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Paper short abstract

Does digitalization promote development and inclusion in informal finance, or does it create new opportunities for value extraction and worsen inequality? We focus on savings groups, as they embody finance rooted in social ties, to document their digitalization journey.

Paper long abstract

This research explores the digital transformation of Kenya's informal finance sector through the new perspective of financial pluralism. It questions the dominant linear formalization theory by arguing that low-income households strategically manage a diverse portfolio of financial relationships across various institutions and agents, including banks, savings groups, mobile money, money lenders, shopkeepers, family and friends, etc., to meet their daily needs. Using a mixed-methods approach, we analyze national survey data and qualitative fieldwork data with savings groups (chamas) to address a key question: Does digitalization promote development and inclusion in informal finance, or does it create new opportunities for value extraction and worsen inequality? We focus on savings groups, as they embody finance rooted in social ties, to document their digitalization process through mobile money, lending apps, and digital platforms as tools for modernization and development. We highlight the perceived benefits by some group members and also note the associated risks. These include overindebtedness from excessive borrowing, shifts in trust and power dynamics among members, and the exploitation of social relations and collective financial practices by fintech and telecom operators for their own gain. The study records individual and group strategies for resistance and accountability, including mixed cash-digital practices. These actions go beyond economic significance as they represent, in our view, a way to reshape the socio-economic life of a community. Taken together, they may be seen as ways in which segments of society renegotiate spaces and influence public policies.