[BLOG] Can investment groups improve the level of intra-African investment?
Investment groups in Kenya are becoming powerful investment vehicles that the government is now looking to tap into for some of the big projects under Vision 2030. There are currently an estimated 300,000 groups, which collectively hold a combined asset base of at least Ksh300-billion.
Popularly known as chamas by Kenyans (loosely translated as “committees”), investment groups became visible during the 1980s and 1990s when the country’s economy was struggling, and were formed for social welfare purposes. Chamas have matured over the years, with some registering as companies and other investment vehicles. Most of the groups initially invested at the Nairobi Securities Exchange and the real estate sector.
Kenya’s biggest private equity company, TransCentury Ltd. is one good example of a successful investment group. Investing in power and transport infrastructure, and specialised engineering, TransCentury has a gross investment portfolio in excess of KSh 9-billion.
Patrick Kariuki, the chairperson of the Kenya Association of Investment Groups (KAIG), says there are notable trends among groups such as increasing appetite for bigger and higher risk projects, increasing formalisation of groups, demand by members for return on investment, and the willingness to co-invest with other groups.
Registered under the Societies Act, KAIG is the umbrella association for all investment groups in Kenya and Kenyans in the diaspora.
“KAIG was informed by the realisation that investment groups collectively could negotiate for preferential terms from service providers and professional consultants, lobby more effectively for tax and other concessions, and help members in investment research and training on best practices,” says Kariuki.
Another objective of the association is to provide members with a joint investment fund referred to as “Amalgamated Chama Limited”, which enables groups to participate in bigger investment projects than they can individually undertake.
The Vision 2030 Delivery Secretariat is looking to tap into this resource pool to accelerate some of the flagship projects, and urged investment groups to mobilise their resources and partner with foreign investors when necessary.
Says Kariuki: “The mobilisation of savings and channeling them into investment projects is a key plank of Vision 2030, and KAIG is helping achieve this by providing training and best practice support to enable Chama members save more in their groups and personal savings, and providing experts to assist them invest in suitable areas. A number of our member groups have come together to form Amalgamated Chama Limited, which will give them leverage to participate in bigger projects.”
Some of the challenges that face investment groups are lack of investing knowledge, differences over investment strategy and risk appetite, lack of managerial skills, and dispute resolution mechanisms. KAIG responds to the challenges by conducting various trainings to help members build up skills and knowledge.
“We provide, at no cost to the members, investment experts to assist them learn about investing and the necessary and appropriate management and governance structures to have. A number of our corporate partners also offer administrative services to Chamas at preferential terms,” says Kariuki.
The association is in the process of producing a Chama Handbook, which will be the best practice reference for the thousands of investment groups in Kenya.
The growth of investment groups has attracted various service providers such as banks, investment consulting firms, brokers and insurance companies. Kariuki says a number of good products have been developed specifically for the investment groups particularly by KAIG’s corporate partners. The products include:
• Loans based on monthly contributions
• Administrative services to chama’s
• Group chama insurance last expense products
• Bank accounts with tailored account opening forms
• Dedicated chama bank accounts and staff
• Custodial services for Chamas
Kenya is East Africa’s most important economic centre and has an all-rounded economy ranging from communications, manufacturing, and agribusiness to financing. It is going to be an oil-producing nation and is likely to remain an important and influential market with considerable potential for further growth in the next few years. Numerous investment opportunities are available, with many responding to current needs in the economy, for instance, infrastructure development.
“They are numerous investment opportunities that investment groups can and have ventured into across the broad asset classes of real estate, money markets and offshore. What is important is for the chama to be properly structured with the right governance, accountability operating structure, committed members and champions, willingness to learn and follow professional advice, and to have a long-term horizon. Investment opportunities abound in all sectors, and Vision 2030 flagship projects like Konza City and LAPSSET are inviting vyama to invest,” says Kariuki.
One of the factors that foreign investors look at when considering an investment in Africa is a vibrant private sector, meaning that they would have access to a pool of credible potential partners. Kariuki says investment groups are good candidates for this, and have a lot to bring to the table: capital of over Ksh.300-billion, local knowledge, expertise of individual members and a broad contact base.
Contact details for the Kenya Association of Investment Group
Telephone: +254 (020) 3517967 or +254 (020) 2425095
Cell: +254 737 773106, +254 721 330144
This article was originally posted on Sustainable Development Africa Platform