Abstract
The aim of this paper is to understand the functioning and the scope of self‐help groups in the informal settlements of urban areas as a means of generating income for poor households. It uses a unique data set collected by the author in 1999 surveying all individual group members from several informal settlements in Nairobi. It studies the individual determinants of earnings within groups and relates group composition to various indicators of group functioning. Sex, age and ethnic identity are among the most important determinants of individual reliance on group income and of access to group loans. Heterogeneity in earnings among members is shown to reduce their ability to borrow from the group as a whole but not from each other. The impact of ethnic and other forms of heterogeneity on the division of labour, choice of compensation schemes, sanctioning technology and recruitment criteria is also described.
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