Chama (investment)

Last updated

A chama is an informal cooperative society that is normally used to pool and invest savings by people in East Africa, and particularly Kenya. [1] The chama phenomenon is also referred to as "micro-savings groups". "Chama" (also spelled kyama or Kiama in certain ethnic groups such as the Gikuyu) is the Kiswahili word for "group" or "body". The chama phenomenon arose out of the idea of harambee, which means "all together", in the late 1980s and 1990s. [2] Originally, chamas tended to be exclusively women's groups, but as chamas started to grow in sophistication and success, men started participating in chamas as well. [3] The chama structure is used throughout Africa, but is particularly popular in Kenya where the word originated. In Kenya there are estimated to be 300,000 chamas managing a total of KSH 300 billion (US$3.4 billion) in assets. [4] Chamas are known for their exclusivity. In order to join, new members are typically subjected to extensive interviews and must have assurances or guarantees made for them by an existing member. [5] Some sources have estimated that one in three Kenyans is a chama member. [6]

Contents

Chama structures

Chamas are found in many variations.

Merry-go-round

The original chamas were structured as rotating savings and credit associations (ROSCA), [7] where the members agree to contribute a fixed amount at each meeting for a fixed period such as one year. At each meeting the funds are collected up and certain members are paid the entirety of the collected money on a rotating schedule. For example, a chama of twelve women might use this system on a monthly basis and contributing 1000 shillings by each member at each meeting. At each meeting 12,000 shillings would be collected and paid out to one of the members on the schedule. The risk of this arrangement is that members who are early in the payout rotation have an incentive to drop out of the chama after they have been paid. The participants at the end of the rotation have the highest risk of receiving reduced or no payment after paying faithfully themselves. ROSCA chamas minimize this risk by giving the most trusted members the early rotations and the least trusted members the latter rotations. [5]

Pooled investment with shares

A longer-term form of chama in Kenya is organized on the basis of shares, which members buy to gain ownership of a percentage of the chamas investment or income. These organizations are classified as "accumulating savings and credit associations". This structure is very similar to a unit trust, [8] however the chama leadership is not compensated for managing the fund, other than the profit on their own investment. Members must usually make a monthly commitment of a minimum investment, and bring their cash to the monthly or weekly meetings. The chama leadership invests the pooled funds in a pre-agreed-upon manner. Commonly, the chama will make loans to members at very high interest rates; 20% per month is typical.[ citation needed ] Chamas are also known to invest in transportation (taxis, matatus, buses), land, rental housing units, agricultural enterprises, as well as stocks, bonds and other financial products. [9]

Agriculture cooperatives

Under British colonial rule, British settlers began forming agricultural cooperatives under the Cooperative Societies Act, particularly for the large scale production and export of coffee, tea, and locally dairy. [10] After Kenyan independence in 1963, agricultural cooperatives continued to grow with Kenyan shareholders and leadership. Today Kenya's agricultural chamas continue large scale farm operations with economies of scale. [11] Chamas that are incorporated as Limited Companies account for 42% of Kenya's GDP [12] mainly through agricultural production.

Online Chamas

Technology [13] has added a new twist to how Chamas are accessed and organized, with 'electronic Chamas' being organized on Web sites and mobile apps that can bring together people from across the world. Examples of a technology platform that enables online Chamas in Kenya is Aturi Africa. There are also platforms that make it easy to set up, track, and follow up with your collections in one simple dashboard such as OneKitty . [14]

Drawbacks

Chamas, particularly those that are informal and unregistered, have a reputation for problems with governance and mismanagement. [15] Merry Go Round Chamas are subject to collapsing if one or more members collect early in the rotation, but drop out before the end of the rotation.

Share-based chamas have in many cases suffered from embezzlement by officers, mismanagement of funds, [16] collusion with borrowers not to repay, high default rates on loans, as well as interpersonal conflicts and disagreements over how to invest the group's savings. [17]

Regulation

Chamas in Kenya are not regulated. Most of them are informal. Registered savings and credit cooperatives (SACCOs) are the ones regulated by Sacco Societies Regulatory Authority.

Chamas are regulated in Kenya and most other countries under the "Cooperative Societies Act" or similar legislation. In Kenya when a chama reaches a certain size, it can apply to become a savings and credit cooperative, which is similar to a credit union. Some chamas have grown to become SACCOs and a few of those have even continued to become banks. [18]

Chamas that use a unit trust type organization can be incorporated as a limited company. [19]

Competition

Chamas have become such a successful phenomenon in Kenya that banks and brokerages have begun aggressively creating and marketing products to chama groups [20] in order to bring some of the $4 billion chama savings into the formal financial system. Banks have also lobbied for new legislation to eliminate some of the competitive advantages of chamas. [21]

Related Research Articles

<span class="mw-page-title-main">Economy of Kenya</span>

The economy of Kenya is market-based with a few state enterprises. Kenya has an emerging market and is an averagely industrialised nation ahead of its East African peers. Currently a lower middle income nation, Kenya plans to be a newly industrialised nation by 2030. The major industries driving the Kenyan economy include financial services, agriculture, real estate, manufacturing, logistics, tourism, retail and energy. As of 2020, Kenya had the third largest economy in Sub-Saharan Africa, behind Nigeria and South Africa. Regionally, Kenya has had a stronger and more stable economy compared to its neighboring countries within East Africa.By 2023, the country had become Africa's largest start-up hub by both funds invested and number of projects.

<span class="mw-page-title-main">Kisii, Kenya</span> Municipality in Kisii County, Kenya

Kisii is a municipality and urban centre in south-western Kenya and the capital city of Kisii County. Kisii Town also serves as a major urban and commercial centre in the Gusii Highlands—Kisii and Nyamira counties—and the South Nyanza region and is the second largest town in formerly greater Nyanza after Kisumu City. Kisii municipality sits right at the centre of the western Kenya tourist circuit that includes the Tabaka Soapstone Carvings, Maasai Mara, Ruma National Park and part of the Lake Victoria Basin.

<span class="mw-page-title-main">Cooperative banking</span> Type of retail or commercial bank organized cooperatively

Cooperative banking is retail and commercial banking organized on a cooperative basis. Cooperative banking institutions take deposits and lend money in most parts of the world.

Spire Bank, formerly known as Equatorial Commercial Bank(ECB), is a commercial bank in Kenya, the largest economy in the East African Community. It is licensed by the Central Bank of Kenya, the central bank and national banking regulator.

A rotating savings and credit association (ROSCA) is a group of individuals who agree to meet for a defined period in order to save and borrow together, a form of combined peer-to-peer banking and peer-to-peer lending. Members all chip in regularly and take turns withdrawing accumulated sums.

Kerugoya is the biggest town in Kirinyaga County, located 10 kilometres east of Karatina and 40 kilometres west of Embu. It is situated in the former Kirinyaga district. Travel directions by road from Nairobi is through Thika Road past Thika, Kenol and Makuyu. The road leads through Makutano until Sagana town, where a road branches off the East towards Kagio town up to Kirinyaga University branching North towards the town.

Oburu Ng'ong'a Oginga is a Kenyan politician who is currently serving as senator for Siaya County, having been elected in the elections of August 2022. He is an immediate former member for the East African Legislative Assembly, based in Arusha Tanzania. He is the former assistant minister for finance in the 2008 Grand Coalition government and a former Member of the Kenyan Parliament.

Kibwezi is a town in Makueni County, Kenya.

The United Democratic Movement (UDM) is a political party that was founded in 1999 by politicians who were at the time considederd to be renegades from the then ruling party Kenya African National Union but was denied registration by the then head of state Daniel Toroitich Arap Moi and most of its then leaders went to other parties by the time of the 2002 general elections.

<span class="mw-page-title-main">Githunguri</span> Place in Kenya, Kiambu

Githunguri is an agricultural town in central Kenya's Central Province. It is one of the administrative centres of Kiambu County and home to one of East Africa's largest dairy processing plant Fresha, which is owned by a farmers co-operative, Githunguri Dairy farmers cooperative Society. Most of the financial institutions have a presence in town. They include: TAI Sacco Ltd GDC Sacco, KCB, Family Bank, Equity Bank, Absa Bank, and Cooperative Bank. Githunguri Seniors is the main team currently playing in Kenya football league division 2 Zone A.(2023/2024 season).

<span class="mw-page-title-main">NCBA Group Plc</span> Kenyan financial services conglomerate

NCBA Group Plc, is a financial services conglomerate in East and West Africa. The Group's headquarters are located in Nairobi, Kenya, with subsidiaries in Kenya, Tanzania, Rwanda, Uganda and Ivory Coast.

Mwalimu Cooperative Savings and Credit Society Limited, also known as Mwalimu National Sacco Limited, but often referred to as Mwalimu Sacco, is a savings and credit co-operative society (Sacco) in Kenya, the largest economy in the East African Community. It is an institutional Sacco, composed of the staff of the Teachers Service Commission (TSC), TSC teachers in secondary and tertiary institutions, TSC teachers in elementary schools, the staff of Mwalimu National Sacco Limited and the spouses of the above members, when formally gainfully employed. The society is licensed and regulated by the Sacco Societies Regulatory Authority.

Imarisha Cooperative Savings and Credit Society Limited, also known as Imarisha Sacco Limited, but often referred to as Imarisha Sacco, is a savings and credit co-operative society (Sacco) in Kenya, the largest economy in the East African Community.

<span class="mw-page-title-main">Simon Gicharu</span>

Simon Gicharu is an educationalist and founder of Mount Kenya University, which is East and Central Africa’s largest private university. He is also the founder of Mount Kigali University in Rwanda. He was born in 1964 in Gathiruini village, Kiambu County, Kenya. He is the first in a family of seven. Gicharu is also the Chairman of the Water Services Regulatory Board and National Private Universities Owners Association of Kenya. He is the founder of Equip Africa Institute and patron of the Mount Kenya University Graduate Enterprise Academy. He is also a board member at Thika Water and Sewerage Company, and the patron of Inter Universities Rover Moot under the Kenya Scouts Association. In 2015, Gicharu was named the Eastern African Ernst and Young Entrepreneur of the Year, and subsequently inducted into the Ernst and Young Hall of Fame. He is married with three children.

<span class="mw-page-title-main">Unaitas Sacco Society Limited</span>

Unaitas Sacco Society Limited, whose full name is Unaitas Savings & Credit Cooperative Society Limited, also Unaitas Sacco, is a savings and credit co-operative society (Sacco) in Kenya. Membership includes individuals, investment groups and small businesses.

United Nations Deposit Taking Sacco Society Limited is a credit union founded in 1975 initially to provide banking services to United Nations employees in Kenya but has since expanded to serve staff of diplomatic missions and select international organization. The Sacco is based in Gigiri,Nairobi and now has members worldwide. Membership is open to all staff of UN agencies, staff of diplomatic missions and staff of select international organisations.

<span class="mw-page-title-main">Barbados–Kenya relations</span> Bilateral relations

Barbados–Kenya relations are bilateral relations between Barbados and Kenya. Both countries are members the African, Caribbean and Pacific Group of States and the Commonwealth of Nations.

<span class="mw-page-title-main">Commander, Kenya Army</span> Most senior officer in the Kenya Army

The Commander, Kenya Army is the chief and highest-ranking officer of the Kenya Army The current commander is Lieutenant general David Kimaiyo Tarus

References

  1. ↑ "Chama | Co-operatives in Kenya". Funnyardstick.wordpress.com. 2012-03-21. Retrieved 2013-07-04.
  2. ↑ "Chamas". Transglobe Capital. Archived from the original on 2013-08-17. Retrieved 2013-07-04.
  3. ↑ "Standard Digital News - Kenya : What's in a chama?". Standardmedia.co.ke. 2010-09-12. Retrieved 2013-07-04.
  4. ↑ "Capital Business » First handbook to guide chamas out". Capitalfm.co.ke. 2012-11-29. Retrieved 2013-07-04.
  5. 1 2 "Voices of AfricaChama: The economic model that's all the rage in Kenya". Voices of Africa. 2013-02-06. Retrieved 2013-07-04.
  6. ↑ "Standard Digital News - Kenya : Chama revolution:Banks train sights on investment clubs". Standardmedia.co.ke. 2013-06-03. Retrieved 2013-07-04.
  7. ↑ "The Chama way! | MYC4". Blog.myc4.com. Archived from the original on 2013-06-15. Retrieved 2013-07-04.
  8. ↑ "From Merry go round to Investment Group - ChamaBlog | ChamaBlog". Chamasoft.com. 2012-09-13. Retrieved 2013-07-04.
  9. ↑ "Financial Promise for the Poor: How Groups Build Microsavings | Tufts Fletcher School". Fletcher.tufts.edu. Archived from the original on 2013-06-23. Retrieved 2013-07-04.
  10. ↑ "SD: Institutions : Financing Economic Self-reliance and Member Participation in Farmer Organizations in Kenya". Fao.org. Retrieved 2013-07-04.
  11. ↑ "2. The Current State of Agricultural Co-operatives in Kenya". Fao.org. Retrieved 2013-07-04.
  12. ↑ "Cooperatives in Kenya | Kenya". Softkenya.com. 2011-12-12. Archived from the original on January 17, 2013. Retrieved 2013-07-04.{{cite web}}: CS1 maint: unfit URL (link)
  13. ↑ "Traditional Savings System's Popularity Grows".
  14. ↑ "Technology is Revolutionizing Chamas".
  15. ↑ "Chama the best choice for tjommies | In The Paper | World and Africa | Mail & Guardian". Mg.co.za. 2011-03-22. Retrieved 2013-07-04.
  16. ↑ Manyuira, Wilson (2013-05-22). "Are you in a Chama? students develop management software | Capital Campus". Capitalfm.co.ke. Retrieved 2013-07-04.
  17. ↑ "Resolving problems in a Chama - Advice - Wazua - Forum". Wazua. Retrieved 2013-07-04.
  18. ↑ "Microsoft Word - Paged_Co-operative Societies Act _No. 12 of 1997_.doc" (PDF). Retrieved 2013-07-04.
  19. ↑ "With You, For Life". Family Bank. Archived from the original on 2013-06-19. Retrieved 2013-07-04.
  20. ↑ "Standard Digital News - Kenya : Chama revolution:Banks train sights on investment clubs". Standardmedia.co.ke. 2013-06-03. Retrieved 2013-07-04.
  21. ↑ "Cheap SACCO loans face regulator's axe - Groups". Wazua. Retrieved 2013-07-04.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.