Objective
Lacking access to formal institutions, the poor in developing countries often use informal savings groups to financially prepare for unexpected events. They often base these groups on social ties to reduce risks, which occur when group members do not make payments. This study examines whether Kenya’s urban poor rely on social ties, such as co‐ethnicity and co‐residency, when forming informal savings groups.
Methods
This study uses list experiments on a sample of informal settlement residents in and around Nairobi.
Results
Approximately 28.7 percent and 17.5 percent of respondents would consider someone outside their ethnic group or informal settlement as a member of an informal savings group, respectively. Most respondents were reluctant to accept members without social ties, with greater reluctance against those outside the settlement.
Conclusions
Kenya’s urban poor rely primarily on co‐residents for financial security, which elevates risk as they experience shocks simultaneously and cannot help one another.