Pros and cons of ‘chama’ membership

NAIROBI: The high interest rates being charged by banks have made many turn to chamas and saccos for their financial needs. Merry-go rounds and chamas are becoming a way of life for many and for the low cadre employee and small-scale business person, subscribing to a chama is more a rule than an exception.

Most of these chamas are premised on noble objectives for their members and they range from saving portals where members pool resources and purchase assets, to others whose objectives are not as well defined. These groups have become a force to reckon with, that even commercial banks are now offering them various facilities in a bid to tap the millions these groups generate.

According to one beneficiary, Simon Kahiga, the chamas popularity, vis-a-vis banks is mainly due to their flexible loaning policies which are disbursed with ease and with minimal interest rates

Giving an example, the school teacher from Nakuru says when the Teachers Service Commission withheld their September salaries, he survived largely through a chama’s loan.

“That experience showed me the dangers of relying on a single source of income and I am now taking an additional loan to start a poultry business,” he said.

Kahiga also notes that these groups are a lifesaver when it comes to paying school fees.  Many have a well-suited scheme at the beginning of the school’s calendar year.

“If you look at the way chamas have transformed many people’s lives, you will agree majority are founded on good ideals,” he says, pointing to some projects in his area like construction of concrete water tanks as a good initiative by a women chama group.

Maina Karuga, a personal finance expert, underscores the importance of chamas.

“They have had an impact on many of their members’ lives. Some have turned into financial institutions over time while others are operating as limited companies with members as shareholders of the assets,” he says.

He, however, observes that people need to exercise sobriety when subscribing to a chama or chamas.

“Join a chama that prioritises wealth gain and avoid the one whose contributions are nothing more than a financial drain,” he says.

He continues: “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”.

Karuga also cautions against being a member of many chamas saying this can affect one's financial commitments.

“Wisdom dictates that one be subscribed to no more than two chamas at a time so that you are able to see that other financial overheads are being met,” he says.

He proposes withdrawal from non-beneficial chamas and advices one to stick with either one or two groups that have noble objectives.

This is advice that Nancy Njambi, a city based clothes dealer, subscribes to. She says she belonged to four all women mtaani chamas, but has since withdrawn from two of them.

“I simply could not sustain all of them. I found that I was being forced to take part of my working capital to meet my contributions to these chamas and I had to make the difficult decision.

It was hard for some of my chama members to accept my decision, but I am now comfortable and I feel that these two groups are the ones that best serve my financial goals,” she says.

Karuga concludes that chamas cannot be wished away since they are a lifeline to many. However, he warns against spreading oneself thin by subscribing to multiple chamas which can have a negative bearing on one’s finances.

“A chama that fits with your income priorities and is in-line with your financial aspirations would be the one to go for,” he says.