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ROSCAS as Insurance: Comparing Formal and Informal Methods of Saving among the Unskilled Workers in the Ethiopian Cut‐Flower Industry

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  • Eun Jin Ryu
  • Aya Suzuki

Abstract

We explore the factors associated with the savings choice among bank accounts, informal savings groups, and cash savings at home using primary data collected from low‐income production workers in cut‐flower farms in Ethiopia. A unique contextual feature of our sample is that workers have full access to banks as well as ROSCAs, which allow us to focus on the demand side of saving methods. We find that self‐insured workers with greater assets tend to save more in banks. We further find that risk aversion is positively associated with ROSCAs savings but not bank savings, suggesting the workers value the insurance aspect of ROSCAs. We also find that those with greater social connectedness tend to save more with ROSCAs. Overall, we find that informal savings groups work as insurance, complementing formal financial institutions.

Suggested Citation

  • Eun Jin Ryu & Aya Suzuki, 2021. "ROSCAS as Insurance: Comparing Formal and Informal Methods of Saving among the Unskilled Workers in the Ethiopian Cut‐Flower Industry," The Developing Economies, Institute of Developing Economies, vol. 59(3), pages 243-274, September.
  • Handle: RePEc:bla:deveco:v:59:y:2021:i:3:p:243-274
    DOI: 10.1111/deve.12266
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