Chama (investment)

The original chamas were structured as rotating savings and credit associations (ROSCA),[7] where the members agree to contribute a fixed amount at each meeting for a fixed period such as one year. At each meeting the funds are collected up and certain members are paid the entirety of the collected money on a rotating schedule. For example, a chama of twelve women might use this system on a monthly basis and contributing 1000 shillings by each member at each meeting. At each meeting 12,000 shillings would be collected and paid out to one of the members on the schedule. The risk of this arrangement is that members who are early in the payout rotation have an incentive to drop out of the chama after they have been paid. The participants at the end of the rotation have the highest risk of receiving reduced or no payment after paying faithfully themselves. ROSCA chamas minimize this risk by giving the most trusted members the early rotations and the least trusted members the latter rotations.[5]

A longer-term form of chama in Kenya is organized on the basis of shares, which members buy to gain ownership of a percentage of the chamas investment or income. These organizations are classified as "accumulating savings and credit associations". This structure is very similar to a unit trust,[8] however the chama leadership is not compensated for managing the fund, other than the profit on their own investment. Members must usually make a monthly commitment of a minimum investment, and bring their cash to the monthly or weekly meetings. The chama leadership invests the pooled funds in a pre-agreed-upon manner. Commonly, the chama will make loans to members at very high interest rates; 20% per month is typical. Chamas are also known to invest in transportation (taxis, matatus, buses), land, rental housing units, agricultural enterprises, as well as stocks, bonds and other financial products.[9]

Under British colonial rule, British settlers began forming agricultural cooperatives under the Cooperative Societies Act, particularly for the large scale production and export of coffee, tea, and locally dairy.[10] After Kenyan independence in 1963, agricultural cooperatives continued to grow with Kenyan shareholders and leadership. Today Kenya's agricultural chamas continue large scale farm operations with economies of scale.[11] Chamas that are incorporated as Limited Companies account for 42% of Kenya's GDP [12] mainly through agricultural production.

Technology[13] has added a new twist to how Chamas are accessed and organized, with 'electronic Chamas' being organized on Web sites and mobile apps that can bring together people from across the world. Examples of a technology platform that enables online Chamas in Kenya is Aturi Africa. There are also platforms that make it easy to setup, track, and follow up with your collections in one simple dashboard. [14]