ABSTRACT
A fundamental justification for government and donor-supported intervention in finance is to correct deficiencies in the performance of financial markets. Changes in the configuration of the formal market are expected to overcome what interveners consider to be the problems of informal finance. Rotating savings and credit associations (ROSCAs) meet three key tests of financial performance in a stunningly simple and elegant way: they economize transaction costs, they lengthen term structures, and they manage risks effectively. The juxtaposition of tension and resolution illustrated by ROSCA relationships is common to successful financial contracts. ROSCAs provide a new perspective on the seemingly intractable conditions that so often stand in the way of success and sustainability for donor-supported initiatives in financial markets. Specialized lenders are established to move into areas that the regulated market has shunned, such as agricultural finance, small-scale industrial lending and housing.
