ROSCAs as a source of housing finance for the urban poor: an analysis of self-help practices from Hyderabad, India1

For the urban poor, housing finance from ROSCAs (rotating savings and credit association) is an alternative to conventional housing finance, which requires conventional collateral. Contrary to conventional housing finance, the creditworthiness of ROSCA participants is determined largely by social factors. Moreover, a link exists between ROSCA participation and house (or shack) ownership. Apart from obtaining shortto medium-term ROSCA finance, participation offers security for obtaining finance from, for example, moneylenders. Notably, auction ROSCAs offer cheaper housing finance than Indian housing finance corporations. The middle classes mainly use this finance, but the poor tend to obtain more expensive finance for incremental building. 1. ROSCAs: an introduction ROSCAs are a world-wide phenomenon which can be traced in urban as well as rural areas and are known under different names, such as tanda in Mexico, susu in Ghana, and chit funds or chits in India (for a longer list of local names see Ardener, 1964). A ROSCA consists of a group of participants – women, men or even children – who deposit a daily, weekly or monthly fixed contribution in a common pot which is allotted in part or whole to each participant in turn. The way a ROSCA operates can best be illustrated with an example. In a ROSCA with twelve participants each pays $10 a month to a common fund. The kitty of $120 will be allocated to one member, who can share the COMMUNITY DEVELOPMENT JOURNAL VOL. 35 NO. 1 January 2000 pp. 16–30 Peer Smets © 2000 OXFORD UNIVERSITY PRESS AND COMMUNITY DEVELOPMENT JOURNAL 1. This paper is dedicated to Jan van der Linden and is based on a study of literature and research into housing finance for lower-income groups undertaken in Hyderabad, India in 1993–1994. This research was funded by the Dutch Ministry of Development Affairs and the Vrije Universiteit, Amsterdam. Furthermore, I am indebted to my assistants in the field, G. Ramalakshmi and M. Ramesh. I am also grateful to Dick Kooiman, Mayke Kaag, Alfons van Marrewijk, and members of the Mutual Group of the Amsterdam School for Social Science Research for giving comments on earlier versions of this paper. 03 Smets (jl/k) 5/1/00 9:26 am Page 16