Are you a you a kenyan looking to grow your savings and investments faster? This blog post will show you how joining a chama is the best way.
A “Chama“, merry-go-round or self-help groups are important in the Kenya finance industry controlling up to KES5 billion in assets. Most are formed with an objective of either poverty eradication, entrepreneurial development, financial literacy and training, social association and welfare outreach and profit maximization or a combination of above. They have continuously bridged the shortage of banking services in the economy and reached to the poor and low income earners in the rural areas. Those people could not access the expensive commercial bank services especially concentrated in urban areas
How a Chama works
The informal financial institutions except Shylock system works by pulling together financial contributions from a group of people for a common or individual borrowing. These informal cooperatives seems to have been borrowed from the country’s spirit of togetherness embodied in the harambee spirit goals. The major types of informal financial sector institutions with a summarised features are given below
Why you should Join or Start a Chama Today
Self-help groups and chamas contribute significantly to wealth creation in several ways:
- Access to Capital: By pooling resources, members can access funds that would otherwise be unavailable to them through formal banking channels.
- Financial Literacy: Many chamas and SHGs offer training and education on financial management, helping members make informed decisions about their finances.
- Entrepreneurial Support: These groups often provide a platform for members to share business ideas and collaborate on entrepreneurial ventures, fostering an environment of innovation and growth.
- Community Development: By investing in local projects and initiatives, chamas and SHGs contribute to the overall development of their communities, creating jobs and improving living standards.
Who should Join a chama in Kenya?
Chamas and self-help groups are particularly beneficial for vulnerable populations, such as women and youth, who are often financially excluded from the formal banking sector.
Women in Kenya face numerous barriers to accessing financial services, including cultural norms and lack of collateral. Chamas provide a supportive environment where women can save, borrow, and invest without the stringent requirements of formal banks.
On the other hand, Youth in Kenya are often underrepresented in the financial sector, with limited access to credit and investment opportunities. Chamas targeting youth and women can help bridge this financial gap by:
- Building Confidence: Participation in chamas helps women build confidence in managing finances and making investment decisions.
- Networking Opportunities: Women in chamas often develop strong networks that can lead to business opportunities and collaborations.
- Encouraging Savings: Youth chamas instill the habit of saving from an early age, preparing young people for future financial responsibilities.
- Promoting Entrepreneurship: Many youth chamas focus on entrepreneurial skills, providing training and resources to help young people start their own businesses.
Types of Chama in Kenya
Most chamas in Kenya combine elements of both ROSCAs and ASCAs, leading to a unique blend of features that cater to various financial needs.
Rotating Savings and Credit Associations (ROSCAs)
Commonly referred to as chamas or merry-go-rounds, ROSCAs consist of a group of individuals who contribute a fixed amount of money at regular intervals. The collected funds are then allocated to one or two members at a time, rotating until all members have received their share.
Advantages:
- No interest charges on loans, making it an attractive option for members.
Accumulating Savings and Credit Associations (ASCAs)
Known locally as “ngumbacho,” ASCAs allow members to contribute savings into a common fund, which is not distributed among members. Instead, those in need can borrow from this pool at an interest rate, with the interest earned being shared as dividends at the end of a specified period, usually annually.
Advantages:
- Provides a structured way to save and borrow.
High-interest rates can reach up to 20% per month, and borrowers must make regular repayments, which can be burdensome.
Members may face inflation risks, as those receiving funds later may find their contributions have less purchasing power. Additionally, there is a risk of some members receiving little or no funds if they join later in the cycle.
Self-Help Groups
An association of people with a common goal to achieve. Is common to a cooperative society with the main exception that they are not regulated by a government body. The most common for economic and entrepreneurial development are the women self-help groups and the youth self-help groups. They are mostly concerned with education endeavors and training. They has also been involved in self-help projects such as water catchment and distribution and investments
Cooperatives
Cooperatives are member-owned organizations that operate for the mutual benefit of their members. In Kenya, the cooperative sector is one of the strongest in Africa, controlling approximately 43% of the country’s GDP. With around 15,000 registered cooperatives and approximately 12 million members, these organizations play a crucial role in the socio-economic development of the country.
Types of Cooperatives in Kenya
- Agricultural CooperativesAgricultural cooperatives are vital for smallholder farmers in Kenya. They help members access quality inputs, secure fair prices for their produce, and improve productivity.
- Savings and Credit Cooperatives (SACCOs)SACCOs are a significant subset of the cooperative movement in Kenya, mobilizing savings and providing loans to members. With savings exceeding KES 230 billion, SACCOs offer an accessible alternative to traditional banking services. They enable members to save collectively and access credit at lower interest rates, making them an essential tool for financial inclusion.
Community-Based Organizations (CBOs)
CBOs are grassroots organizations that focus on addressing specific community needs, such as health, education, and economic development. While they may not operate under the formal cooperative framework, CBOs play a crucial role in supporting vulnerable populations by providing access to resources and services.
The Role of CBOs in Wealth Creation
CBOs often focus on empowering marginalized groups, including women and youth, by:
- Providing Financial Literacy Training: Many CBOs offer workshops and training sessions to educate members about financial management, savings, and investment strategies. This knowledge equips individuals to make informed financial decisions.
- Facilitating Access to Credit: CBOs can connect members with microfinance institutions or create their own lending programs, enabling access to credit for those who may not qualify for traditional loans.
- Supporting Entrepreneurship: By fostering a culture of entrepreneurship, CBOs encourage members to start their own businesses, which can lead to job creation and economic growth within the community.
Challenges Facing Chamas in Kenya
Despite their benefits, chamas face several challenges that can hinder their effectiveness:
- Poor Governance and Mismanagement: Many chamas struggle with issues related to leadership and fund management. Mismanagement can lead to financial losses and a lack of trust among members.
- High Default Rates: Some members may default on loans, leading to financial strain on the group.
- Interpersonal Conflicts: Disagreements among members can disrupt operations and lead to the dissolution of the group.
- Embezzlement: Instances of fund misappropriation by leaders can undermine the integrity of the chama.
In conclusion
Joining a chama, CBO, Cooperative or a self-help group can be a powerful way for Kenyans, especially women and youth, to accelerate their wealth creation journey. These informal financial institutions not only provide access to capital but also foster a sense of community and support that is essential for financial growth.
