Investing Options For Investment Groups

Today in the Business Daily there is a captivating article on investing options for investment groups (popularly known as Chamas in Kenya)

The article came just as i was reflecting on my own reluctance to join investment groups due to the fact that most members really just never know whats good or bad investing strategies which then leads to propagation of all manner of ideas based on what each member heard was “the sure thing”. The writer actually captured it neatly in the phrase “analysis paralysis” because in most cases thats what happens in these investment groups. As is usually the case, members are friends who have known each other a long time so no one wants to be the one who came up with the BIG WHOPPER that ends up bankrupting everyone. So each option is analysed with a fine toothcomb till it dies of old age. The writer captured it humorously:

Every potential investment brought to the chama is torn into shreds, questions abound about who are the promoters of the deal, has anyone ever done this kind of business before, how do we know this is not a pyramid scheme masquerading as a Runda housing development? Before you know it, the offer has closed, the promoters have got their financing from other people and you are all wondering how you can get in on Phase II of the project, if at all there is one.

However, the article does go on to set out very viable and well-presented investment strategies that a group can take and which can lead to great rewards for everyone. This is obviously the route that the “mother of all chamas” i.e Transcentury Group took and look where they are now. I believe also the Mvuli Guest House in Nairobi West also came about from an investment by a Chama so it is do-able.

In five years, the building will be valued at Sh68 million, assuming a 10 per cent annual compounded appreciation rate. If the loan on the building has reduced to say Sh26 million since the rental income is being used to make the loan repayments and cash is still at Sh2 million, then the net asset value of the chama is now Sh44 million which is 340 per cent increase in NAV over five years. This is significantly higher than any returns on savings accounts, treasury bills or shares on the stock exchange.

Interestingly, the Chama phonemenon has taken Kenya by storm such that there is now even a Kenya Association of Investment Groups.