Chamas are the Financial Side of Real World Social Networks

Chamas and social savings groups are the last barrier that protects people when all else is failing like banks, or government or social welfare.

Boda Boda Savings Group Meeting at Ruiru
Boda boda chama by Michael Kimani @pesa_africa

A picture worth 1000 words!

This picture was taken at Ruiru, a town about 20km beyond Nairobi city. What you see here is a group of motorcycles popularly known as boda bodas parked next to Wakini fueling station right outside Mama Lucy’s Deli on your way to Wa Matangi. The feel of this place is a blend between a pure rural and pure urban area – peri urban. Don’t be fooled by the dirt. So why are there 11 empty boda boda? Let me tell you why.

Every 2 weeks on Thursday like today, the members of this boda boda savings group gather at Mama Lucy’s for a combined lunch and meeting. King’s group is what is commonly known as a chama in Kenya, a social savings groups of 14 boda boda riders who work together ferrying goods and people  and kegs to and from small businesses like Mama Lucy’s. As the last mile delivery to biashara, boda bodas have scaled exponentially to become one of biggest drivers of the economy – not just of this small town, but the whole of Kenya too. The Standard Digital estimated boda bodas like these, mostly run by young men aged 23 – 35, generated Sh219 billion in revenue last year alone. Even assuming these figure is exaggerated, their impact is undeniable.

When I took this picture, I counted 11 boda bodas parked outside mama’s deli and that is because not everyone is here today. Out of the 14 members, 2 are running late and 1 sent his apologies over an emergency couldn’t shake off. All 3 will have to pay a fine for missing or coming late for the chama meeting – 50 KES each as defined in the Chamas constitution agreed upon every member.

Today, every one of them will contribute 300 KES into their groups shared pot of funds.

The Financial Side of Real World Social Networks

At the heart of every social saving group is a group of people that share a mutual bond and convene periodically to pool money or resources for shared aspiration. Social savings groups like King’s group come in a variety names – table banking, chamas, ROSCAs, ASCAs, merry-go-round, SHGs (Self Help Groups) depending on how the pot of funds is distributed or used.

It could be as simple as saving together towards a specific goals – like purchasing a new boda boda for one of its members. Some of King’s group’s members for example, got started with bicycles before acquiring a motorcycle.

Other times it is complex, where the shared pot of savings is re-distributed back to the members as loans for business or emergencies at favorable repayment terms.

Other times, it is as simple as a merry-go-round. Coming together, pooling savings and a process that mimics a lottery to determine who walks away with the pot of money. Another model observed amongst migrants was only apportioning a small part of the contributions to the winning member while the rest is left in the group pot in case of an emergency. Some chamas even add a twist to this merry go round by having members make a loan bid for the pot with best interest rate for the group savings.

Some chamas are more like investment clubs with “auctions” instead of regular rounds where the pool is invested in external projects.

I have come across chamas where all of these techniques are combined into one table banking group. Over time, as the pot of funds grows, chamas grow in their complexity to make the best use of their funds. If not, then there is the option of joining multiple chamas.

Being in more than one chama means they may simultaneously enjoy winning a pot of money from their merry-go-round chama A, share dividends from a collective investment with their investment chama B and al while repaying a loan in their credit and savings chama C. Having a set of alternatives for managing uncertainty and volatility over time, means chama members can better manage risk in the real world.

More Than Just Money

But social savings groups aren’t strictly about money. Toffene says it is the financial side of real world social networks in their true meaning drawing from a family of relatives, or biashara  traders, or bicycle riders, or farmers or class mates or coworkers or a group of freelancers or in this case, boda boda riders. Underlying the finances is a strong bond that sets them apart from faceless money institutions.

Chamas often serve as a pretext for people to meet, socialize and have fun (food, dance) or support each other in periods of pain. They will share and contribute during the good times like weddings and support each other in periods of pain like drought and burials. Those who eat together band together. The chama identity is the social and economic glue of the group, what Nassim Taleb calls skin in the game. And that goes a long way in keeping financial and privacy risks in check.

Case studies from West Africa revealed that chamas tend to grow in times or regions where there is crisis (economic, security or otherwise). A source from a women’s associations in Chad and Northern Cameroon, revealed chama activity was at a peak during the boko haram crisis.  Social savings groups are the last barrier that protects people when all else is failing like banks, or government or social welfare.

King’s group is a biashara group geared towards savings for targeted investment in businesses. In the early days, not all members could afford their own boda bodas and some initially operated bicycles before saving enough with the group to get a loan to purchase a boda boda. Now that everyone owns one, their collective savings collectively goes to purchasing new boda bodas and hiring non-members as riders.

What they’re doing is pretty common in Kenya’s economy. You only need look at the headlines on local newspapers

How Kenyan Chamas reap through Chamas Inspiring stories of farmers using savings groups to get funding, training and lucrative market reaping big from agribusiness

Chamas are the underestimated road to financial success

Chamas that make millions

Social savings group are persistent across all economic classes – bottom 40%, middle 40% and top 20%. Out of nearly 1.2 million groups, 400,000 are registered and more than 900,000 others aren’t on official government records. At least 6 out of every 10 Kenyan adults is part of a social savings group and it is estimated, by organizations such as the Kenya Association Of Investment groups that collectively, Chamas hold between $b4 billion- $8 billion in assets in both formal and informal sector.

Truth be told, no one can accurately point to the value of assets held by groups. I chalk it up to the fact that there as many unregistered informal groups as there are formal ones and people can be in at least 3 different groups. It is all an estimate. What we do know is that it is a lot, its and it is all held on manual paper records.

I’ll be sharing more in the coming weeks as part of a series on my thoughts and perspectives on Chamas.


Author: Michael Kimani

Consultant, Entrepreneur, Researcher, Writer, Digital Assets Investor and Trader,

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