Renate Hartwig - Research Summary

Roscas are one of the most prevalent forms of informal financial institutions in developing countries. Despite increasing efforts promoting financial inclusion, formal financial saving in the developing world remains low and the presence of roscas rather stable. If roscas are rationalised as response to failures in formal financial markets, roscas should be displaced in the process of economic development as formal financial markets expand. This, however, has not happened, yet. But, there is an increasing theoretical and empirical debate on the co-existence or substitution of formal and informal financial institutions. This research project aims to contribute to this mounting debate. At the core of this project is the idea that roscas do serve an insurance role - a motive which has been largely neglected in the economics literature, so far.

The paper titled "Strategic Positioning in Savings Groups: The Insurance Role of Roscas Revisited" (Jean-Marie Baland, Catherine Guirkinger and Renate Hartwig) will be published in the next few months. 

Paper abstract:

Rotating Savings and Credit Associations, so called roscas, are one of the most prevalent forms of financial institutions in developing countries. Yet, relative to their importance they remain understudied - in particular their rational as an insurance device. Ethnographic evidence from roscas in Sub-Saharan Africa suggests, that participants prefer not to take an early turn for the pot of money from the rosca but to wait and even go last, whereby waiting provides an insurance function. In this paper, we propose a theoretical model on the positioning within roscas under risk to explain this phenomenon. The model shows that waiting will always be preferred if the likelihood of a shock occurring falls within a certain range. If roscas indeed fulfil an insurance function, their presence could be a factor explaining the low adoption rates of formal insurance in contexts where roscas are prominent.