Katy Fentress, Nairobi Community Manager
In Kenyan communities that have little of the collateral needed to access credit, a common approach is to set up savings and investment associations known as “Chamas.”
A Chama is an informal group, often composed of women, that follows a system by which everyone contributes money on a regular basis and in turn gets disbursed a fixed amount. The method evolved from the tradition of rural women grouping together and pooling their labor to work on each other’s farms.
Over the past decades, Chamas have increased in popularity: women have embraced them not only to send their children to school, undertake household maintenance, and weather them through major events and crises, but also as engines with which to forward their entrepreneurial skills and invest in income-generating activities.
As women’s priorities have changed, so have Chamas, which in time have evolved into recognized credit-worthy institutions. Major banks like Rafiki Microfinance, K-Rep, Barclays, Kenya Commercial Bank, and Bank of Africa have all begun to recognize the potential of Chamas and to create lending schemes focused on their needs.
Smaller credit institutions that provide financial mentoring, tailor-made solutions, and a more grassroots approach to lending are also getting in on the game. In Nairobi, for example, a company called Creative Capital Solutions (CCS) has since 2006 been providing cash-flow solutions to female-run Micro, Small, and Medium Enterprises (MSMEs) and Chamas.
“We initially used to also target men’s groups,” says Sadiq Dewani, the CCS Operations Director. “Unfortunately, men would all too often use the money for other purposes or turn out to be serial borrowers. We realized that women were more reliable earners and generally had around 60 percent to 70 percent returns on their investments, so we decided to cater our credit solutions specifically around their needs.”
The objective of CCS is to offer fast, flexible and, above all, manageable solutions to women’s Chamas. “We aim to provide alternative, niche solutions for women who cannot find working capital from banks that have stringent requirements, rely on collateral, and do not offer flexible options catered around the groups’ needs,” explains Dewany, who says that although major banks do lend to Chamas, the system can be complicated and groups can easily get disheartened by all the bureaucracy. “With our approach we initially focus on providing a two-week financial training program; following this, we undertake individual group background checks in order to assess their ability to pay back loans, and if they are then accepted, we formalize the group and enable it to borrow from us.”
Similarly to unsecured micro-finance loans, Chama lending usually has high interest rates. CCS has devised a methodology by which if groups pay back loans faster, they can reduce the amount they have to pay. According to Dewany, the system is working, and the fact that their repayment rates stand at around 85 percent is proof of this.
CCS has over the years helped women’s Chamas set up irrigation schemes, flour mills, bakeries, tailors, hairdressers, and tea shops. In Nairobi, they currently work with 12 different women’s Chamas situated in different corners of the city. Their loans go from as low as 30,000Ksh- ($350) to as high as 300,000Ksh- ($3,500). They are currently in the process of mutating into an established Microfinance lending institution.
“We are exploring options for increasing the level of training we undertake with individual groups,” concludes Dewani. “Although this might prove costly for us, we feel that the better trained our members are, the more they can make out of their money and, eventually, the more returns we will see.”