If you are an active member of Facebook streets, you have probably come across the story of the Chama lady who has conned women upward of 10 MILLION KENYA SHILLINGS!
Women in some of these Chamas made monthly contributions of 30,000 to 100,000+ shillings. A Chama would have like 6 to 15 members or even more. That’s a lot of mullahs coming your way when it is your turn to EAT! I have seen a lot of posts of some members in these groups buying capital-intensive items, like cars. In cash.
Unfortunately, it all went down in what reads like another pyramid scheme and movie script for a digital money heist. Some members benefited, and sadly, others lost.
This is not the first case of a Chama losing money to rogue members. It will probably not be the last.
Now, I am not a big fan of Chama’s. I appreciate that it helps individuals develop a sense of belonging, build friendships, purchase assets, and even meet some expenses. Most importantly, they help some people grow a saving culture.
My reservation has been chiefly with merry-go-round Chamas, where members’ contributions earn no returns. Yes, it could be a quick way to meet expenses when you get money in a lump sum. But this money did not earn any interest. If I were a bit more patient and put that money in, say, MMF or Sacco, I could earn interest or dividends or borrow three times against my Sacco savings. With some of these monthly contributions, I can purchase shares at the NSE every month and wait to ‘eat’ my dividends annually as my shares appreciate until I am ready to sell. Either way, I still get a return from my savings or investment and beat inflation while at it. Better still, I will be in total control of my money.
Despite my reservations, I decided to join an investment group early this year. Sometimes, you have to be open to changes and growth opportunities with the hope it will work. Then, you must work with the rest of the members to manage risks and reduce the chances of embezzlement from unscrupulous members. I would like to believe we are doing everything right so far to manage these risks.
If you are in a Chama, an investment group, or a table-banking group and are worried about losing your money, perhaps there are things you can do to manage this risk.
How to Reduce Fraud in Your Chama
Chamas or self-help groups were started with the sole purpose of giving women financial success. And there is no arguing it has worked and continues to work for many people. Many individuals, including our parents back in the village, have supported their families because of these groups.
Just because a few bad apples are ripping Chamas off doesn’t mean you should abandon the idea altogether. How about taking a few measures to minimize the chances of fraud in your Chama? Here is what you can do:
1. Have a Constitution
Having a constitution or set of rules for your savings group is important. The constitution must stipulate the group’s collective goals, mission, and objectives. In addition, it should include:
- Leadership structure
- Rules for joining and leaving the group
- Punishment for members who go against the rules
- The monthly contributions for each member
- Investments plan – whatever investment plan your Chama pursues, you want to have a plan that guides those decisions. Just like you have your own individual plan. This investment plan should include the group’s risk tolerance, investment opportunities you’d wish to pursue and what are the exit strategies for each investment. Besides ensuring the investment opportunities you pursue are okay with everyone, it also helps curb the chances of one member taking the money and exploring investment opportunities on their own.
2. Keep it Professional
Speaking of leadership structure, having one ensures the Chama has specific individuals who keep the engine running smoothly. Even if you start one with a group of trusted friends and relatives, keeping it professional is vital. At the very least, you must have a chairperson, a secretary, and a treasurer for checks and balances.
3. Get a Banking Account
Many financial institutions have savings accounts for Chamas, from traditional banks to Saccos. It ensures money is held securely by a financial institution. In addition, some institutions allow members to contribute directly through mobile banking or bank transfers. This eliminates handling cash deposits and the possibility of one not banking the funds or losing the money. Plus, some of the available products by these financial institutions will earn your Chama interest and extend credit to help further your group’s financial goals.
That said, having more than one signatory for any transaction is necessary. Having at least 2 or 3 people approve any withdrawals from the account minimizes the chances of one individual taking advantage of the trust within the group.
4. Conduct Regular and Impromptu Checks
You could be in a Chama with your most trusted people. You could make it as professional as possible with several management positions. Still, it is important always to check that the engine is running according to the plan. Pay close attention to the bank statement. What is happening there? Is anyone making suspicious transactions?
Some groups have had issues with members changing the transactions to cover their tracks. To counter this, is there a way for the group members to have regular access to the statements?
There is no guarantee your Chama will not encounter fraudulent problems. However, the above can help you reduce the chances of this happening. First, ensure you have a robust set of rules, more than one person in management positions, and access to your group’s bank. In addition, stay updated on the happening of the group’s finances, including impromptu checks of account transactions.