Riding on ‘chamas’ to grow your business


The high interest rates charged by commercial banks have made many small business owners to turn to their savings, credit co-operatives (Saccos) and chamas for financing.

A close look at chamas shows that they have become a way of life for many. From the low cadre employee to small business people, subscribing to a chama is more of a rule than an exception.

Every other day, new chamas are coming up in villages and urban areas. And most of these are premised on noble objectives for their members.

They range from savings, where members can pool resources and buy a piece of land and subdivide it into plots for individual members, to others whose objectives are long term.

Chamas have become a force to reckon with. Commercial banks have even taken note of this and designed loan products targeting them. It is estimated that the combined saving of many chamas runs into billions of shillings.

There is a reason why many chamas are popular with individuals — the loans they offer are attractive and are disbursed with ease. And compared to commercial banks, chamas have flexible loan repayment plans.

Transformed lives

Simon Kahiga, a school teacher in Nakuru County, says chamas are better alternatives to commercial banks for majority of rural residents.

“If you look at the way chamas have transformed many members’ lives, you’ll agree many are founded on noble ideals,” he said, pointing to some projects in his area such as construction of concrete water tanks by a women’s chama group.

Also, some of these groups save for school fees with money being disbursed at the beginning of a school calendar year.

When the Teachers Service Commission (TSC) withheld teachers’ salaries, Mr Kahiga survived largely through a chama loan.

The coming of the pandemic and long school closure last year saw him taking an additional loan to begin a poultry business to diversify his income instead of relying on his salary alone.

Don’t join more than two chamas

Maina Karuga, a personal finance expert, underscores the importance of such informal groups. “They have an impact on many of their members’ lives. Some have morphed into financial institutions over time while others are operating as limited companies with members as shareholders,” he said.

Mr Karuga, however, says there is need to exercise sobriety when subscribing to a chama. “It is better to join one that prioritises wealth gain rather than one that is a financial drain.”

He warns there can be danger in holding subscription to a multiplicity of such groups. It may not be wise and can lead to financial ruin.

“Some chamas operate on a two-tier system where, besides contributing your investment subscriptions, you may be contributing other finances that go into buying gifts for members or is kept separately and doled out as bonus at the end of the year,” he says.

Membership in multiplicity of such groups can have a financial dent on a subscriber. Karuga says if a person is subscribed to, say five chamas, he or she may barely scrape through in other financial commitments.

“Wisdom dictates that one be subscribed to at most two chamas that will enable them see other financial overheads being met. You may find it easier to pay your monthly subscription in one or two groups but skip the same in another and incur fines,” he warns.

One’s salary may not be adequate or your money may not be growing in value in some of chamas you’re making contributions to. Karuga says there is danger of one taking a bank loan to take to their chama to cover this.

He proposes withdrawal from non-beneficial groups and sticking with either one or two with noble objectives.

“Suppose it is one buying land for members or one that is contributing to begin a project like a cottage industry that will benefit all members,” he says, adding that some may have articulated unrealistic goals and contributing to them may be meaningless.

Prioritise tangible benefits

Nancy Njambi, a Nairobi-based clothes dealer, says she belonged to four women groups but has since withdrawn subscription from two. One aimed to save for things such as flour and household items and also enhancing members’ wardrobes.

When it was the turn for each member to earn the pooled saving, some officials would accompany her to ensure the money was used to meet the set objectives.

Things were not going well with her business as she would take part of her working capital to meet her contributions to the chamas. At one point, she had to cut on her supplies to sustain her contributions.

After much soul-searching and doing calculations, she realised that two chamas were not benefiting her and she withdrew her membership.

“It was hard for many to accept my verdict but I’m comfortable with the other two and this fits well within my budget,” Ms Njambi said.

Karuga says chamas cannot be wished away as they are a lifeline for many. His only bone of contention is spreading oneself too thin by subscribing to multiple groups.

“A group that fits with your income priorities would be the one to go for,” he says.

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