Microeconomics of an indigenous African institution : the rotating savings and credit association

This type of informal credit mechanism is an association of men and/or women that meets at regular intervals, for instance once a month, and distributes a lump sum of money to one of its members. The fund is made up of the variable or fixed contributions of each member of the association. No interest calculations are made. This paper analyzes from a microeconomic perspective a type of ROSCA found in Cameroon, known as a njangeh. The paper begins by describing the basic structure of the njangeh and then develops a model to refine the microeconomic foundations of ROSCA"s. Empirical evidence is presented from ROSCA"s in the Cameroonian village of Big Babanki. The report concludes that ROSCA"s in this village outperformed, in terms of efficiency and equity, all other credit institutions in the region by reaching virtually every household in the village, handling thousands of credit transactions every year, and doing so at relatively low transaction costs. The institutional design of the ROSCA considerably reduced the risk of default. For example, sanctioning of ROSCA management was directly linked to loan performance through the rule that the president had to take the last position in the order of rotation.