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Agegnehu, Bisrat, 2012. Why do members join indigenous informal financial institutions - RoSCAs? : an empirical evidence from equbs in Ethiopia. Second cycle, A2E. Uppsala: SLU, Dept. of Economics



Cooperation among human societies can be traced back to the ancient times when people
started to live together. There are evidences showing that ancient civilizations had practiced
cooperation among themselves from cooperative farming to establishing informal saving and
loan associations (www, Umanitoba, 2011). Those informal financial institutions are still
widely used in many low income countries and are channels by which substantial amount of
economic and social activities are carried out. Scholars, however, are calling for the
transformation of those informal institutions to formal ones. Suggestions had also given to the
government to come up with a better policy to utilize as well as incorporate those institutions
to the formal system. But before discussing and recommending policy improvements about
the linkage, the reasons why the members join informal financial institutions should be
studied. This will help to come up with the proper recommendation about how to utilize those
institutions. The objective of this study was basically to investigate why members join equb
while they can use other alternative. In addition the study was interested to look if the motive
is different based on attributes like the size and location of equbs.
The study is conducted using an empirical data collected in Ethiopia on Ethiopian RoSCAs
known as Equb. Transaction cost theory is used as a grand theory. Earlier suggestions given
by previous researchers on the field (that could be considered as middle range theories) are
also used as the theoretical bases to conduct the research. Based on the theories, hypotheisis
has been drawn and tested using the empirical data collected.
Accordingly, the results revealed that the motive of members differ based on the size of the
equb they are participating. The social motives owtweigh the financial motives for those
individuas in small equbs, i.e small equb participants are more interested on the social life
they enjoy form participation. To the contrary, the big equb members are financially
motivated. The “durable good motive” have found appropriate for the medium size equb
members. All those motives, however, can be satisfied using other institutions. Low
transaction cost as well as high commitment feature in equbs is the reason why individuals
join equbs instead of using other options. This is a different outcome as compared to previous
studies conducted in the field where a generic proposition was forwarded irrespective of the
different attributes that individuals and RoSCAs possess.
Future research areas could be the change on the equb structure and operation if there is any,
the trends of the change and why, how much reduction in transaction cost in informal
institutions could attract members of equb, and the possible impact of introducing developed
and modern “saving side” and “withdrawal side” commitment mechanisms in formal banking
system on attracing equb members.

Main title:Why do members join indigenous informal financial institutions - RoSCAs?
Subtitle:an empirical evidence from equbs in Ethiopia
Authors:Agegnehu, Bisrat
Supervisor:Karantininis, Kostas and Feng, Li
Examiner:Hakelius, Karin
Series:Examensarbete / SLU, Institutionen för ekonomi
Volume/Sequential designation:710
Year of Publication:2012
Level and depth descriptor:Second cycle, A2E
Student's programme affiliation:NM005 Environmental Economics and Management - Master's Programme 120 HEC
Supervising department:(NL, NJ) > Dept. of Economics
Keywords:RoSCA, Equb, financial motive, social motive, transaction cost, big size
Permanent URL:
Subject. Use of subject categories until 2023-04-30.:Economics and management
Deposited On:26 Mar 2012 14:57
Metadata Last Modified:24 Oct 2012 12:13

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