Variations of Rotating Savings and Credit Associations for Community Development

Abstract

Informal financial cooperation strategies have emerged as a solution to improve the resilience of low-income communities, being one of the most popular ones the rotating savings and credit associations (ROSCAs). In this article, using computational tools and dynamical systems modeling, we study the performance of two variations of ROSCAs that can potentially increase the resilience of communities. First, we propose a strategy that saves a percentage of the contributions of each member of the ROSCA to reduce the impact of individuals who stop contributing to the association and study how this strategy impacts the financial life of the individuals and trust among community members. Second, we study a decentralized version of the ROSCA in which individuals contribute to more than one association and analyze the impact of the size of the cooperation scheme and the number of associations where each individual participates. Through mathematical and simulation analyses, we show how the cooperation strategies impact the resilience of low-income communities.