Chamas are a good concept. When people pool money in a chama they are usually trying to answer questions of saving and investing. For many, though, this concept is like Communism. It works great on paper but is a total disaster in real life. Do you feel like Chamas are outdated?
Chamas are globally associated with Kenyan women. Unfortunately, they are plagued by mismanagement. You may have been in one and understand all too well. If not, you could end up in a chama with good intentions but without adequate knowledge to manage the money. You could be in one set on bad intentions, and part of your group colludes to embezzle money. Worse, they “game the system” by dropping out of your merry-go-round after receiving their share.
More, thing may just not work out like you hoped. Your chama may be broken apart by conflict. This can come from issues of trust (or mistrust to put it accurately). It could be that defaulters fail to pay back to the pool on due date. Take heart, even formalized microfinance has been written off as a failure. It only subjects the poor to more debt problems – and a guy got the Nobel Peace Prize for it!
These and other unmentioned problems of the chama has seen others argue that you should save your peace of mind and go it alone. After all SACCOs have replaced it, no? Waceke Nduati uses a seemingly apt analogy, “Say a company came out with a new phone. Then out of the 10 models produced, eight did not work. It would then be fair to say that the phone doesn’t work.” I don’t expect you, my entrepreneur friend, to agree because entrepreneurship in Kenya faces similar failure rates.
Informality is not bad
Also, our subject is much more fluid in definition, form and prospect than a consumer electronic. If you really want entrepreneurs in Kenya to work together then a chama must be an alternative on the table. This can be a tool for short term financing and co-ownership of collateral. It can fill a gap that formal financial institutions still don’t touch.
Critics refuse to give it a consideration because of its informality. The social value of these groups have to be accounted for. Informality, in itself, is not a crime either. Those who shape opinion should appreciate that the only way to capture the informal sector in Kenya (or wherever, actually) is to push in its direction. Trying to pull them to what is has not worked.
Banks in Kenya appear to understand this. They went from trying to tear apart chamas, through lobbying and neglect, to developing products for them. This means these groups have made a step forward in accessing professional money management. And there’s more opportunities out there. Even unit trusts now want them. I bet even cash-starved small businesses and business ideas also wants them to work well.
The best chama is a small chama
In order for chamas to work well, they should first sort the basis of coming together. Oft, it’s too broad. Coming together because you are of the same ethnicity or in the same field of work isn’t enough. A chama is meant to be simple and that includes having a well defined specificity of coming together. Because money is involved, factors like income and education levels have to be put into account. Conflict comes in because financial goals don’t align. Look at stocks for instance, a young person may be looking for equity growth while an older person seeks dividend. You don’t want to be a saver hanging out with spenders (figuratively and literally).
Aligning goals mean being strategic as you would with your own business. Any self-respecting chama has to have a written-down plan on how it will use its money. Writing things down signals that there are no pigs in the Animal Farm. It’s totally wrong, for cohesion, to say there are trusted members who enjoy precedence. Writing down also ensures that whatever you do can be replicated time and again – without having to fight in every meeting (hopefully figuratively).
Unfortunately, no, your chama is not going to be the next SACCO. Drop that survival bias mindset and focus on what you do. The best chama is a small chama. It’s easier to arrive at a consensus and find like-minded people without too much dispersion. There’s a red line where you stop knowing everyone and stop being democratic. As an entrepreneur, you know well that the bigger things get the less say you get over things. Can you stomach that? In any case, the financial industry in Kenya is consolidating. You won’t get space to grow. The Government will use it’s policy implementation powers to raise barriers of entry.
What’s the right size then? We don’t know if anyone has done research on this. What we know is that you can learn from the example of a tribal or band society – or a reasonable class size – where everyone more or less gets a say. Their population is usually between 30 to 50 people with some allowance.
That shouldn’t distract you though. Chamas have their part to play in Kenya’s financial present and future. They are also useful for entrepreneurs and should be incorporated in shaping the next phase of entrepreneurship culture in Kenya.3