“It Is Good to Be a Banker”
Marcos Eguiguren is Executive Director of the Global Alliance for Banking on Values (GABV). He explains in an interview how bankers foster social change.
Small investment groups called chamas are a big phenomenon in Kenya. People join to purchase land, start a business, or even to buy their Friday night beers.
A group of twelve women is gathered at a home in one of Nairobi’s upmarket neighbourhoods, sipping tea and biting on beignets and samosas on a Saturday afternoon. The secretary of the group calls the meeting to order as she reads the minutes from the last meeting and awaits the group’s approval. When everyone agrees, she proceeds to the next item on the agenda - collecting the monthly contribution from each person.
But there is more to chamas: They are also about collaboration, friendship, and social security.
The group calls itself Mulika Mamas and it is more a loose affiliation of people than an official organization. Mulika Mamas is part of a phenomenon that has spread all over Kenya: chamas, the Swahili term for informal investment groups of individuals whose objective is to pool capital or other resources for investment. But there is more to chamas: They are also about collaboration, friendship, and social security.
Mulika Mamas was formed by a group of friends in 2007. They wanted to invest in real estate and realized they could achieve more together than alone. “We knew each other from different forums and we all kept saying we want to form a chama, so we met up and started the group,” says Catherine Butaki, the group’s chairperson. The members differ in terms of their jobs and incomes. Some of them work in the communication sector, and several are bankers. There are teachers, consultants, entrepreneurs, civil servants and a farmer. Each member contributes Sh5.500 ($55) every month. So far they have been able to buy a piece of land that they sold off at a profit. “One of our major goals is to own a housing estate,” says Catherine.
Chamas are so much a part of the Kenyan psyche that a person might barely realise when he or she is joining one.
Almost every adult in Kenya belongs to such an investment group. Many people are even in multiple chamas – one formed to buy a large piece of land for subdivision, another for saving money to visit one another’s homes. There are even extremes where groups have been formed to create a pool of funds for Friday night beers. Chamas are so much a part of the Kenyan psyche that a person might barely realise when he or she is joining one. You’ll be having a Whatsapp conversation with a group of friends when one person suggests you start contributing money to start a farming project because everybody is making money from agriculture. Soon everyone is on board with the idea and just like that, you have a chama up and running.
“There are currently around 300,000 groups with at least $3.4 billion in assets. But there are many more informal ones that are unregistered,” (Alex Mwangi, KAIG)
It's hard to pinpoint exactly when the phenomenon picked up, but it seems Kenyans have always been about getting together to save money to accomplish specific goals. “There are currently around 300,000 groups with at least $3.4 billion in assets. But there are many more informal ones that are unregistered,” says Alex Mwangi, head of the secretariat at the Kenya Association of Investment Groups (KAIG), an umbrella body for chamas. “By aggregating the funds of a large number of small investors, an investment group gives individuals access to a wider range of opportunities than they would be able to access alone.”
Most chamas are merry-go-rounds. People regularly contribute an amount of money per day, week or month, and the total collected sum is given to one of the members with each turn, rotating until all the members have received the money. Merry-go-rounds are mostly geared towards members’ welfare, as the money received goes towards a personal activity like paying school fees, saving for a holiday, or building and furnishing a house.
Mary Wambui, a bank manager, is in such a group that she joined because it enables her to save money. “We are a group of five. I only know two other members because we do not meet. We just send money at the end of the month.” Everyone in her group contributes $200 a month, meaning one member receives $1,000 every month. “This is a good amount that you can use to achieve specific goals at home or in business, but which is hard to save in the bank because you keep accessing your account,” says Mary. Chamas are about friendship, welfare, savings, and investment. Groups can have anywhere between two and one hundred people. Old friends from high school can link up and form a chama. So can members of an extended family, workmates or people who attend the same church or live in the same neighbourhood. To be allowed into an investment group, a person has to be introduced by a member and be vetted by the group.
“We thought that since we knew each other from the university, we could come together and buy land and build homes.” (Davis Muguimi, Ephrata)
Ephrata is another investment group that was formed by friends who met at university. “We thought that since we knew each other from the university, we could come together and buy land and build homes. That would help us know our neighbours,” says Davis Muguimi, an entrepreneur and the group’s chairman. Ephrata was founded in 2011 by ten friends and their spouses and registered as a limited company. Each member contributed initial capital of around $2,500 and makes a monthly contribution of $70. The investment group has managed to acquire a two-acre piece of land for $20,000 at the outskirts of Nairobi that they hope to resell at a profit. They have also invested part of the cash in government securities and it is also lent to members with interest.
Five years on, however, the group has yet to achieve its goal of building homes. “We took a long time before identifying the piece of land to buy, so some members went ahead and bought their own homes, diluting their commitment to the group,” notes Kennedy Omami, a member who works in the insurance sector. “Over time people became disengaged and stopped sending their monthly contributions,” he adds, pinpointing some of the challenges most investment groups face in Kenya.
Alex Mwangi of KAIG says he has seen many groups fold because of lack of commitment. “People often come together, initially excited by their ideas, but because they do not think through what they want to achieve and write a strategic plan with specific goals to be achieved in the long term, their interest wanes and they pull out or become disengaged.” Therefore the KAIG tries to empower chamas to adhere to their investment goals and to come up with strategic plans and constitutions.
Some activities that groups undertake to strengthen their bonds include goat-eating parties to connect and have fun, visiting each other’s life events like weddings, visiting children’s homes, or donating books to a school library.
A Chama Handbook published by KAIG recommends that investment groups set clear objectives for the group’s purpose from the beginning to prevent them from becoming a socializing forum. “However, having social activities cements the group’s relationship dynamics,” Alex adds. Some activities that groups undertake to strengthen their bonds include goat-eating parties to connect and have fun, visiting each other’s life events like weddings, visiting children’s homes, or donating books to a school library.
Born in 1996 at a farewell party in a church, the company is now worth over $20 million.
What drives most chama members is the hope of being part of a collective success story one day. The Critical Mass Growth Group (CMG) is one of these stories. Born in 1996 at a farewell party in a church, the company is now worth over $20 million. It has evolved from a thirty-member chama to include three companies, one of them public, and owns various real estate properties including a ten-storey building at the heart of Nairobi’s central business district, the Norwich Union House.
“Our seed capital came from thirty members who initially contributed $100 each per week for two years to build the capital,” says Bob Karina, CMG chairman. “Whenever we require money, we do cash calls to our shareholders.” The firm’s portfolio is in real estate, and the stock and money market. CMG sensibly applied the inherent advantages of chamas. They allow members to pool resources quickly and spread risk, and the groups offer cheaper loans than banks. The group accountability forces the members to acquire a discipline of saving.
“A good chama offers its members the opportunity to interact, research, analyse and spot the most viable opportunities. With enough eyes and ears within the group, an informed and rational decision can be formed,” Alex from KAIG says.
Even the government has realized the benefits of chamas and actively encourages young people and women to join groups whenever they want to apply for tenders from the state. Additionally various monies allocated to youth, women and persons with disabilities can only be accessed through such groups. Commercial banks, deposit-taking microfinances, and credit unions have their eyes on the deposits and are developing tailor-made products to woo investment groups. Even if chamas have already spread throughout the country, this is apparently just the beginning of their impact.