Co‐Ethnic and Neighborhood Ties and Financial Social Capital Formation Among the Urban Poor in Kenya

Abstract

ObjectiveLacking 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.MethodsThis study uses list experiments on a sample of informal settlement residents in and around Nairobi.ResultsApproximately 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.ConclusionsKenya's urban poor rely primarily on co‐residents for financial security, which elevates risk as they experience shocks simultaneously and cannot help one another.