How chamas have helped women grow their savings despite some risks

Aisha Mohamed started a chama in 2019 when she was around 30 years old to instil self-financial discipline.

A chama, also known as a merry-go-round, is a financial arrangement where a group of people, usually comprising friends, relatives, or colleagues, come together to pool their resources and save money. Members agree to contribute a set amount of money regularly, either weekly or monthly.

These funds are then either invested in businesses, buying property, or supporting each other in times of need. The savings are usually distributed on a rotational basis.

Aisha, now 35, and a member of five chama groups with specific purposes like buying land, says these groups have enabled her to accomplish remarkable feats.

She has built a house for her parents and also bought land using her savings.

Before joining Chama, Aisha says she would spend money aimlessly, often buying things she didn't need or use. She would also give money to anyone who asked because it was “easily available”.

She would impulsively purchase items without much thought, only to later realise she did not need them and would mostly not use them. Sometimes she would dine at various restaurants or explore new places.

She, however, says the social pressure within the chama ensures members contribute consistently.

“You can't fail to contribute because there's a shame that comes with it when others have contributed for you and you haven't. So you have to contribute regardless of whether you have the money or not,” she says.

Currently, Aisha contributes Sh85,000 every month to different chamas. When it is her turn to receive the money, she transfers it to a money market account, which is her investment plan. In a year, she can save Sh850,000 in the money market, from which she gets interest.

One reason why Aisha preferred a chama over a Sacco was the difficulty in getting someone to guarantee her a loan.

Faith Ajayo, another Nairobi resident, echoed similar sentiments of determination and purpose in saving through chamas. She joined a chama intending to furnish her house, using the collective power of the group to achieve her objectives.

She revealed that she is an active member of three different chamas, contributing Sh10,000 per week, Sh10,000 per month, and Sh2,000 per week, respectively.

Now that her house is fully furnished, Ajayo said she redirects her chama contributions into a money market fund. “Chama has given me financial discipline,” she said.

While many have found success through chamas, others say they face significant challenges.

Ibrahim Ali, an Eastleigh resident, said that the informal nature of chamas means they lack the legal protections that formal financial institutions offer. He said he is aware of several cases of fraud and mismanagement involving chamas.

He cited one incident where a treasurer of a chama disappeared with Sh500,000 belonging to members of her group. “The members were left with nothing but mistrust and bitterness,” Ibrahim said.

He said that while the concept of pooling money and relying on someone to manage it sounds good in theory, it is fraught with risks. “For me, trusting someone else to handle my hard-earned money is a leap of faith that I’m not willing to take,” he said.

He added that, unlike regulated financial institutions, chamas often lack the stringent oversight needed to prevent risks of losses.

Linda Wambui also had a rough time as a member of a certain chama. She recalled being forced to leave the group after borrowing a loan that she was unable to repay.

About a year after she joined the chama, her husband lost his job and she found herself in desperate need of financial help to pay bills.

Wambui decided to borrow a loan from her chama, believing that she would repay it once her husband was back on his feet and working again.

However, things didn’t go as planned. It took long for her husband to get a job with family expenses mounting. She struggled to repay the loan on time.

With this turn of events, Wambui’s relationship with her chama deteriorated. Members thought she had taken advantage of their trust. Eventually, they resolved to kick her out of the group.

But despite the risks and criticisms, experts emphasise that chamas remain a valuable resource for many women, providing a path to financial stability and success since the late 1990s.

FXPesa Financial Analyst Rufas Kamau said that pooling money in a chama that has a constitution helps enforce financial discipline.

“Chamas have the additional advantage of social insurance where members often contribute to support each other in case of illness, loss of a loved one, accidents, etc. So, the basis for most merry-go-round chamas created by women is not primarily interest,” he said.

To manage the risks of fraud and mismanagement of funds, Kamau suggested that chamas should implement strategies employed by financial institutions such as banks, microfinance institutions, fintech apps, and saccos.

Kamau said one way to reduce fraud and ensure transparency is sending SMS messages to all chama members before and after making withdrawals. This, he said, ensures all members are aware of the transactions, which helps in preventing fraud and maintaining transparency.

He added that any breach of trust can have significant consequences and that while mismanagement and dishonesty can lead to conflicts, the sense of accountability to the group often helps to mitigate these risks.

Mihr Thakar, CEO of Mihr Marketing Limited and a finance expert, said that when chama funds are properly invested, they can contribute to economic progress.

He insisted that despite their risks, the merry-go-round structure itself has negligible economic value overall.

He said that Ideally, the pooled savings should be invested in a diversified or concentrated portfolio and the returns shared between members periodically.

“When chama funds are invested, they can contribute to economic progress, such as investments in government bonds that support developments,” he said.