Should you choose the chama . . .

Samuel Gichohi, the business development manager at NIC Securities Limited, says there are common drivers for setting up chamas for prudent group investments and that such objectives are the key to ensuring that the success of the model does not eat into the very fabric of the vehicle. These are:

• Idle funds: These can be invested in risk-free, liquid, capital markets instruments that attract a return on investment that protects them from inflation. Treasury bills and bonds are ideal for this purpose as they yield returns that can be reinvested over time and can be sold if the funds are needed for other investments.
• Risk level: Members need to identify the level of risk that the chama is ready to take as a way of coming up with investment goals. The investment group has the option of requesting their financial or investment adviser to conduct a risk profile of the group, a service that should be offered free of charge by any reputable stock brokerage firm. This will help create short-, medium-, and long-term goals that will inform any future investment decisions that the chama makes. It also helps to create a unified vision that will be the driving force of the chama’s future investments.
• Who does what? Members also must create a formal management structure that will guide the investment arm of the chama. Let the members act as the board of governors or shareholders while the management group is mandated with the decision-making process and daily operations of the fund. This creates efficiency and faster decision-making processes that are streamlined by the vision of the entire group.
• Who owns what? Ensure that the ownership structures are well defined and that members have exit strategies in place. This would mean that every member owns a specific number of shares in the chama, based on his or her level of investment. Some members may wish to invest more while others may, at some point, want to sell some of their holdings to other members due to financial emergencies. It also provides a simple entry point for new members since they can simply buy shares in the chama. Another advantage is that it is easy to value each unit and create market demand, which will enhance price discovery over time.
• How much can I own? Set in place maximum shareholding limits to avoid losing control of voting rights. As the chama grows, the need will arise to hire full-time professionals to run its affairs under the oversight of the shareholders. General meetings at which the directors are elected and financial reports are presented should be in place — to separate management from ownership — and should therefore form the basis of all decision-making policies. Take time to consider the underlying risk in all investments, possible entry and exit connotations, and legal and compliance issues that may arise. This should be in line with the investment goals.
• Keep your ears to the ground: Finally, the chama should leverage on available resources that are provided by umbrella organisations such as the Kenya Association of Investment Groups and seek capacity-building support through investment talks from their asset advisers. This will ensure that they know and understand all investment options available to enable the chama to make informed decisions.