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Chamas are the underestimated road to financial success

UREPORT
By Maurice Oniango | July 30th 2016

Poverty eradication one of the key agenda of our government, from the day the union jack was lowered and the Kenyan flag raised. From the years of our founding father Mzee Jomo Kenyatta to the current president Uhuru Kenyatta, the need to eradicate poverty and lift living standards of Kenyans has been the number one goal for successive governments. However, over 50 years later and millions of Kenyans are still living in abject and piteous state of poverty. Today an average person is no better off than he was in 1963. Where were we as other countries like South Korea pulled an economic miracle and uplifted its citizen’s livelihoods? From billions of government sponsored projects to billions of dollars donated as aid, the number of Kenyans living on less than a dollar a day has been increasing rather than decreasing.

I do not want to discredit the laudable efforts made by successive governments and other development partners on poverty reduction.  Nonetheless, I am of the opinion that we need to have a paradigm shift on matters poverty reduction, this is in terms of how and who is spearheading the fight against poverty. Government grants and donor aid has not been very successful and this is why I think we ought to change tact or at least supplement.

Various economists and scholars are engaged in the study of development and poverty eradication in Africa and their views captured differently. For instance, Jeffrey Sachs, director of The Earth Institute at Columbia University, USA, is a tireless campaigner for more international development assistance. According to him, foreign aid is the sudden jolt that can lift countries from developing world like Kenya from the cycle of poverty induced poverty.

 In one of his books, ‘The End of Poverty’ Sachs argues that countries like Kenya are poor because the rich world is not spending enough to help us out but if these resources were available poverty could be eliminated in the world.  However, other economists have desputed this view. Dambisa Moyo, a Zambian-born international economist and author argues that most of Sub Saharan countries flounder in never ending cycle of poverty, corruption and aid interdependency because of billions of dollars it has been receiving for decades as aid.

 In her book ‘Dead Aid’ she says that Aid has been, and continues to be, an unmitigated political, economic and humanitarian disaster for most parts of the developing world. She goes ahead to offer four alternatives sources of funding for African economies, one of which is, that developing nations should encourage financial intermediation. Specifically, the need to foster the spread of microfinance institutions. I for one believe in the same school of thought, though more of it as a people centered rather than institution centered.

 It is time we make people centered in the sense that it is the people come up with ideas and implement ways out of poverty. The strategy has been from top to bottom, that is from the government to the people now let us now change to from bottom to top. This in the long run will have significant impact. I have been studying how chamas operate in the country and I believe they are a sure way of financial freedom, if well implemented.

Chama is a Swahili word meaning party and in Kenya it is used to describe self-help and investment groups. They started as social support groups whereby rural women would come together in order to help each other to buy kitchenware, livestock, poultry for farming etc.

Members would contribute as little as 50 shillings which approximately 50 cents in U.S dollars, over a period of time. Some did it weekly, others a fortnight and some on a monthly basis. The chama would save the money until it is enough to buy whatever each member requested.   Whereas many dissolve before making any significant gain, numerous others grow to become financial institutions of motivation, impact and prosperity.

Why do I believe in them to lead many of the poor to financial freedom? Many years ago as a child I remember how every first Saturday of the month, mothers from my village would gather at our home for their monthly meeting. They had a self-help group called Ujirani Wema, Swahili for good neighbors,  and my mother was the chairlady and she played host for their meetings.

Every time they had a meeting each member would contribute 500 shillings and equivalent of five USD, from it 200 would be given to one member and 300 saved in the groups kitty. After several months of saving, the group had accumulated over 20,000 shillings and with that they leased a farm and planted potatoes. They sold the harvest and shared part of the earnings while the rest was reinvested in farming. After years of farming projects and reinvesting in their account, in 2014 they bought a big chunk of land and subdivided each member receiving land worth over 120,000 shillings. In a span of 12 years the net worth of each group member had grown from a paltry 300 shillings a month to over 100,000 shillings annually. 

It is based on this achievement and many other success stories of chamas I have heard that I derive the conviction that if chamas are well implemented and members persevere then it is a sure way to financial freedom. I am not the only one who believes in the power of chamas. Today an average Kenyan woman is a member of at least one or two chamas. They cut across sectors and socio-economic classes. Men have also joined the bandwagon and forming their own outfits. It is estimated that we have about 300,000 registered and unregistered groups with a collective asset base of more than 300 billion. Most started as informal investment groups, they have transformed into financial giants that have initiated multi-billion shilling projects in the various sectors of the economy.

The reason why this is bound to succeed is because it is people driven. They come together as neighbors, former classmates, colleagues at work, relatives and friends to forge a common economic goal. They formulate rules and regulations which all members follow. Some operate specifically on ‘merry-go-round’ basis whereby members contribute a given amount of money and it is given to one member. This model is mostly used by small scale traders such as hawkers, individuals based in the same market area. The money is used to boost capital for the one receiving or uplift one’s family savings.

Other groups operate on investment basis whereby they raise funds from members and invest it. They employ various methods such as table banking whereby members meet and place their savings, loan repayments and other contributions on the table then the money is given out immediately as either long term or short term loans to interested members. The interest charged on the loans varies from 10-20% and it is usually invested in the group’s projects.

The loans in turn support members start projects such as greenhouse farming, poultry, horticulture, cattle rearing among others. This system has worked well with women groups in the rural areas, uplifting them from poverty. The government is warming up to this ideology of empowering its citizenry through investment groups. Mrs. Rachel Ruto, wife to the Deputy President has been a champion of this and encourages women to embrace it for poverty reduction. Her foundation, Joyful Women Organization, started a few years has a membership of more than 11,500 women’s groups, each group having 15 to 35 members on average. The organization offers loans and entrepreneurial skills to their members. The risk of bad debts is low since most members adhere to set rules and trust between members.

The government has also taken steps to oversee the growing number of chama groups by setting up regulations and registering them under the Department of Social Services in the Ministry of Labor. Once a chama reaches a certain size, it can apply to become a savings and credit corporation (SACCO). Examples of this include; Kakamega Teachers Sacco, which started by a few teachers in Kakamega pooling their resources to redistribute as loans to members who needed financial support. Today it has grown to one of the leading Sacco’s in the country. And from Sacco’s some have even grown to become banks. For instance, Co-operative Bank transformed from a Sacco which started as chama.

From simple investment groups, chamas are fast growing into drivers of the economy. Some of Kenya’s biggest private equity companies such as Trans Century Ltd, Home Afrika, Norwich Union Properties Limited (NUP), Mhasibu Investment Company and Amalgamated Chama Limited (ACL) are good examples of investment groups that started small but are today controlling a huge portfolio.

With proper structures, chamas can be used to support sustainable development even in the most remote areas in the country. Of course they do come with challenges such as management, defaulters who are unable to pay loans among others, that the success stories of chamas are more than the negative ones.

Just like my family was lifted from poverty through my mother’s investment group, I believe that they complement well with the governments and other development partners efforts to eradicate poverty. So with their support, through loans and better infrastructure such as schools, roads and hospitals, chamas have the potential of eradicating extreme poverty in rural Kenya faster than many initiatives than have been set up.

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