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

This paper examines how and why individuals develop and maintain local-level Rotating Savings and Credit Associations (ROSCAs). The earlier theories suggest that individuals join ROSCAs to finance the purchase of a lumpy durable good or as an escape from intra-household conflict over spending.

The paper investigates the legitimacy of these arguments and suggests that:

• As participants do not expect to receive the goods sooner by joining the ROSCA group, the argument of lumpy durable goods does not hold good;
• Since the identity of the recipient of funds is not secret and contributions and rewards are shared among household members, the argument of intra-household conflict is also invalid.

The paper further proposes an alternative hypothesis for ROSCA participation - saving requires self-discipline, and ROSCAs provide a collective mechanism for individual self-control in an extremely institution-poor environment and in the absence of alternative commitment technologies. 

The paper concludes that these findings have positive policy implications:

• Providing poor with an opportunity to save could have significant payoffs in terms of savings mobilization and asset accumulation in developing economies;
• Organizations seeking to transplant successful models of informal finance to new settings should incorporate the impact of local conditions on organizational design.