The power of group investment

At the corner of Kimathi Street in Nairobi, right opposite the Hilton Hotel stands a nine-storey building. The skyscraper forms one of the landmarks of the central business district.

To tenants, the Norwich Union House is a place where they get their plate of chips from a fast food joint on the ground floor. Better still, where they browse the internet from the cybercafés on the top floors.

But to members of the Norwich Union Properties Ltd (NUP), the multi-million-shilling structure is a dream borne of group effort –or what Kenyans popularly know as chama.

NUP’s success story goes back to 1996, when 33 visionary individuals came together to form Critical Mass Growth group (CMG). At the time, the outfit was an investment group like any other. They did what every small group does. Met once a week to deliberate on different development ideas and summed up discussions with weekly contributions of Sh10,000.

A year on, members realised that the contributions were sizeable. This called for a decision on what to do with the money that they were banking every week. It is at this time that the group decided to transform the chama into a company. In 1997, it was incorporated just after the group landed an investment opportunity which gave it the name - Norwich Union.

“We had the chance of purchasing Norwich Union House and since one of the areas we wanted to venture in was real estate, we made it our trademark,” says Michael Maina, general manager of NUP.

NUP stayed true to its vision and today, they own three more properties worth Sh1.2 billion in Nairobi - Libra House on Mombasa Road, Ratna Apartments in Lavington and Southern Credit House in the CBD.

NUP has since become a public company which is selling a share at Sh10 with a minimum limit of 1,000 shares. They will be listing at the NSE soon, says Maina.

The original chama - CMG Ltd also runs CMG investment Ltd, an alternative investment company established in 1998. However, members no longer make contributions. Instead, they conduct rights issues. The group membership now stands at 78, but this group remains private and only NUP is open to the public who are allowed to buy shares from the company.

The story of growing investments from group synergy is not limited to CMG. Rather it is an approach used by one in every three Kenyans to generate wealth, according to statistics from the Kenya Association of Investment groups.

Going it alone

According to Josephine Njuguna, marketing and product development officer at Bank of Africa (BOA), chamas, or investing as a group, help people realise their goals quicker as opposed to going it alone. 

BOA is among financial institutions with tailor-made products for such groups. The bank pioneered the service three years ago.

“The product was developed when its innovators recognised the need to offer assistance to chamas,” said Ms Njuguna. The support is to help them achieve their investment dreams.  

BOA today takes pride in having 4,000 active chama accounts worth billions of shillings.  The bank offers investment groups value additions which include monthly experts’ advice clinics and easy credit facilities.

“Our goal is to make sure they (groups) interact with like-minded people and make progress in their individual lives,” added Ms Njuguna.

Other financial institutions that are seeing the huge financial potential in such groups are Rafiki DTM, an affiliate of Chase Bank, KCB, Barclays Bank and Co-operative Bank.

Banks are more cognisant of the fact that chamas have grown beyond their informality – where groups meet at homes and paid money into informal revolving funds; to bankable groups with large sums of money at their disposal.

Manyatta Fresh Self-Help Group from Kisumu is an example of a small group that has transitioned from a women’s ‘merry-go-round group’ where women give money to one or two members for household purchases to a profitable formal cluster.

Well aware of the poverty around them, the women from Manyatta slums made up their minds to change their destiny. In a group of 12, they made weekly contributions of Sh100 each which they later increased to Sh200 in order to grow capital.

“After a while, we took part of our savings and put it in a poultry business and that boosted our bank savings to Sh75,000,” says Akinyi Owiti, the group’s chairlady.

The women topped up the savings with a Sh50,000 loan from Women Enterprise for agribusiness and started quail farming.

After one and half years, they saw another opportunity in real estate. Ms Owiti donated her idle plot for the construction of rental houses. They also bought additional land on which they are planning to build more houses. Their other assets include two cybercafés and a tailoring business. The group asset today stands at about Sh1 million.

Manyatta Fresh recently began lending members money after years of strict saving.

“We had to first grow in asset before we could enjoy from our toil,” says Ms Owiti. Another flourishing investor, Lee Karuri, holds the same opinion and advises groups to reinvest any gains instead of draining the accounts.

“Keep ploughing back profits to avoid depleting the funds you have accrued until you can comfortably afford to give out dividends to members,” advises Karuri. It’s only recently that members of his investment group - Home Afrika received dividends. Their take has always been to reinvest whatever profits they made.

Mr Karuri is the founder Home Afrika, a real estate investment group with a PanAfrican agenda of housing millions of Africans. Karuri and his friends floated the idea of contributing for an ambitious investment opportunity to the public.

“When we started, a share was going for Sh2 million with a limit of five shares per member. Those interested either purchased as a group, family or individual,” said Mr Karuri in an interview with BDLife.

Their initial target was 49 investors, but more people showed interest. Instead of raising Sh200 million, they got Sh350 million from 128 investors.

Home Afrika later formalised operations in 2009.  Five years later, they took a leap, becoming the first fully-fledged real estate company to be listed at the NSE. Today, the company’s worth is Sh9 billion based on market capitalisation.

Migaa Golf and Country Club, an exclusive gated community with an 18-hole golf course, Kikwetu in Machakos, Lakeview in Kisumu and Longonot Gate, a holiday home at the foothills of Mt Longonot are  some of its assets. According to Mr Karuri, sound leadership, clear vision, integrity and trust are the ingredients of the group’s success.

“Wherever there is focused leadership, there is growth,” he said.

He also advises groups to be professional and shun the friendship approach that first got them together.

“Remove informality and run the group formally as a company,” Mr Karuri added. Incorporating the group into a company, soliciting the services of experts and drafting a strategy are other important elements for a successful outfit.

Sustainability

For sustainability, Mr Karuri urges groups to invest in diverse areas of the economy.

“Groups should look for sectors of the economy with growth potential such us agriculture and tourism among others. They should also envisage establishing a large enterprise with a social approach by identifying the needs of the society,” he advises.

Fitting into associations like Amalgamated Chama ltd - (which invests for Chamas) is another way groups can get into lucrative investments.

ACL, whose chairman is Mwai Kihu, invests on behalf of Chamas by helping look for maximum returns for them. They invest specifically in money markets and recently, real estate. It charges a joining fee of Sh1 million for both individual members and groups which is the seed money they use to start investing for you.

You are also required to make monthly contributions of Sh10,000 for two years which also become part of your investments. Today, ACL has 180 chamas that they invest for worth Sh400 million.

FEP Holdings (Fountain Enterprise Programme) is another investment group that started small. The founder, John Kithaka, an architect, realised the only way to overcome poverty was by tapping into groups in order for everyone involved to grow financially.

In 2007, he established FEP and invited seven of his friends. Later, the number rose to 50.  Today FEP has 30,000 investors in 43 counties locally and 17 states in USA. Anyone can be a member. 

Confidence

According to Erastus Mwongera, FEP Holdings board chairman, its capitalisation stands at Sh1.8 billion. The growth was credited to the confidence investors have in the leadership, management, staff and the vision of FEP Group of companies. FEP’s dream is to enlarge their reserve in five years.

FEP has invested in media under Fountain TV and Newspaper, real estate - Kisima Gardens, Kisima Park in Lukenya and Mill Gardens on the Kiambu-Kamiti road, hospitality - Sagana Hotel (under construction), education - Fountain School in Tigoni and banking. 

TransCentury Limited also ranks in the list of successful investment groups which grew out of Chamas.  Founded by 29 visionary members, the group initially raised Sh24 million from members.

With the help of investment guru Jimnah Mbaru, they bought into undervalued companies at the NSE for long-term gains. At present, TransCentury is worth millions of dollars. Among the companies they have shares in is East African Cables and engineering firm Civicon. Its stake at EA Cables is over Sh7billion.

SUMAC DTM ltd is the new kid on the block. The microfinance is an off shoot of a Chama - Sumac Holding which was started in 2002 with 15 members. For seven years, they contributed Sh10,000 monthly. The first investment was in a Credit Company in 2004.

Later, in 2009 they received a micro-lending license - commencing operations as Sumac DTM.

The group today has 29 members with a loan book of Sh200milion. The company is presently raising Sh500million through debt and equity from strategic investors for expansion. 

“We want to open more outlets in the country,” says Kibatha Njoroge, chairman of Sumac DTM.

The list of successful investment groups is no doubt endless. But we only featured those that were willing to talk to us.