Pareto superior dimension of rotating savings and credit associations (ROSCAs) in Ghana: Evidence from Asunafo North Municipality of Ghana

Abstract

This study investigates characteristics of Rotating savings and credit associations (ROSCAs) participants who join the association due to its Pareto superior allocation in Ghana. Some scholars like Dejene and Van den Brink have hypothesized that people join ROSCAs because of its Pareto superior allocation. The study employed primary data analysis in achieving its main objective. Out of the 400 ROSCA participants sampled for the study from Asunafo North Municipality of Ghana, 71.75% joined the association because of its Pareto superior allocation. A Probit model was used to predict the probability of joining the association due to its superior allocation. The dependent variable took the value of one when respondents join the association due to its superior allocation and zero if otherwise. Married participants, participants with no or low level of education, participants who are unemployed and participants who save more of their income are more likely to join ROSCA due to its Pareto superior allocation. It was recommended that that ROSCA participants who have access (participants living in urban sectors) to formal financial institutions, participants who have accounts at formal financial institutions, participants who are rich and aged participants should be educated on how ROSCA constitutes its Pareto superior allocation.