Why Use ROSCAs When You Can Use Banks? Theory and Evidence from Ethiopia
AbstractMuch of the existing literature on the use of informal credit arrangements such as ROSCAs (Rotating and Credit Saving Associations) theorises the use of such institutions as arising from market failures in the development of formal saving and credit mechanisms. As economic development proceeds, formal institutions might therefore be expected to displace ROSCAs. We show, using household data for Ethiopia, that in fact use of formal institutions and ROSCAs can co-exist, even in the same household. We examine usage of both formal and informal institutions across the household income gradient, and provide a theoretical model consistent with these empirical facts.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5767.
Length: 14 pages
Date of creation: Jun 2011
Date of revision:
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Other versions of this item:
- Abbi M Kedir & Richard Disney & Indraneel Dasgupta, 2011. "Why use ROSCAs when you can use banks? Theory, and evidence from Ethiopia," Discussion Papers in Economics 11/32, Department of Economics, University of Leicester, revised Jun 2011.
- Abbi Kedir & Richard Disney & Indraneel Dasgupta, . "Why Use Roscas When You Can Use Banks? Theory And Evidence From Ethiopia," Discussion Papers 11/05, University of Nottingham, CREDIT.
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
This paper has been announced in the following NEP Reports:
- NEP-AFR-2011-06-25 (Africa)
- NEP-ALL-2011-06-25 (All new papers)
- NEP-BAN-2011-06-25 (Banking)
- NEP-DEV-2011-06-25 (Development)
- NEP-MFD-2011-06-25 (Microfinance)
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