With liquidity tightened, people and entrepreneurs in particular have to make quick decisions and source for alternative financing arms.
Historically, one such popular borrowing mechanism for Kenyans has been through chamas, our informal financial groups.
Their membership tends to be clustered around a common interest, women’s group, work place, church, industry eg matatu, shopkeepers, vendors and recently boda bodas.
In times of financial crisis, only two institutions have funds: shylocks and government. Banks, by nature of their operational guidelines, tend to conserve the little resources they have and go into “lending hibernation”, because they typically onward lend depositors money. Covid 19 is one such crisis, and the onset of banking sector layoffs signals this. As at the writing of this article, three banks have declared layoffs and several have announced branch closures.
With liquidity tightened, people and entrepreneurs in particular have to make quick decisions and source for alternative financing arms. Historically, one such popular borrowing mechanism for Kenyans has been through chamas, our informal financial groups. Their membership tends to be clustered around a common interest, women’s group, work place, church, industry eg matatu, shopkeepers, vendors and recently boda bodas.
Merry-go-rounds or chamas, are used by 41 percent of Kenyan adults according to a FSD 2016 report. Quite a high figure, being more than active formal bank account owners, placed at 32 percent by a 2016 Fin Access study then. Based on their models, chamas can be classified into rotating savings and credit associations (ROSCAs) or accumulating savings and credit associations (ASCAs) according to the FSD. Their memberships and financial muscle also tends to vary between rural and urban ones, creating a difference in what they lend for.
Amongst health workers, chamas tend to be institutional, with most catering for welfare issues such as death or illness. However, some, focused on investment are also coming up. The latter is an avenue worth exploring for health entrepreneurs to work together towards.
For most health workers and entrepreneurs borrowing from mainstream financial institutions, 15 percent - 23 percent of our returns go to interest repayment. This may be higher depending on the source of borrowing. With proper coordination and stability of chamas, their funds could go towards membership projects, saving these costs or attracting new equity.
In rural areas in particular, ASCAs tend to be popular vehicles towards members’ asset ownership. A rotatory approach where contributions finance a member at scheduled intervals, have helped many women own assets.
As chamas become savvy and increase their asset base, many are now also opting for equity investment kind of deals for upstream future return on investment maximization. Strong chamas are said to hold up to Sh 50 million in savings.
Having realised their financial power and potential, most banks have now created chama accounts. For banks, they easily tap into chama funds which tend to be medium to long-term since most split or share the revenues at the end of the year. Banks on the other end, use them for short term (days to weeks onward lending). They also bridge loan gaps and have safer bets on defaults given the depth of member numbers.
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