Chamas have been around for a couple of decades now. There are great stories of Chamas that made some serious money for their members through smart investments. Chamas too have helped members going through rough patches come above water with interest-free loans and even donations from members.
But there are not-so-good stories too. In fact, there are very sad stories of outright conmanship. Where members have been robbed of their hard-earned savings, usually painfully accumulated over the years by people they trusted as friends and family.
And then there is the mundane. Chamas that neither have great stories of financial success or been rocked with scandals. They simply exist to help members pool resources and afford some simple luxury such as financing the purchase of nice-to-have household items, paying school fees and so on, in the good old merry-go-round style or simple table banking.
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Most Chamas begin as informal groups of people who desire to belong and improve their lives. The micro-savings groups are, in essence, cooperative societies with members pooling resources for various shared courses.
While women have been a driving force in the formation of Chamas, recent times have seen multitudes of men join and reap the benefits.
In fact, the word chama is probably the only gendered thing in the existence, membership and function of chamas. If you simply call Chamas an investment group, then the unfair connotation that it is a women’s thing all but goes away.
This is probably the most formative form of chama. A few friends come together, contribute a fixed amount every month, and this amount goes to one member each month. Next month someone else pockets the total.
The ‘winning’ member can be free to use the money as they please. But many chamas, to foster accountability and improve chances of longevity put some restrictions on what the money can be used on.
Again, still a group of friends, colleagues and generally people known to each other including family members coming together, this time round with a more defined goal of ‘investment’ in whatever form.
Often, the objective is to pool funds together and invest jointly. This is a little more sophisticated than the merry-go-round as there needs to be some paperwork to govern the ownership of investments and exit clauses.
It could also come in the form of contributing together up to a certain threshold where investment is possible and then investing individually. The simplest example is the purchase of land. All members keep each other accountable and once the target is arrived at, they all purchase plots of land they have jointly identified.
Investment chamas have the potential to grow in high-value investment co-operatives and expand membership beyond a network of friends and family.
As you have seen above, this categorisation of Chamas is based on purpose. The ‘table bank’ chama exists for the sole purpose of advancing low-interest credit to members from a pool of money contributed by all members where a member must, at regular intervals, contribute a defined minimum amount. Here we are already getting into Sacco territory.
There is a minimum amount one must have saved to qualify for a loan, the limits depend on how much one has saved and a whole raft of rules ratified by all members on repayment, collateral/guarantors and so on.
Members agree on what a fair interest rate will be and reap the benefits of cheap credit as compared to borrowing from formal institutions.
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Members also share the profits (from lending interest) in dividends based on ‘shareholding’ at the end of the year.
This is a more complicated chama that dabbles in all the three above functions. There is a specific amount set aside for a monthly or quarterly merry-go-round, a chunk that goes to investments and a provision for lending.
By now, it is very clear that a Chama can be formed for literally any purpose as long as members are unified in the objective. So, it can be a school fees chama, household items chama, travel chama, emergency savings chama and so on.
The potential in Chamas is enormous. Depending on your personal financial goal, you can hop onto the most appropriate one.
But with many other options such as banks, a multitude of savings products, Saccos and more, is there a good reason to join a Chama? This article explores some potential reasons why one might opt for a chama.
An underestimated yet highly effective investment vehicle for many Kenyans is the Chama. It does not matter the size or the number of members. With consensus, they can mobilize resources for investments ranging from land and real estate to bonds, stocks and brick-and-mortar businesses such as in retail.
Have you ever heard of members investing in the transportation, construction, and even hospitality sectors? It's all about pulling individual contributions, researching intelligent investment options, and diving right in to reap significantly and eventually build wealth.
Popular investment projects, along with land and property, most Chamas in Kenya gravitate towards, include:
Why do so many Kenyans opt for Chama more than any other savings entity? Chamas, like cooperative societies, enhance a healthy saving culture. But first, weigh the registration and legal status of a Chama before joining.
Registration as a legal entity ensures the safety of member funds guarding against misuse of contributed funds.
Bylaws ensure continuity and growth ensuring all members follow a strict contribution schedule complete with penalties and as well, an exit clause for those who can’t keep up the discipline.
Members also know how much they can borrow and at what interest rate.
The critical aspect here is the common agenda, bound by a rulebook and guidelines that help members submit their savings without fail. Such discipline helps even those who otherwise are lazy savers to comply - to their own benefit.
But then again, Chamas know that their success depends on the savings of not just one or two but the entire membership. When an individual member fails, it affects the collective. Hence, saving is an aspect you can never escape.
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Have you ever had an urgent, almost dire financial situation on your hands? The immediate place you might look to is your Chama.
Almost all chamas have a provision for emergency borrowing.
Whether it's school fees, an ailing parent or child, or in the event of a death in the family, Chama emergency money can quickly become available. Unlike other financial institutions where an emergency loan may be quite expensive and potentially take some time to be approved depending on the amount, Chamas will often quickly get you sorted.
But their support doesn't stop at the financial aspect during hardship. Members are a social group that will provide that shoulder on which to lean.
Moral support and material assistance are something you would never get from any other entity apart from this grouping. Even more than family, you can count on a good Chama to shield you on a rainy day.
Chamas comprise people from various backgrounds, some of whom share invaluable knowledge about savings, investments, and borrowing structures. Their ideas and experiences can help open ways to better investment opportunities.
If you could ever take networking to the next level, it's probably through Chamas - especially one that goes beyond a group of friends who grew up together. Due to the shared common goal, you can expect some very honest advice from people with some good experience with investing that by law of probability will form some percentage of members.
Some Chama members confess to having landed a lucrative tender, job placement, and even personal investment opportunity just by mingling and sharing information with other members.
Investment diversification is an excellent way to spread and lower risk in investments. It is a lesson many Chamas have learned so well, never to place all the eggs in one basket.
Group members encourage each other to invest not in just one or two investment vehicles but several. So, if you first invest in stock or treasury bills, the next avenue might be in real estate, transportation, or even retirement savings.
Being part of a community of people who are intentionally trying to improve their financial standing means by default you will be drawn out of your comfort zone and most likely you are going to want to diversify. And if your Chama is investment-driven, then diversification options will already be within reach for members.
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What do you do when loan products you have interacted with seem to be out of reach either due to cost or eligibility bottlenecks? Lend to yourselves!
That is what essentially chamas that have a table banking component have done. Pooling member resources and lending to each other at what can be described as affordable rates.
All members sign off on the interest rate which then determines how much it will cost to borrow for those who eventually do, but also how much in profits they are going to enjoy at the end of the year.
Formal financial institutions such as banks and Saccos too have created products for Chamas which can also help members who previously would not qualify for loans on their own to build wealth.
Chamas will typically offer unbeatable interest rates to their members and may have less abrasive collection techniques including, if bylaws allow, a flexibility to renegotiate repayment terms.
The success or failure of a Chama depends on its legal status, honesty, and astute leadership. It also depends on saving discipline among the members. Lacking in any of these aspects can compromise a group. Hence;
Not everyone can exercise discipline in savings or investments. Chamas provide an alternative yet strict savings culture, enabling you to build wealth down the road.
The best bet is to find a reputable formal Chama with legal structures and excellent investment strategies. Joining a Chama with unity of purpose is suitable for exposure to a rich knowledge base and networking opportunities.
Most people will use Chamas alongside other financial vehicles because as they say, one size never fits all, or does it?