Roscas are locally organized groups that meet at regular intervals; at each meeting members contribute funds which are then distributed to one or more members. Once all participants have received the funds, Rosca can disband or start another round Besley, Coate, and Loury (1993). By joining a Rosca, an individual agrees to a periodic payment schedule in exchange for which he receives a lump sum payment at a future date. Roscas often pay no interest and participants may have little or no control over when they receive the funds. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay Participants also run the risk of other participants not fulfilling their obligations. According to Besley, Coate, and Loury (1993), individuals can join Roscas to finance the purchase of an indivisible durable good, exploiting the gains from intertemporal trade between individuals. All individuals except the last one improve their well-being by joining a Rosca, since each receives the indivisible durables sooner than by saving alone. ROSCAs play an important role as a risk management tool; they can offer an insurance mechanism against income shocks, provided that these shocks are uncorrelated across participants. They are an extension of traditional savings groups which, as documented by Maloney and Ahmed (1988), consist of individuals who, regularly or irregularly, deposit funds with an individual or a subset of the group. Funds are returned to individual savers at the end of a certain period and there is no systematic rotational distribution mechanism. While there are significant financial reasons for joining a ROSCA, the key distinguishing feature of a high-performing association lies in reducing the risk of opportunistic behavior that arises from peer pressure for performance from all members. Although ROSCAs are financial instruments used primarily by the poor, they are not exclusively so, unlike microfinance. According to Adams and Canavesi de Sahonero (1999), the most likely ROSCA subscribers in developing countries can be found among white-collar workers in large cities. However, ROSCA appears to be a rather rigid credit provision system, the survival of which depends almost entirely on the use of social pressures to ensure the preservation of group members' personal resources within the association. Informal financial groups face many challenges due to the fact that their activities and operations are very informal. These challenges include: delayed payments, poor management and governance of groups, mismanagement of funds and theft. According to Siwan et al. (2003) in Kenya, shows that ROSCA groups encounter two main problems: there are members who do not pay their contributions regularly and there are members who stop contributing after receiving the contribution. Another challenge is the element of negotiability these systems allow, which allows powerful individuals to manipulate groups for their own personal benefit. Furthermore, some powerful members of the community take advantage of weak systems; quickly creating a group, raising funds from other members, taking large loans for themselves and not paying. Please note: this is just an example. Get a custom paper from our expert writers now. Get a Custom Essay According to the FinAcess report ( 2016), most groups reported leaving the group, followed by those reporting non-payment of contributions..