A rotating savings and credit association (ROSCA) is a group of individuals who contribute money toward a common fund. All of the members take turns being lenders and borrowers with the ROSCA funds.
A rotating savings and credit association (ROSCA) is a group of individuals who contribute money toward a common fund. All of the members take turns being lenders and borrowers with the ROSCA funds.
Keep reading to learn how these alternative financial vehicles work, as well as some pros and cons.
A ROSCA is an informal financial institution where a group of people comes together to contribute money to a common fund. These groups are often made up of family members, friends, or members of the same community. Each member contributes an equal amount, and over time, all of the members get an opportunity to withdraw money from the fund. In this way, each member acts as both a lender and a borrower.
ROSCAs have appeared across the globe, including parts of South America, Africa, and Asia. They are particularly prevalent in developing economies and low-income societies.2 The people participating in ROSCAs may not have access to formal financial institutions like banks, or the members don’t have the economic resources to take advantage of these types of institutions.