DEFINITION of 'Rotating Credit And Savings Association (ROSCA)'

A group of individuals that fill the role of an informal financial institution through repeated contributions and withdrawals to and from a common fund. Rotating Credit and Savings Associations are most common in developing economies or among immigrant groups in the developed world. This is because accessing formal institutions is difficult due to their unavailability or because these institutions are unable to provide the appropriate service. The name derives itself from the types of transactions that occur in these associations; members pool their money into a common fund, generally structured around monthly contributions, and money is withdrawn from it as a lump sum by a single member at the beginning of each cycle. This occurs for as long as the group exists.

Memberships are generally based on ethnic or geographical lines, and the structure of payments and withdrawals vary from group to group. Both transactions can vary in occurrences as often as daily to every six months, and recipients of funds are commonly chosen based on financial need or lottery.