Microfinance

ROSCA MODEL
ROSCA MODEL
• Rosca are part of the Informal economy.
• Acting outside of government supervision and being free of taxations.
• Community driven concept.
• An association formed upon a core of participants who agree to make
regular contributions to a fund which is given, in whole or in part, to
each contributor in a rotation.
How It Works.
• Imagine ten people who get together once a week for ten weeks and
contribute ten dollars to a pot at each meeting. The pot, consisting of
100 dollars, is then distributed to one of the contributors each week,
until each person has contributed and received 100 dollars. At the end
of the rotation, when all ten contributors have received the pot, the
group can decide whether to start a new rotation or not.
• Roscas provide goods or benefits that are missing or under-provided
in the community and are one of the most common informal financial
systems found in the developing world.
ADVANTAGE OF ROSCA MODEL
• Roscas are a form of reciprocity group which means that each
member in the group relies on the other members in order for the
rosca to function
• The reciprocity concept in roscas is introduced through the mutual
understanding that every member receives the pot contingent on
others contributing to the pot throughout the rotation. If one
members has received the pot and ceases to continue contributing,
then that member will have received a reward which he or she is not
repaying, thus breaking the understanding of reciprocity.
Advantage Of ROSCA MODEL
• The rosca is only one of many groups which could be identified as
reciprocity groups, including both informal and formal groups
• These informal groups all rely on the other members of the group to
function. Also, they are vital in filling a gap where formal alternatives do
not exist or do not offer the needed services.
• One of the important characteristics of Rosca is that group is small and
the members of the group know each other .This facilitates
a) Screening
b) Monitoring
c) Enforcement
Disadvantage of ROSCA MODEL
• Dependency on continued participation of members.
• Model fails if people can not rely on each other.
• Order of Rotation determined by Auction.
• Fixed monthly contribution (Possible obstacles for peoples without
any regular income )
• Neither the size of the Pot nor the contributors are flexible
• Bigger pot require large amount of contribution which create
management problems.