Trust as collateral: informal finance among urban informal workers in Mumbai

Purpose This study aims to examine how financial exclusion, kinship networks, trust and resilience strategies shape informal borrowing practices among urban informal workers in India. It aims to highlight how socially embedded credit systems function as structural alternatives to formal banking. Design/methodology/approach A qualitative, case-based methodology was used. Semi-structured interviews were conducted with 15 informal workers in Mumbai, of which four diverse cases were selected for vignette construction. Data were thematically coded, combining inductive insights with theory-informed categories. Findings The findings reveal four interconnected dynamics: financial exclusion by banks reinforces dependence on shadow lending; kinship and friendship networks operate as embedded credit systems, ensuring liquidity through reciprocity; repayment is enforced through social collateral, trust and reputation rather than contracts; and diversified borrowing across multiple lenders functions as a resilience strategy akin to portfolio risk management. Together, these themes demonstrate that informal finance is a relational architecture sustaining livelihoods and enterprise in the absence of inclusive formal credit. Research limitations/implications The study focuses on a small sample in Mumbai, limiting generalizability but offering depth. Future research can extend to cross-city comparisons. Practical implications Policies that integrate trust-based mechanisms and multi-source flexibility from informal systems into microfinance and banking products could enhance financial inclusion. Social implications The findings underscore the role of kinship and community ties in sustaining resilience, suggesting that financial inclusion strategies must account for embedded social practices. Originality/value This study contributes to financial inclusion literature by showing that informal borrowing is not merely residual but structurally embedded within urban social networks. By using narrative vignettes, it humanizes financial practices and highlights how resilience emerges from collective social mechanisms rather than individual financial behaviors.