Are there Financial Benefits to Join RoSCAs? Empirical Evidence from Equb in Ethiopia

Abstract

Rotating Savings and Credit Associations (RoSCA) are informal financial institutions serving the financial service needs of many people in the developing countries. Though some researchers recommend the transformation of those institutions into formal ones to create economic efficiency, there is not much research on why members join those institutions and what benefits they derive from them. By taking an empirical example of Ethiopian equb and focusing on the financial feasibility of financial viability of becoming a member in RoSCA, this study assesses why members join RoSCAs. The survey conducted revealed that the financial motives outweigh all other motives in large equbs while the social motives are most important for members of small equbs. Most large and medium size equb members choose equbs than other possible alternatives because it is less expensive and involves very small transaction cost, if any