Banks need to restructure their products in line with what is happening on the ground if they are to attract and retain customers, a study says.
It says lenders should domesticate their products to reflect social happenings within families just as chamas do, thereby fostering relationships beyond ink-to-paper loan contracts.
“This means going beyond bank service models where profits are generated from fees and the provider’s return is insulated from risk, to more radical models of partnership and co-investment where risks as well as profits are shared.
“Borrowing from chamas is negotiable as it is usually flexible in response to a need. Moreover, repayments can also be adjusted to the circumstances of the borrower whose situation is likely to be understood by other members,” it says.
This is contained in a just released six-year study commissioned by Financial Sector Deepening-Kenya entitled ‘Finance and living well: insights into the social value Kenyans seek from their financial services’.
The study said legal protection would further boost membership of chamas, helping society to moot local solutions for local problems.
While analysts have portrayed chamas as flight risks and illegal entities that fleece hapless Kenyans of their hard-earned cash, lead researcher Susan Johnson, Ms Silvia Stochi, Ms Amrik Heyer and Mr Paul Gubbins said a legal framework could see chamas recognised as social enterprises or community development vehicles.
“Policy is needed that facilitates diversity of forms of provision in the financial market, which offer socially intermediated finance and not just bank-based models.
“It is important to support mutual and community models as well as exploring new possibilities around peer-to-peer lending, crowd financing and blockchain technology,” it observed.
The FSD study said fostering of long-term relationships by chamas enables members to enjoy a strong sense of belonging that accept sharing of risk.
Funds offered in support of others’ upliftment have implicit terms and conditions which recognise that investments can fail.
The banks' scramble to endear themselves to Kenyans is fast rising, with new products developed to fast track realisation of a chama’s vision.
Others offer to provide advice on effective ways to boost savings and how to invest in securities. Some products help in purchase of land and enabling chamas acquire machinery for cottage industries.
It found that while the savings were mostly negligible, internal sourcing of investment capital created sense of collective belonging and discipline where funds raised were purpose-set for addressing pressing daily needs, such as payment of school fees, purchase of water tanks and farm implements.
“Mosa Women Vision Group, Wikwatyo Wanoliwa (Hope for the Widows) and Kanini Kaseo (Small Good) are among informal groups, also known as merry-go-rounds, patronised by 41 per cent of the adult population,” it noted.
While 32 per cent of working Kenyans had bank accounts, a paltry six per cent ever took loans.
“Policymakers and lenders should provide for mechanisms that impact on poverty and inclusive growth. Financial services should create social value via provision of locally tailor-made financial products that better responds to these underlying motivations,” it said.
The study noted bank loans had to be paid within set contractual terms with severe penalties provided for defaulters.
However, chamas embrace a unique provision for empathy including financial assistance to a member afflicted by any calamity.
“When emergencies strike, support often also runs beyond financial assistance. Groups are also a place where people learn from others, share their experience and seek as well as give advice to each other," it observes.
The study notes that success of chamas had seen birth of successful Savings and Credit Co-operatives (Saccos) that now risked losing their social value aspect as they expand. “Policy needs to ensure that Sacco development can occur at multiple scales retaining both financial accountability and social value,” it says.
The researchers proposed establishment of non-profit social enterprises, a blockchain platform to facilitate linkages of common interest groups for economies of scale.