Household savings in informal social groups in Kenya: does accountability matter

Social groups play a vital role in providing informal financial services in sub-Saharan Africa. This study offers the first examination of the impact of social group accountability on savings contributions to informal market social groups (Chamas) in Kenya. Specifically, we utilise a national dataset to examine the impact of accountability on household contributions to Kenyan Chamas. We find evidence that low-cost accountability initiatives such as securing Chama funds in a money lock box, or a bank account, and the separation of the Chama chair and treasurer positions increase Chama contributions. These findings provide insight into how low-cost accountability initiatives enhance contributions in informal financial markets. By contrast, registering a Chama with the Kenya government significantly reduces Chama contributions. Moreover, Chama registration is accompanied by non-trivial costs and members of registered Chamas are required to pay the appropriate tax liability on their portion of Chama generated income. Such findings serve as a cautionary tale that cost inducing accountability initiatives may inadvertently suppress households' willingness to contribute to informal social groups, possibly stifling households' propensity to save.