Formalization of informal digital savings and lending associations:

Abstract

Social media-based digitally informal savings and lending associations (DISLAs) are growing rapidly, indicating a shift in collective financial behaviour. The sustainability and operational concerns arise from this increase. Hence, there was urgent need for the empirical study to examine DISLAs’ socioeconomic dynamics and the feasibility of formalising them as Co-operative Financial Intuitions (CFIs) to improve their efficiency. Data were collected from 147 WhatsApp subscribers who use M-KOBA, a mobile finance application that interfaces with Vodacom Tanzania’s M-Pesa, using cross-sectional design. Data was collected using online surveys and semi-structured interviews. Qualitative data were thematically examined, whereas quantitative data were analysed descriptively. The study findings reveled that majority (92.5%) of respondents use WhatsApp for MKOBA DISLA mobilisation. It was also found that DISLAs’ operating approaches were aligned with ideal co-operative values implying its feasibility of being formalised to CFIs. Moreover, it was revealed that, majority (91.8%) of the respondents willing to formalise their DISLAs into CFIs. However, despite the formalization feasibility and willingness, legal and regulatory issues, limited cooperative education, capital constraints, and leadership gaps need to be addressed for effective transformation. The study concludes that, DISLAs formalization marks the opportunity to increase youth engagement in financial co-operatives. The study recommends for streamlined legal procedures, co-operative education programs, digital incubation hubs, and targeted funding. Also, it recommends further research in examining digital CFI scaling up models.