The Risk-control Methods Of ROSCA

ROSCAs, an informal finance which are familiar to people in the southeast of China,has played a constructive role in the development of economy, therefore provide a goodfinancing channel for farmers and SMEs. Meanwhile, kinds of risks are graduallyaccumulated and the collapse events of ROSCAs occur frequently, making seriousnegative impact on social stability and the financial market. This reflects the needs of riskcontrol to be conducted for ROSCAs.This paper, with the ROSCAs in Ruoheng as the main research target and in themethods of literature review, comparative analysis and field surveys, firstly, make ananalysis of the factors that affect members to join a ROSCA. The results show thatROSCA mainly depends on the organizer’s character, reputation and economic strength,the relationship between organizer and member, the purpose of starting the ROSCA.Based on the above study, the paper explores the unique operating mechanism of ROSCA,including specific operational procedures, mechanisms and control mechanisms. It isfound that the particular and effective control mechanism can maintain continuousoperation of ROSCAs.Then, the paper analyzes the risk generate and risk inspection mechanism based onthe perspective of game-theory with specific cases. And conclude that there are manyartifices to keep risks away, the main measures are these: increase therelationship-density of the network; the number and money should be appropriate; toensure the interest at a reasonable level; each party should not be a mere formality;introduce the credit guarantee between the members and so on.Finally, with reference to Taiwan, India, Africa and Argentina, the paper exploresthe external risk control mechanisms from the levels of legal and financial policies. Theanalysis shows that the following five will build effective external constraint mechanism:legalize the status of ROSCAs, strengthen the supervision of the speculative ROSCAs,propel the transformation and upgrading of ROSCAs, promote the sustainabledevelopment of microfinance companies and so far.