Role of Chamas in informal sector entrepreneurialism in Kenya

Researcher Mary Njeri Kinyanjui shares deep insights from Kenya on how social cooperation and collaboration play an important role in the informal entrepreneur’s business financing strategy.

In East Africa, particularly in Kenya, the formation of chama—a Kiswahili word for social group—has helped to enhance group agency and solidarity entrepreneurialism. Individuals collectively and cooperatively form a chama to pool and invest savings for welfare activities, such as paying medical bills or celebrating the birth of a child, as well as for investments, such as buying property, rural land, or plots in the city. The contributions are saved and then given to members on a rotational basis as lump sum loans at low-interest rates. Such business exchanges occur in a free and open market, which discourages hoarding, unfair trading, overpricing, and undercutting.

Here are two stories of Kenyans who have successfully utilized solidarity entrepreneurialism, and chama especially, in informal economies to improve their social and economic wellbeing.

In the 1990s, John, a trader of clothing and accessories, bought his products from wholesalers across Nairobi. However, with the onset of economic liberalization, many of these wholesalers went under, and new suppliers were too expensive. He decided that the only way to sustain his business was to go to China to source his products. With a group of friends, John formed a chama, which was comprised of 10 men, and traveled to China. Together, they made monthly contributions of 10,000 Kenyan shillings (or $108 in today’s dollars). The accumulated wealth was given out as loans, with an interest rate of 10 percent, for hotels and travel expenses in China. Through this initial chama, they have created a revolving fund that facilitates Kenyan traders’ visits to China when demands arise.

In 2011, Jane was invited by a friend to rent a stall to sell clothes in ECT Mall on Taveta Road in Nairobi. She had about $2700 in savings. She spent $325 of her savings to make a down payment and to start her business. After her first earned profit of $485, she was able to renew stock from wholesalers in Kamukunji and also save some money to contribute to her chama. After saving money for five months, she obtained a loan from her chama, which enabled her to buy more stock. And after one year, the traders in her chama made a unanimous decision to use their pooled savings and earnings from loans to buy land in Kitengela. Jane thus moved her clothing business to the plot of land in Kitengela and is now able to maintain her stall with ease because rent, water, and security costs are shared among the traders.

An older article by kiwanja offers an overview of the role played by these indigenous financial cooperatives in Africa, while the chama‘s importance in Kenyan society has already captured the attention of the tech innovators looking to develop mobile solutions.

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