Economics of savings-based finance: an interest-free model of rotating savings and credit association in Turkey

Abstract

Purpose The emerging markets have been witnessing a remarkable revival of rotating savings and credit associations (ROSCAs) serving as alternative informal financing and investment platforms, also known as savings-based finance (SBF) in Turkey. The purpose of this study is to present the SBF model mathematically, analyse the performance of the SBF sector and propose a new Sharīʿah-compliant SBF model for the acquisition of durables. Design/methodology/approach The paper thoroughly reviews the concept and practice of ROSCA across the globe, mathematically models and empirically analyses the performance of Turkish SBF companies using a unique data set. Findings The study formulates a two-person SBF model and proposes a Mudarabah-Wakalah hybrid model with a new investment feature. It is found that the concept of ROSCA is being operationalized in 105 countries across the globe under different names with slight business model modifications. The research also reveals that the demand for financing of durables in Turkey significantly increased in recent years with the demand for housing is twice greater compared to vehicles. Most importantly, a strong significant inter- and intra-comovement is observed between these durables implying that the success of the sector in one segment has attracted the customers to other SBF products. It shows that the SBF institutions can effectively serve as the alternative financing houses for pooling savings and financing the durables, and they have strong potential to capture a larger financial market share in Turkey and even globally. Originality/value The study constructs mathematical models and proposes a new investment wing to an existing SBF wealth fund.

Jula-Jula: Economic and Accounting Practices in the Muslim Community of North Sumatra

“…Hence, this activity became a solution to solve the community's financial problem. This is consistent with the findings of Dinç et al (2022). Similarly, Rabie's (2021) findings in Africa suggested that ROSCA plays an important role as a tool for saving and investing when economic sistuation is moderate and low.…”

“…Indeed, it has been discovered that the jula-jula practices of the Tapanuli Bataknese society contain characteristics of usury. It also incorporates an aspect of tyranny, which contradicts prior studies by Sadr (2017) and Yusuf (as cited in Dinç, Jahangir, Nagayev, & Çakır, 2022). Hence, it is essential that the current study investigates the implementation of jula-jula within the Tapanuli Muslim community from an Islamic economics perspective.…”

Evolvement of ROSCA to real property acquisition as a form of interest-free SBF model: a PRISMA-compliant systematic review

“…Furthermore, several other research were conducted by focusing on the economics of SBF or ROSCA (Aliber, 2001;Kedir, 2005;Dinç et al, 2021), interest-based and interest-free ROSCA model (Sadr, 2017;Le Polain et al, 2018;Ke and Ye, 2019), institutional aspect of ROSCA (Schirmeister and Nadler, 1996;Van den Brink and Chavas, 1997;Ibrahim, 2019), the practice of ROSCA (Ardener, 1964;Anderson, 1966;Adams and de Sahonero, 1989), the operational behaviour of ROSCA (Laguerre, 1998;Osei-Assibey, 2015), risk management (Baland et al, 2019;Han et al, 2020;Reito, 2020), and digitalization of ROSCA (Bouman, 1979;Abdul-Yakeen, 2012;Mehmood et al, 2019;Francois and Squires, 2021). Finally, there are some studies that primarily bolster the objective of this research, i.e.…”

“…Though there is no universally recognized definition or formation of ROSCA in literature, various scholars have defined it differently over time. For instance, Ardener (1964) defined the concept as: "[A]n association formed upon a core of participants who agree to make regular contributions to a fund which is Source(s): Authors [Dinç et al, (2021)] -20.00% 0.00% 20.00% 40.00% 60.00% 80.00% 1 9 5 1 1 9 9 1 1 9 9 2 2 0 1 6 2 0 1 7 2 0 1 8 2 0 1 9 2 0 2 0 Total Linear (Total) given, in whole or in part, to each contributor in rotation" (p. 201). Yu (2013) defined ROSCA as "financial self-help groups that collect multiple contributions from their members across time and allocate merged funds back generally in rotation" (p. 2).…”

“…Furthermore, the inclusion and acceptance of the SBF model in the mainstream financial sector deserve scholarly attention to comprehend its transformation and strengthen the theoretical framework. Though some smattering literature concentrated on the SBF concept (Erguven and Kaya, 2016;Ersin and Duran, 2017;Dinç, 2019;Dinç et al, 2019;Erguven and Ferudun, 2020;Erguven, 2021;Dinç et al, 2021), these are primarily general discussions and mainly in the Turkish language except Erguven (2021) and Dinç et al (2021) [which limits a significant number of readers from taking advantage of the literature]. The studies focused on the economics and operational aspect as well as the brief history of ROSCA; however, the evolvement of SBF was not broadly discussed.…”