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Enforcement in informal saving groups

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  • Anderson, Siwan
  • Baland, Jean-Marie
  • Moene, Karl Ove

Abstract

Informal groups cannot rely on external enforcement to insure that members abide by their obligations. It is generally assumed that these problems are solved by 'social sanctions' and reputational effects. The present paper focuses on roscas, one of the most commonly found informal financial institutions in the developing world. We first show that, in the absence of an external (social) sanctioning mechanism, roscas are never sustainable, even if the defecting member is excluded from all future roscas. We then argue that the organizational structure of the rosca itself can be designed so as to address enforcement issues. The implications of our analysis are consistent with first-hand evidence from rosca groups in a Kenyan slum.

Suggested Citation

  • Anderson, Siwan & Baland, Jean-Marie & Moene, Karl Ove, 2009. "Enforcement in informal saving groups," Journal of Development Economics, Elsevier, vol. 90(1), pages 14-23, September.
  • Handle: RePEc:eee:deveco:v:90:y:2009:i:1:p:14-23
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    References listed on IDEAS

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    1. Siwan Anderson & Jean-Marie Baland, 2002. "The Economics of Roscas and Intrahousehold Resource Allocation," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 963-995.
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    Citations

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    Cited by:

    1. Schumacher, Heiner & Hadnes, Myriam, 2010. "Contract Enforcement by the Gods," Proceedings of the German Development Economics Conference, Hannover 2010 11, Verein für Socialpolitik, Research Committee Development Economics.
    2. Madestam, Andreas, 2014. "Informal finance: A theory of moneylenders," Journal of Development Economics, Elsevier, pages 157-174.
    3. repec:bla:afrdev:v:29:y:2017:i:3:p:498-511 is not listed on IDEAS
    4. Renaud Bourlès & Anastasia Cozarenco, 2014. "State intervention and the microcredit market: the role of business development services," Small Business Economics, Springer, pages 931-944.
    5. Stark, Oded & Jakubek, Marcin, 2013. "Migration networks as a response to financial constraints: Onset, and endogenous dynamics," Journal of Development Economics, Elsevier, pages 1-7.
    6. Renaud Bourlès & Anastasia Cozarenco, 2014. "State intervention and the microcredit market: the role of business development services," Small Business Economics, Springer, pages 931-944.
    7. Stark, Oded & Jakubek, Marcin, 2013. "Migration networks as a response to financial constraints: Onset, and endogenous dynamics," Journal of Development Economics, Elsevier, pages 1-7.
    8. Rohner, Dominic, 2011. "Reputation, group structure and social tensions," Journal of Development Economics, Elsevier, pages 188-199.
    9. Ha van Dung, 2014. "Short-term precaution, insurance and saving mechanisms in rural Vietnam," Working Papers CIE 82, Paderborn University, CIE Center for International Economics.
    10. Linkow, Benjamin, 2009. "Fraying of the Ties that Bind: HIV/AIDS and Informal Contract Enforcement in KwaZulu Natal, South Africa," MPRA Paper 21769, University Library of Munich, Germany.
    11. Shimpei Koike & Mayuko Nakamaru & Tokinao OTAKA & Hajime Shimao & Ken-Ichi Shimomura & Takehiko Yamato, 2015. "Reciprocity and Exclusion in Informal Financial Institutions: An Experimental Study of Rotating Savings and Credit Associations," Discussion Paper Series DP2015-31, Research Institute for Economics & Business Administration, Kobe University.
    12. Degryse, Hans & Lu, Liping & Ongena, Steven, 2016. "Informal or formal financing? Evidence on the co-funding of Chinese firms," Journal of Financial Intermediation, Elsevier, vol. 27(C), pages 31-50.

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