakers to formulate strategies and programs that will support SMEs at different stages of the financial chain in Cambodia.

How to Sue an Asue? Closing the Racial Wealth Gap Through the Transplantation of a Cultural Institution

Asues, academically known as Rotating Savings and Credit Associations (or ROSCAs for short), are informal cultural institutions that are prominent in developing countries across the globe. Their utilization in those countries provide rural and ostracized communities with a means to save money and invest in the community simultaneously. Adoption of the asue into the United States could serve as the foundation by which to close the racial wealth gap. Notwithstanding the benefits, wholesale adoption of any asue model runs the risk of cultural rejection because the institution is foreign to the African American community. Drawing upon principles of cultural and legal transplantation, successful transplantation of cultural institutions is possible where parameters that provide contextual stability are put in place. Given that the most prominent drawback to ROSCAs is the risk of default and embezzlement, the contextual stabilizer to prevent cultural rejection should be one that secures the ROSCA from said default and nefarious members. Therefore, I propose that trust law can be that context stabilizer because it would provide legal recourse and mitigate the inherent risks involved in asue participation.