The Research Of Rosca Risk And Finance Efficiency Based On Social Capital

Rotating saving and credit associations (ROSCA),one important kind of private lending activities, are popular in southeast costal area, especially in rural areas of Zhejiang, Fujian and Guangdong. In the emerging era of financial development and innovation, the old fashioned ROSCAs still hold a crucial place in private lending and achieve sustained and stable development. The status of ROSCAs can sufficiently explain their rationality. Besides the insufficient financial supply from formal institutions, there must be some particular internal operation mechanisms which support the existence and development of ROSCAs. ROSCAs are not only economic organizations, but also the social organizations and cultural organizations, because most of participants are linked by blood, geographical and kinship relations. Therefore, this paper will research the risk profile and financial efficiency of ROSCAs in the perspective of social capital, using social network method. The paper firstly makes empirical research of ROSCAs social capital, applying social network analysis, using the data obtained from field research. The empirical includes two aspects:one is establishing index system for social capital evaluation and calculating the values of indexes; the other is drawing network structure graphs and making conclusions of the social network characteristics. Then, based on the results of above-mentioned research, the paper analyses the risk profile and financial efficiency of ROSCAs. In risk analysis, the paper constructed a risk model based on five assumptions and found out risk influential factors. In financial efficiency analysis, the paper applied IRR method and cash flow matrix to calculate interests of ROSCA participants and compared them with interests in formal financial institutions.There are three main conclusions that can be made from the intensive research above.(1) There are some new changes in the social network of ROSCAs participants. ROSCAs established urban residents have less geographical constraints and lower requirements of social status in the choice of participants. The organizers of ROSCAs are not in the irreplaceable position of participant networks. There are one or several positions in the network which play the bridge role in the relative less tight ROSCAs.(2)The risk profiles of ROSCAs are closely related with the number of participants, fund size and social-economic conditions of participants. The larger number of participants and the bigger size of fund is, the higher risk ROSCAs have.(3) The ROSCAs are efficient investing-financing mechanisms, at the perspective of interest rate. And the financial efficiency can be explained by social capital theory.