Friends and benefits? Endogenous rotating savings and credit associations as alternative for women’s empowerment in India

Abstract

• We present a theoretical model of spousal bargaining using Rotating Savings and Credit Association (ROSCA) membership. • We examine the effect of ROSCAs and exogenous micro-credit on women’s empowerment in India. • ROSCA increases regular cash flow for women by 1.7 percentage points (pp) and property ownership by 3.3 pp. • We find ROSCAs to be better than exogenous micro-credit schemes in increasing women’s socio-economic autonomy. • Endogenous micro-credit could be critical for financial inclusion of women in developing countries. This study examines the effects of Rotating Savings and Credit Associations (ROSCAs) on women’s socio-economic freedom and autonomy at the national level in India. We compare ROSCAs to agency based micro-credit schemes and analyze their effects using nationally representative longitudinal gender-disaggregated data from 2005 to 2012. Building on a theoretical model of household savings and spousal bargaining power, we use individual fixed effects and instrumental variable regressions to test the theoretical predictions. Results show that ROSCA membership increases the likelihood of women’s cash in hand for expenditure by 1.7 percentage points, say in major purchase decisions by 3.9 percentage points and fertility choice by 4.7 percentage points. These margins exceed those for exogenous micro-credit schemes and are robust to sensitivity tests. This study is the first to contrast ROSCAs with other micro-credit schemes at the national level. We propose scaling up and associating longstanding ROSCAs with self-help groups for more inclusive development.