Western Kentucky University
Indigenous Credit Associations in Rural Botswana
Institution
Western Kentucky University
Faculty Advisor/ Mentor
Brian Strow
Abstract
The African population can be broken up into three sectors: the modern, informal, and traditional. The modern sector, those elites who came to power and have remained in control of most of the modern African governmental institutions, has little role to play in African economic development. Growth has to come from the informal and traditional sectors: urban entrepreneurs and rural agricultural populations respectively. Research shows that despite the lack of formalized credit institutions as we have in the rest of the developed world, African countries have indigenous institutions that have allowed for some degree of access to credit and capital. We sought to answer a series of questions about the success of these indigenous institutions: do they provide adequate funding capital for socioeconomic groups? What role, if any, can governments play in facilitating their growth if they do prove to be beneficial? Can foreign investment help expand their reach and, if so, how? And is it economically viable for both parties to be involved? Rotating savings and credit associations (ROSCAs) are one example of these indigenous institutions. The amount of capital that has accumulated through these agreements is decreasing due to the new regulations being imposed. The decreasing tax revenues from other major industries - such as diamond manufacturing - has put pressure on the government to make up the difference by regulating and taxing other sources of revenue that were previously unfettered. Though ROSCA agreements are informal and very hard to monitor, they have come under closer surveillance and this increased cost has made them less viable options. Understanding the principles and foundations of such savings and credit associations allowed us to establish empirical criteria by which their economic effectiveness can be assessed.
Indigenous Credit Associations in Rural Botswana
The African population can be broken up into three sectors: the modern, informal, and traditional. The modern sector, those elites who came to power and have remained in control of most of the modern African governmental institutions, has little role to play in African economic development. Growth has to come from the informal and traditional sectors: urban entrepreneurs and rural agricultural populations respectively. Research shows that despite the lack of formalized credit institutions as we have in the rest of the developed world, African countries have indigenous institutions that have allowed for some degree of access to credit and capital. We sought to answer a series of questions about the success of these indigenous institutions: do they provide adequate funding capital for socioeconomic groups? What role, if any, can governments play in facilitating their growth if they do prove to be beneficial? Can foreign investment help expand their reach and, if so, how? And is it economically viable for both parties to be involved? Rotating savings and credit associations (ROSCAs) are one example of these indigenous institutions. The amount of capital that has accumulated through these agreements is decreasing due to the new regulations being imposed. The decreasing tax revenues from other major industries - such as diamond manufacturing - has put pressure on the government to make up the difference by regulating and taxing other sources of revenue that were previously unfettered. Though ROSCA agreements are informal and very hard to monitor, they have come under closer surveillance and this increased cost has made them less viable options. Understanding the principles and foundations of such savings and credit associations allowed us to establish empirical criteria by which their economic effectiveness can be assessed.