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September 20, 2018

Chamas evolving out of their traditional role into investing

Rafiki Deposit Taking Microfinance on Tom Mboya street.
Rafiki Deposit Taking Microfinance on Tom Mboya street.

 

IT started as a journey to a friend’s ngurario (engagement) event, and ended up a successful investment group, or chama as popularly referred to in Kenya.

The story of Rufi Limited’s formation reads like that of many other chamas around the country; a group of friends coming together for a social event and ending up as a chama as more people in the country seek for alternative income streams today.

“It was after culmination of a visit to one of our friend’s ngurario that we decided to later meet somewhere for social activities and some bitings,” recalls Rufi spokesperson Geoffrey Kang’ethe.

“Then as we had our conversations during the social gathering, we had an idea that even as we network, we could think of other activities to do that are geared at uplifting ourselves economically.”

At that impromptu social meet, they were 30 and agreed to each contribute Sh100,000 towards set up of an investment fund within six months. After the deadline, an extension of four months was given bearing in mind that most of the people who were to contribute to this fund were from modest backgrounds.

“All of us are from very humble beginnings, we are not talking about people who are up there. In our chama we have fundis and micro business owners,” Kang’ethe says.

After the struggle to raise the initial investment per person, the group of 30 reduced to 24 who then moved forward with the idea and formed Rufi. Rufi stands for Ruiru Union of Friends.

But as the chama soon found out, the hardest part in realisation of their investment group dream was yet to pass.

With Sh2.4 million, the group, which was mainly keen on investment in land, decided that they would open an account with one of the mainstream banks and save that money until a good investment opportunity comes up.

Rufi, which was more interested in investments in the real estate and land, got a good offer to buy nine acres of land in a prime area in Naivasha. But the money they had at the moment was inadequate.

“Giving up that opportunity was not an option,” Kang’ethe says. Rufi chama had approached its bank for a loan, but they found out the hard way, getting credit as an investment group, which has no steady deposit pattern, was difficult.

“Given that our deposits were erratic, today we put Sh100,000, we stay another month or two before putting anything else, it was not easy getting financing.”

The chama then held a crucial meeting to brainstorm on where or how they could source the funds from to buy that land it had identified. It was then that someone mentioned about Rafiki Deposit Taking Micro-finance which had just launched at the time.

Rafiki had started by marketing itself as a partner for investment groups where they can get loans of up to nine times their savings. Rufi members decided to try it out as they had already approached several banks in vain.

“We walked in, had a meeting with some people at Rafiki who before giving us the money, compelled us to get registered, they told us we had to have an identity and by registering the group as a limited liability company, it has really worked well for us,” says Kang’ethe.

Rafiki required that the group opened an account with them after which the micro-financier helped the group to put its papers for registration and accounts in order as well as helping them with financial and investment advice.

The group was then given the money needed to buy the land in Naivasha and were to repay the loan in three years. But on sub-dividing that land and re-selling it, they made good returns on their investment and repaid the loan within a year and were left with more money above their initial capital.

Kang’ethe says that all investment groups need is just a financing partner “with a little faith in them” to excel.

Rafiki DTM’s Lucy Maina, who is in charge of investment groups at the institution, says contrary to what conventional banks think, chamas are low-risk when it comes to credit.

“Chamas are low-risk portfolios to a financial institution because there is a sense of accountability hence delinquency rates are minimal,” Maina notes.

To protect itself against defaults, Rafiki first recommends that its investment group customers register as legal entities to avoid members exiting the chamas during the loan tenure.

Rafiki, which has been in operation for less than two years now, has 5,000 chamas as its clients and is targeting 20,000 by end of next year.

Other than Rufi, which was among its first clients, Rafiki has supported wealth creation for many investment groups which have shown a remarkable turnaround after the micro-financier’s intervention.

One group of 84 small scale traders consisting of charcoal sellers, water vendors and grocery shop owners approached a year ago seeking to buy land. Rafiki partnered with it to buy 10 acres of land at Kamulu for Sh7.5 million and the investment has now entered the second phase of building homes where each member will soon have a house on the land.

Another investment group based in Likoni in Mombasa went to Rafiki for a loan to purchase 13-seater public service vehicles. The group comprising mechanics, touts and drivers of matatus totalling 329 has not only managed to get acquire a small fleet of vehicles but is growing and currently drafting another investment plan to purchase a fleet of buses.

With studies showing that one in every five Kenyan adults belongs to an investment group, the opportunities are endless for organisations willing to partner with these groups in their quest for growth and wealth creation.

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