The Insurance Role of Roscas Revisited: Theory and Empirical Evidence

Project: Research

Project Details


Roscas are one of the most prevalent forms of informal financial institutions in developing countries. Despite increasing efforts promoting financial inclusion, formal financial saving in the developing world remains low and the presence of roscas rather stable. If roscas are rationalised as response to failures in formal financial markets, roscas should be displaced in the process of economic development as formal financial markets expand. This, however, has not happened, yet. But, there is an increasing theoretical and empirical debate on the co-existence or substitution of formal and informal financial institutions. This research project aims to contribute to this mounting debate. At the core of this project is the idea that roscas do serve an insurance role - a motive which has been largely neglected in the economics literature, so far. This research project therefore aims to address the following questions:
1) How does risk sharing and exchange within roscas work?
2) To what extent can insurance motives explain the participation
and positioning within roscas?
3) To what extent can the insurance role of roscas explain their existence in light of an expanding formal financial sector?
Effective start/end date1/01/1631/12/17


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