February 15, 2023   by


A merry-go-round, also known as a rotating savings and credit association(ROSCA), is a savings and loan group that operates similarly to a traditional merry-go-round ride. In this type of chama, a set number of individuals agree to contribute a set amount of money regularly, and each member takes turns receiving the total pot of funds. They provide an opportunity for individuals and groups to pool their resources and access credit on an informal basis, at a rate lower than what formal financial institutions such as banks would give.

As a viable alternative to traditional microfinance services, merry-go-rounds have the potential to improve financial literacy and access to credit for very many individuals. Members of the various merry-go-rounds appreciate the financial services assistance, especially for those excluded in the formal financial sector. 

Merry-go-round as a great saving plan.

Merry-go-round setup

In most cases, members of merry-go-rounds are often persons who have close relations in one way or another. They agree on a set amount of money and a contribution timeline, this normally occurs monthly, weekly, or quarterly. All members in a merry-go-round participate by pooling their savings together and handing them to the host of the day. This cycle repeats itself until all the members of the group have received their cash.

Impact of the merry-go-rounds model of banking

The merry-go-round model of banking has really impacted and is felt in various groups as below:

  • Women’s Groups

Especially in the rural areas, women groups have been making use of merry-go-rounds for many years, supplementing where access to formal financial services is limited. These groups provide a convenient and accessible way for women to save, invest, and access credit, while also promoting social interaction and community building. Additionally, they offer a safe and supportive environment where women can discuss financial matters and gain financial literacy skills.

  • Small Business Owners

Challenges in accessing credit, especially in an instance where there is no formal credit history or collateral have pushed small business owners to opt for merry-go-rounds. The merry-go-rounds provide a solution for these individuals, as they offer a convenient and accessible way to access credit without the need for collateral or a formal credit history. This has served to help small business owners to grow their businesses, create jobs, and contribute to the local economy.

  • Farmers’ Groups

In most instances, farmers do not have a formal credit history or collateral. This poses a challenge when the farmers require access to credit. Similarly, merry-go-rounds provide a solution for these groups, as they offer a convenient and accessible way to access credit without the need for collateral or a formal credit history. This help farmers invest in their farms, improve their yields, and increase their income.

  • Youth Groups

As an easy way to save and access credit, youth groups have also been making use of merry-go-rounds. These groups have helped to provide an opportunity for young people to learn about financial management, build their credit history, and gain financial literacy skills. Additionally, they offer a safe and supportive environment where young people can discuss financial matters and make informed financial decisions.

Major advantages of merry-go-rounds.

In scenarios where individuals are not able to access formal financial systems, merry-go-rounds come in handy as a crucial source of financial services. This is because they encourage social engagement, and community engagement and give people an easy and accessible means to save, invest, and obtain credit. Pooling resources and disbursing loans to members is a common occurrence for a merry-go-round.

The merry-go-rounds are also an attractive alternative to traditional microfinance services. This is due to the low-interest rates charged on loans as it is often lower than rates charged by traditional microfinance institutions. The loans are also more accessible, as there is no need for a formal credit scoring system or extensive documentation. This therefore makes it easier for people with limited access to financial services to participate.

As an individual, saving might be a challenge as needs could arise thus making it difficult to save for a specific purpose. However, by being a member of a merry-go-round, there’s a commitment to contribute at a stipulated time and also getting savings with a larger amount from the pool, of resources. This, therefore, enables members of the merry-go-round to easily plan for a development project or important agenda.

Challenges Faced by Merry-go-rounds

Despite its popularity, the use of merry-go-rounds is not without challenges. 

  1. Lack of transparency and accountability is most witnessed as a result of the informal setup of the savings group. Therefore, major issues such as mismanagement of funds and unequal distribution of loans are highly likely to occur.
  2. The other major challenge is the absence of a formal credit scoring system. This poses a very high risk of default, as lenders may not have complete information about the creditworthiness of borrowers.
  3. Merry-go-rounds face a higher risk of collapse due to the informal structure used in formulating the groups. In most instances, members could default on loans or fail to give contributions on time. This, therefore, ruins the group’s reputation and leads to significant losses among the members.

Due to the many advantages brought about by merry-go-rounds, efforts to address the challenges have been put in place. The efforts include formalizing the practice of merry-go-rounds through establishing credit bureaus that could enable provision of credit information to lenders. This information is very relevant in ensuring that lenders assess the creditworthiness of members who are borrowers before granting them loans.

Establishing regulations and standards, helps promote transparency and accountability in the merry-go-rounds thus addressing some of the major challenges.

Digitizing the merry-go-round processes also plays a major role in solving most of the challenges. Documenting contributions, fines and loans in a digital system, makes it easy to keep track of essential information. This really helps in ensuring credibility among members. It is also important in determining members’ creditworthiness based on their borrowing history.


Merry-go-rounds are a versatile microfinance tool that is used by a wide range of groups. The groups include women’s groups, small business owners, youth groups, and farmers’ groups. They offer a convenient and accessible way to access credit and promote social interaction and community building. In addition, they help individuals and groups to build their financial literacy skills. Merry go rounds, despite having numerous challenges, play an important role in providing financial services. This is especially to those who are otherwise excluded from the formal financial sector.


Merry go round – https://www.flaticon.com/free-icon/merry-go-round_3125447?term=merry+go+round&page=1&position=46&origin=search&related_id=3125447 

Categorised in:

This post was written by Cynthia Njoki

Please Subscribe and get Notified when new articles are posted