Formal RoSCAs in Argentina

Publication Date: Jun 1999
Published by: Microfinance.com
Document Type: Journal Article

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What are the features of "formal" RoSCAs? What role can they play in development?

Unlike in most parts of the world, Argentina has some formal RoSCAs run by car dealers and banks

Formal RoSCAs differ from their informal counterparts in that:

• the members do not know each other and never meet. In the absence of social capital among the members of the group, the government of Argentina regulates formal RoSCAs to protect the deposits of net savers
• they are much bigger, with 20 to 100 members
• their cycles are longer, from ten to eighty- four months
• their members are not among the poorest of the poor
• they impose lower transactions costs on members

• deposit-takers must be regulated; if not, then the poor risk the loss what little savings they have. Few NGOs are subject to prudential regulation and supervision, and most regulators are already too overtaxed to want to bother with NGOs
• formal RoSCAs require that the legal framework substitutes for social capital. Many low-income countries do not yet have this infrastructure, and NGOs can do little to speed its construction
• the manager of a formal RoSCA must know how to judge the risk of individual borrowers. Those NGOs that can do this probably already make small loans without the need to use RoSCAs
• most NGOs are too small to diversify risk and lack the branch network needed to reduce transaction costs for users