Explaining Participation in Rotating Savings and Credit Associations (RoSCAs): Evidence from Indonesia

This paper empirically tests the common rationales extended for the reasons of participation in RoSCAs, such as:

• They are informal mechanism used by the poor;
• People participating are constrained in accessing credit;
• Women are more likely to be members.

The author states that the relation between participation and income is quadratic, as participation in RoSCAs (controlling for other demographic characteristics), initially increases with income and, subsequently, decreases with income. The author finds that in the Indonesian context:

• Rich are more likely to participate;
• Those who are credit-constrained are less likely to participate;
• Women are more likely to participate;
• Reasons for participating in several RoSCAs are similar to those of participating in just one RoSCA.

The author concludes that the RoSCA is a flexible design that takes into consideration the financial abilities and limitations of its members. Therefore, it offers a stable, sustainable design that should be looked at in designing other microfinance schemes.