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You Can’t Save Alone: Commitment in Rotating Savings and Credit Associations in Kenya

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  • Mary Kay Gugerty
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    Abstract

    This article examines one reason why individuals develop and maintain local-level financial savings organizations known as rotating savings and credit organizations, or Roscas. Economic theories suggest that individuals form Roscas to finance the purchase of a lumpy durable good, in response to intrahousehold conflict over savings, or to provide themselves with insurance. The article proposes an additional hypothesis for Rosca participation: saving requires discipline, and some Roscas may be formed to provide a collective mechanism for commitment in the presence of time-inconsistent preferences. Data from 70 Roscas located in western Kenya indicate that the commitment hypothesis is plausible and broadly consistent with the design and patterns of participation in these Roscas. As many Rosca participants put it, “You can’t save alone.”

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    File URL: http://www.journals.uchicago.edu/cgi-bin/resolve?id=doi:10.1086/508716
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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Economic Development and Cultural Change.

    Volume (Year): 55 (2007)
    Issue (Month): ()
    Pages: 251-282

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    Handle: RePEc:ucp:ecdecc:v:55:y:2007:p:251-282

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    Web page: http://www.journals.uchicago.edu/EDCC/

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    Cited by:
    1. Pascaline Dupas & Jonathan Robinson, 2013. "Savings Constraints and Microenterprise Development: Evidence from a Field Experiment in Kenya," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 163-92, January.
    2. Ashraf, Nava & Karlan, Dean & Yin, Wesley, 2010. "Female Empowerment: Impact of a Commitment Savings Product in the Philippines," World Development, Elsevier, vol. 38(3), pages 333-344, March.
    3. Karna Basu, 2011. "Hyperbolic Discounting and the Sustainability of Rotational Savings Arrangements," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 143-71, November.
    4. Nordén, Anna, 2014. "Payment Types and Participation in Payment for Ecosystem Services Programs: Stated Preferences of Landowners," Discussion Papers dp-14-11-efd, Resources For the Future.
    5. Deepa Narayan & Lant Pritchett & Soumya Kapoor, 2009. "Moving Out of Poverty : Volume 2. Success from the Bottom Up," World Bank Publications, The World Bank, number 11838, October.
    6. Nordén, Anna, 2014. "Payment Types and Participation in Payment for Ecosystem Services Programs: Stated Preferences of Landowners," Working Papers in Economics 591, University of Gothenburg, Department of Economics.
    7. Basu, Karna, 2014. "Commitment savings in informal banking markets," Journal of Development Economics, Elsevier, vol. 107(C), pages 97-111.

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