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. The paper
uses a unique dataset collected by the author in 1999 surveying all individual group members from
several informal settlements of 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 labor, choice of compensation schemes, sanctioning technology and
recruitment criteria is also described.
Keywords: self-help groups, cooperative, participation, social capital
JEL codes: O12, P13, Z13