Why African Fintech Wants To Digitize Chamas, But Can’t Seem To Get It Right

Why is the digitization of Chama groups so valuable for Fintechs and Telcos and Banks? And more interestingly, why is it such a tough nut to crack?


A group of high profile organizations including Facebook, Mastercard, FSD Kenya, Safaricom, Fintech startups,  and even the World Bank have convened in Nairobi for a one day workshop to try figure out how to digitize the chama groups of East Africa. While it has been over a decade of digital financial inclusion estimated at 80%, none of them have figured out how to successfully digitize chama groups.

Just so we’re on the same page, I use chamas as a catchall for any group of people who come together with a shared goal, agree on a self governing mechanism and pool together resources such as time, labour or capital to achieve their shared aspirations. This simple form of self organization, self governance and chama identity makes it a highly flexible people-structure and why it exists in different forms across the world and Africa as Paare in Chad, Asusu in Nigeria or Chilemba in Zambia.

So why is the digitization of Chama groups so valuable for Fintechs and Telcos and Banks? And more interestingly, why is it such a tough nut to crack?

I found the answers to these questions from Toffene Karma, the one person who successfully digitized the social savings group of Chad West Africa known as Paare using a mobile product known as TigoPaare.

What is Tigo Paare

Tigo Paare is a group wallet built on top of mobile money to address the problem of how to convene large, typically distant livestock and trading communities to self-organize, fund and even maintain shared utilities and project.

In just under 6 months we were able to sign up 500,000 people in groups of livestock traders, cotton producer cooperatives, churches, women’s groups and market traders and another 27,000 groups on a waiting list.

This is how we did it

We started by setting up a group wallet that allowed members to contribute remotely via mobile phone at any time of the day. The group balance was transparent to all the members could check the contribution and monitor pool of funds from their mobile phones. In addition to their savings, every month, these group savings would earn interest as Tigo, the mobile provider, made a contribution into the group’s pot as a virtual member.

Right now, I am working on replicating this success in East Africa as Chief Product and Operations at Chamapesa. The difference this time is that we are using blockchain technology and the product is by a startup not a telco.


I Believe Chamas, Communities and Groups Are “eating the world”

The internet and social media web has enabled people to connect and organize themselves beyond their local geographical boundaries remarkably well.

Just look around today at how groups of like minded talents from Nairobi, Lagos and Dakar, can easily converge on Twitter, connect on WhatsApp or Telegram, move to gitHub to design, and build an App that can be used globally.  Today, people are exploring new forms of organizations enabled by the tremendous scale of global communications.

In Africa, indigenous grass-root chamas groups have already been doing this for years. While it may not be immediately obvious, social savings groups across Africa and the developing world are more sophisticated than they are given credit for. In fact, they are the real-world, dominant example of community groups that has been eating at the developing markets of Africa regardless of regulations, rulers and crises.

For example a large portion of households assets are held in community chamas while many projects are funded by merry – go – round contributions, without ever reaching out to a bank

The inclusive digital financial service success story in Africa today, has been built on the backs of of airtime and mobile money dealers who are organized in hierarchical groups between the street agent and their super agent to exchange float in case of shortage.

Over 80% of Africa’s commuters are transported daily by an army of self organized groups of matatu drivers and owners in chamas, cooperatives and saccos.

90% of the trade in Africa’s capital cities is managed by biashara trade groups that continue to survive despite the rigid rules and clamp downs by city council officials.

So, community and groups aren’t just resilient, they are force of dominant market players and it is why everyone should pay attention to chamas.


Why Are Chama Groups Such a Big Deal ?

Well it is because Chamas are the socio-economic fabric in Africa. They are a form of organization that is both simple yet an efficient means to pool resources for savings, funding projects, marshalling support in case of event or emergency, socialize with peers and discuss challenges, economic opportunities or simply socialize over the weekend.

From our research, we have uncovered 7 types of broad chamas

  • Merry Go round
  • Savings
  • Insurance
  • Investment Club
  • Traders
  • Cooperative
  • Causes

These chamas can be

Groups of traders in a market to who save together daily, deal with market challenges, authorities, or

Chamas of producers such as farmer, or animal herders who interact as a group with their traders or commodity company, or

Mobile Money dealers, and FMCG retailers who pool resources to deal with market conditions, or

Diaspora people and migrants who pool resources to build healthcare care facilities or schools back home, or

Church members trying to educate their children from a specific perspective or

Housewives, looking at accessible opportunities to generate their own revenues,

Chamas are a big deal because they define how any product, service or information is accessed, used, or analyzed at the last mile by millions. They have a unique understanding of population needs and constraints in a way no external market research can manufacture.

They also have the unique and accurate knowledge about their members, beyond what any algorithm can ever offer, in a region where there isn’t enough data anyway.

This is why almost every service provider wants to access (and control) chamas: banks, insurance companies, fintech, Telecoms, FMCG, NGOs, Government to list just few.


Why Does Everyone Want to Digitize Chamas?

Digitization in Africa has become the catch all phrase from many regional and international firms out to attract and capture the huge resource controlled by 1.2 million chama groups, estimated at $ 8 billion in Kenya alone as per the Kenya Association of Investment groups.

There is almost always an agenda, often from some central ruler or company.

Chamas are the natural target for service providers who this offer a digital app for chamas as a way to siphon their members and enroll them into their other products. From one chama, the service provider can access 10, 20, 50 members in a friendly fashion.

Some service providers are looking at solving their own core problems such as credit rating for banks, assurance companies, fintech, where there is no credible data. It is a well know fact that chama members trust each other thus minimizing fraud while delinquent loans are rare because of social pressure.

FMCG brands wish they knew how their products are being used daily by emerging African consumers with a greater degree of certainty so as to adjust and adapt their products. Currently, most market research, surveys are tweaked before delivery, sometimes mis-representing what the actual user meant.

Even the government wish they could access and tax more accurately some members (informal traders).


What Are Some Of The Pitfalls from past attempt to digitize chamas?

One of the main pitfalls is coming in with one’s own agenda and ignoring what matters for the chama group in the first place.

For example, what i called a merry-go-round chama is an attempt to finance events, emergencies, or urgent projects within a community while keeping all members socially connected. So, no matter how interesting the group might be for the service provider, there is little chance to get them onboard until the digital solution offers a better way to achieve this goal. The value of a group might come as a consequence if the digital solution satisfies their daily needs.

The second pitfall is trying to match and compete with paper. This attitude is what has led to most solutions simply coming up with an App that simply translates to digital what the group used to perform in cash, without much extra value.

At Tigo Paare, one of the first features that attracted groups was the ability for members to contribute at a distance, even when travelling in surrounding countries. Some groups even included migrants living abroad. Beyond this feature, Tigo would also contribute few shares into the paare pot alongside the group, if members were highly actively using Tigo products. This was an extra value that cash could never meet.

The last pitfall is neglecting education and awareness. Groups are composed of people at the base of the pyramid and many do not carry sophisticated smartphone, some are illiterate and subject to many legacy societal issues (patriarchal issues keeping women out of individual property, religious considerations when it comes to loans and interests). It is critical to have a strong education and awareness relay, ideally a physical place where chamas can reach, discuss challenges, get best practices from others.

While Paare was originally a marketing effort to recruit more Mobile Money customers, we quickly realized that we needed to shift and look at actual challenges that are preventing chamas from scaling: group wallet transparency, membership limited by location, lost accounting books, members motivation in some sectors.

One of the most crucial lessons we learnt early from Paare was to extend the definition and vision of what Chamas are. While the initial plan was to simply enroll merry-go-round chamas, after just weeks, we quickly realized that sectors where the chama was critical for the core daily activity were performing far better: biashara, traders in every economic sector, cooperatives, producers, …every group that had productive activity.

 Here is a link explaining our encounter with cattle traders, a macro group which represented over 500 000 individual traders.


What Is An Ideal world for chamas and technology like blockchain?

This is specifically what I found most attractive about Chamapesa project: marrying African style, self governing chamas with the promises of decentralized blockchain tech.

Chamas, saccos are the real world communities that have proven this form of organization. Without chamas, there would be no mobile telephony at this scale in Africa. There would be no dealers and street resellers. There would be no MPesa.

In Finance, Chamas on a blockchain should evolve into a fully fledged Credit Union, by and for members. This has always been the original goal, but the equivalent tech to scale this was missing, until now.

More generally, Chamas are the right gateway to reach people at scale, at the last mile, yet this useful only if the social fabric of chamas remain authentic and natural, and for the benefit of members.


Thank you Toffene for your wisdom!

Recommended reading

How the unbanked Handcart (mkokoteni) pullers of East Africa form chamas to survive and achieve their economic and social aspirations in the informal economy pesa_africa

Indigenous Savings and Credit Societies In the Third World – Any Message? by F.J.A. Bouman, 1977




Author: Michael Kimani

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

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