From Chama to Conglomerate: What You Need to Know

My earliest memories of a chama include food in plenty and loud laughter followed by hushed tones in serious conversation. My mother and her lady friends have met consistently once a month for over 27 years. They are my “aunties”, the ones with no familial relation, every African has some. But a chama is so much more than meetings. According to the 2016 FinAccess report, 1 in 2 individuals in Kenya is a member of an informal financial group. As is mostly the case, it starts out to help meet a household need like school fees, or results from a group of friends who desire to grow their businesses, others have come together because they attended the same high school and feel the urgency to “jipanga”(loosely translated to financial planning to attain financial freedom). Wherever you go, in Africa, these groups exist. These are the people you invite to raise funds for your wedding, medical assistance due to unexpected illness or the final rites for your loved ones.

Longhorn Publishers together with author Mr Tony Wainaina recently launched the book “The Investment Group Handbook: From Chama to Conglomerate”. According to the Mr. Wainaina, this book is necessary because investment groups, or “chamas”, despite their numbers and value of assets pooled over the years, remain largely informal, fragmented and have no institutionalized support systems to help them unlock their potential. At the event, he said, “While saving and investing individually is good, doing the same with others works better because groups already exist in culture and help to solve challenges. Another key benefit is the peer pressure to meet your responsibilities.” People often leave their chamas due to changes in life priorities or due to disagreements. Others remain, but aptly put at the launch by Stephen Gugu, “have never seen the plot of land the chama bought 2 years ago.” Whether you fall in one of these categories or represent the other one person, here are some key take-aways from a panel discussion at the book launch.

  1. Governance is a key issue for chamas. Are members like-minded? Do you have the same risk appetite? It is impossible to have the whole group be leaders and often the most outspoken member determines the way forward, but are they qualified? There should be structures and policies in place for each group. Just as no company runs itself, things will not just happen. Take your chama as seriously as you do your job. Often groups are reluctant to spend money but investing in professional services and hard work will pay off. The challenge of succession also needs to be addressed. Tony Wainaina, author of The Investment Group Handbook: From Chama to Conglomerate.
  2. The principles in this book are what we have used ourselves. The most critical thing is clarity of vision because without it, execution is impossible. Building momentum takes time, it shouldn’t be considered as short term. It is important to individuals to be aligned, is the group for social safety or investment? Work within your circle of competence and avoid the scarcity mindset. Being positive and ambitious stimulates growth. Dr. James Mworia, CFA, Group Chief Executive Officer, Centum Investment Company PLC.
  3. You cannot treat saving and investment as a luxury. If you are investing what you cannot afford, the pain will make you show up. It is not possible to create wealth in a comfort zone, there needs to be a sense of urgency. This may mean that some people need to leave their chama. We encourage people to move from a mindset of consumption to one of saving. Of all the formulas we learn in life, multiplication is most important. Consider this: How can I multiply money, ideas, my skills and my network? Waceke Nduati Omanga, Entrepreneurship Coach and Author and Founder, Centonomy Ltd.
  4. Even the Bible says that lack of knowledge leads people to perish. Groups should get good advice and consider that success means various things to various people. Once good foundations have been set, and this includes an investing policy, we can begin to unlock the potential in chamas. It is also important to tell the success stories; we should do it more often and louder! Patrick Kariuki, Chairman of the Association of Investment Groups and Chief Operating Officer, Genesis Kenya.

And that is what this book sets out to do. Tony Wainaina looks at 3 Kenyan investment group case studies and details what has happened 6 years since he initially profiled them in the first edition of his book. As Mr. Wainaina puts it, “All this investor class requires is capacity building, and that starts with giving practical guidelines on what to do to improve their capability to create real, sustainable wealth.” The book is available for purchase at Text Book Center.

Written by Nyambura Ngumba

Co-investment Funds to the Rescue; Addressing the Valley of Death

Whether you believe in it or not the Valley of Death (VoD) is real! If you are still wondering about its whereabouts, talk to any seasoned entrepreneur. The VoD refers to that phase of a company where it is too early to attract any / huge appetite from early stage investors and it’s also not generating enough cash from its operations to choose not to look for investors. The solution for most startups in terms of how to navigate this stage is usually to rely on funding from ‘the three Fs’, family, friends and fanatics (feel free to use your own label for the last ‘f’), angel investors in some instances grants.  African entrepreneurial ecosystems while rich with opportunities probably have some of the deepest and longest VoDs, a lot of work is going into how to reduce the fears elicited by these valleys, not to mention the casualties they record. One of the actors keen on addressing the challenge of VoDs is the Government. As would be expected, different Countries are at different stages in this journey; some have started while others are still getting their act together.

Recently, the South African government initiated a co-investment fund that is meant to address the problem posed by these VoDs and improve number of the Companies that make it to the other end alive. The Initiative is being championed by the  Technology Innovation Agency (TIA) whose goal is to bridge the innovation chasm between research and development. The body focuses on education institutions, science councils, public entities, private sector and commercialization. TIA will adopt a one-to-one matching such that for every Rand invested by an angel investor or syndicate of angels, the agency will also invest a Rand as loan up to a maximum loan of R 500,000 (USD 35,000). The loan will be done through a royalty financial instrument (repayable by taking a percentage of the revenues of the company over a period) that is currently priced at an IRR of 20%. The loan plus accrued interest is repayable should the start-up have enough money (definition not clear) to repay TIA and should it fail, it has no obligation to pay the loan.

To ensure that the fund has maximum impact, it will channel funds to entrepreneurs who suffer the highest casualties as they scale the VoD. Priority will be given to entrepreneur applicants who are either black or women. Further for efficient fund allocation and to catalyze local capital all applications will require joint investment committee approval from both TIA and an Angel Investor or Angel Group.

Co-Investment funds can play a critical role in catalyzing local capital and addressing the VoD challenge faced by indigenous entrepreneurs. Corporates, DFis, Governments and other actors should consider them as a means of addressing systemic challenges in most African Silicon Savannas. The intervention by South Africa’s Government looks to be a good starting point for players interested in experimenting with this model. Other interventions working under the same principles and with notable traction include Catalyst a cross-stakeholder initiative that aims to increase the pool of capital available to promising African growth-stage entrepreneurs, as well as support the startup ecosystem including hubs and angel networks. As with everything the proof of the pudding is in the eating, the co-investment model offers a different approach to address the VoD challenges, more initiatives need to be launched to better design the model for the African Continent.

Written by Adeliade Njoki and Stephen Gugu