Participation in Rotating Savings and Credit Associations in Indonesia: New Empirical Evidence on Social Capital

Indonesia has a rich historical tradition of mutual cooperation at the community level. This study argues that rotating savings and credit associations (ROSCAs) constitute successful experiences of collective action within the informal financial sector. Therefore, using data from Indonesia Family Life Surveys, it explores the relationship between social capital and ROSCA participation and extends existing models from individual- to community-level determinants. The endowment of social capital at the village level correlates positively with individual ROSCA participation, because community social capital provides individual members with the resources needed to overcome self-selection and foster coordination -two main characteristics of ROSCAs. These results provide new evidence on the role of social capital for fostering collective action and offer new insights about community-driven development.