Chama Investing: How Groups Can Invest Together

By December, the fifteen members of Tumaini Mothers' Group in Kitengela had KES 180,000 between them, and three loud opinions. One member wanted to buy a plot, another wanted shares "like the ones on TV", and the treasurer quietly wanted to keep everything in the account where she could see it. They spent two meetings arguing before anyone asked the right question: what are we investing for, and who decides?

Groups have one big advantage over individuals: together, small monthly amounts become a sum that opens more doors. They also have one big weakness: when trust breaks, the group breaks. The best chama investment ideas fail if the rules are unclear, and modest ideas work well when everyone knows how decisions are made.

Investing as a group is one route in our guide on how to start investing with small amounts. Below are the rules to agree first, the main options and their trade offs, and Tumaini's first year plan. Tumaini's numbers are used throughout, so each rule and option can be seen at work on a pot of KES 180,000. As always with investing, prices can fall, and the group can get back less than it put in.

Agree the rules before the money moves

Most chama investment arguments are not about the investment. They are about who decided, and what happens when it goes wrong. Tumaini lost two meetings to arguing precisely because none of these points had been settled. Rules agreed while everyone is calm are far easier to accept when a result disappoints. Write these five points into your constitution before the first shilling is invested:

1. The goal and the horizon. "Grow members' money over five years" leads to different choices than "build a school fees fund for next January".
2. How decisions are made. For example, a two thirds vote of all members for any investment, sale or change of plan. Nobody moves money alone.
3. How much stays liquid. The welfare kitty and a cash reserve should never be invested in anything whose price moves daily.
4. What happens when a member leaves. Usually, the leaving member receives their share of what the investments are worth at that time, which may be less than they put in. Agree this before anyone needs it.
5. How results are shared. In proportion to what each member contributed, recorded and visible to all.

Registration is a separate question from investing, but it can decide what the group is able to hold. If your group is not registered and you want it to be, self help groups register with the Directorate of Social Development, at sub county offices and some Huduma centres. Ask them for the current requirements. Settling the question early means the group knows its options before it votes on any of them.

Chama investment ideas, with honest trade offs

No option below is a recommendation, and none promises a return. Each suits different goals. Read each one against the goal and horizon your group wrote down, because an option that suits a five year goal can be wrong for next January's fees. Every option also carries the chance that the group gets back less than it put in, though in different ways. The main choices are these:

• Government Treasury bills and bonds. Bought through the Central Bank of Kenya's DhowCSD platform or through a bank. According to the Central Bank of Kenya, the minimum for Treasury bills is a face value of KES 50,000. Whether a group can hold an account in its own name depends on how it is registered, so ask before you plan around it.
• Money market funds and unit trusts. Pooled funds run by fund managers. The Capital Markets Authority approves collective investment schemes in Kenya, so check that any fund you consider is on its approved list. Their value can still change.
• Shares on the Nairobi or US markets. Part ownership of companies, with prices that rise and fall daily. Suitable only for money the group can leave alone for five years or more. US shares are in dollars, so the exchange rate matters too.
• Land or property. Popular with chamas, but it ties up money for years, is hard to divide when members leave, and needs careful checks on ownership before any payment.
• A group business. Tents and chairs for hire, a posho mill, a water point. It needs management time and clear roles, and it can lose money like any business.

Many groups spread their pot across two or three of these instead of choosing just one. Spreading means that one weak choice does not decide the whole year for every member. It also lets the group match each part of the pot to a different goal, keeping money with a near date away from prices that move daily. The cost is more record keeping, since each part must be tracked and reported to members separately. Tumaini's plan below shows how one group did it.

Tumaini's first year plan, worked out

After a third meeting, the members voted on a plan for the next year's contributions. Each month's KES 15,000 (15 members × KES 1,000) is split three ways. Each part has its own job, matching the rules the group had just written into its constitution. The welfare kitty stays as savings, the US shares are the money with the longest horizon, and the reserve keeps cash ready for a Treasury bill and the share out. The split looks like this:

The reserve reaches KES 52,500 in month seven, enough to set aside KES 50,000 for one Treasury bill at the minimum face value, leaving KES 2,500. Waiting until month seven means the group buys only when the full amount is there. The KES 2,500 left over stays in the reserve and becomes part of the December total. By December the reserve has another KES 40,000 for the year end share out or the next decision. None of the reserve is exposed to share prices, so the share out money is not at the mercy of a bad month in the market.

The bad year test

Before voting, the treasurer asked: what if the US shares fell 25%? The KES 60,000 would be worth KES 45,000, a loss of KES 15,000, or KES 1,000 per member. The welfare kitty and reserve would be untouched. Every member said they could live with that, and the vote passed. If one member had said no, the honest answer would have been to invest less, not to persuade her.

When a member leaves, or the market falls

Suppose a member leaves at year end when the US shares are 10% below cost. Her share of that part is KES 4,000 × 0.9 = KES 3,600, not the KES 4,000 she put in. If the rule was written down and accepted in advance, this is uncomfortable but fair. If not, it becomes a dispute.

When markets fall, groups are tempted to sell everything at the next meeting. Selling during a fall turns a loss on paper into a real one. A rule such as "we review investments twice a year, and any sale needs a two thirds vote" keeps decisions calm. Past results do not promise future ones, in either direction.

Warning signs in chama investment offers

Groups are prime targets for schemes because one decision moves many members' money. A single persuasive visitor at one meeting can put the savings of all fifteen Tumaini members at risk in an afternoon. The officials who hear an offer first are also under the most pressure, which is why the decision should always go back to a full vote. Your written rule on decisions is your best defence, because it gives every official a reason to say no on the spot. Walk away from anyone who promises a fixed daily or weekly return, pays the group to recruit other groups, pressures the officials to decide before the next meeting, or cannot show a licence you can check with the regulator.

Investing together on Nyanyuka

On Nyanyuka, a chama's money stays in the open. Members contribute from their savings, and every payout, release or change of rules is decided by member vote, so nobody moves money alone. The constitution is read and accepted in the app, the welfare kitty pays out by vote, and the year end share out, once members vote for it, is divided by what each contributed after anything they agree to keep. Each rule Tumaini wrote down has a place there, from the vote on every decision to the welfare kitty kept apart from everything else.

Chamas can also invest together in NYSE shares, including parts of a share, by vote. A plan like Tumaini's, with a monthly amount going into shares by vote, fits that way of working. Prices are in US dollars and can fall. To start, see joining, and for the wider picture on how to invest in US stocks from Kenya, read the main guide.

Part of: How to Start Investing With Small Amounts

Frequently asked questions

What is the best investment for a chama in Kenya?

There is no single best one; it depends on the group's goal and how long the money can be left alone. Many groups keep the welfare money liquid and spread the rest across two or three options. Be wary of anyone who names one "best" investment with a promised return. Prices can fall on any option that moves with markets, so the group can get back less than it put in.

How do chamas decide on investments fairly?

Write the decision rule into the constitution, for example a two thirds vote of all members, and make sure nobody can move money alone. Record every vote and every investment where all members can see them. Agree in advance what happens when a member leaves. Testing the plan against a bad year before the vote, as Tumaini's treasurer did, also helps every member accept the result.

Can a chama buy Treasury bills?

It may, but that depends on how the chama is registered. The Central Bank of Kenya says individuals and corporate bodies can buy through its DhowCSD platform or through a bank, and the minimum for Treasury bills is a face value of KES 50,000. Ask the Central Bank or your bank whether your chama can buy in its own name before you plan around it. Then build the reserve so the full face value is ready before the group commits, as Tumaini did by waiting until month seven.

What happens to a member's share if the chama's investments lose value?

The member's share falls in proportion to their contribution. If US shares are 10% down when a member leaves, her share of that part is 10% lower too. Any part of the pot kept as savings, like a welfare kitty, is not affected by that fall. This is why the exit rule should be written and accepted before investing.