One of the most common savings and investment paradigms in Kenya (and in many developing nations) is the informal savings and investment group, popularly known as the chama. Chamas leverage our people’s cultural disposition towards community. While wildly popularly in rural areas and among the older folks whose collectivist ethos are still strong, the chama is making a comeback among the young and urban— who are more likely to say the word with a bit of a twang and an extra a: chamaa. While I am not in a chama or chamaa myself — no one has invited me-oh, told y’all I am a loner—I know a good number of my peers who are. The chama draws its power from the very idea that makes it possible: social influence. One could even argue that it is a positive manifestation of peer pressure. For the uninitiated, a chama is a small group of people (usually about 3 to 20 people) who come together to make regular contributions to a common pool that they can then either invest in a larger project or give to a member of the group on a rotating basis.
If you are starting out and have little information on savings and investments, I would highly recommend a chama. The regular nature of contributions will build a sense of discipline. This, coupled with the positive peer pressure, can help you take better control of your finances and your life. Furthermore, the larger pool of funds can give you more bargaining power than you would have as an individual. This alludes to chamas older and more formal sibling, the co-operative, who was incredibly influential amongst our parents and grandparents generations, especially in the small-scale agricultural context. I wouldn’t recommend having the chama as your only form of savings or investment. Again, the point of this whole article is diversification. Have a personal financial plan beyond the chama. At the very least, have an idea of how you will spend the lump sum in a productive manner if you’re in one of those chamas where a member gets money after every meeting. Otherwise, what’s the fucking point?
It is essential that you understand the vision of the chama as well as the values of the members before you join. A chama where a member is given funds (or plates or shukas) at the end of each meeting is different from a chama where the group keeps the money and invests it together. A chama where at least some of the people have some knowledge and experience in investment is different from one where everyone is trying to figure everything out. A chama where every member can be trusted is different from one where certain individuals are likely to pocket members’ contributions. A chama whose members support each other beyond the meetings is different from one whose members influence each other negatively. A chama with a vision is different from one that exists because uhm why not, I mean everyone is in a chama. Groups are good and often many heads are better than one. But groupthink is real and social influence has not always produced the best of outcomes.
Alternative saving plans (e.g. CRISP)
While thirty billion for the account sounds great in a Davido song, it’s certainly not a great investment strategy. I’ll tell you one person who enjoys Davido’s If on a financial level: his bank manager. The bank manager gives OBO negligible interest on his thirty-billion-for-di-accounti-oh while using it to make, I dunno, 15% on loans. I know OBO is too smart to have all his money in a bank account: for the record, he owns a music label and other businesses. Plus, why the hell are you taking financial advice from a pop star whose daddy is ultra-rich? While savings assure you of something you can draw from on a rainy day, over-reliance on bank savings is also problematic.
All the other investment classes we’ve discussed can be alternatives to savings. But in this section, I’d like to talk about another more lucrative form of savings that few know about. Wah, the last sentence makes me sound like a scammer lol. I am talking about alternative savings plans such as the Cytonn Regular Investment Savings Plan (CRISP). I only know of Cytonn’s example so it’s the one I’ll talk about (they aren’t paying me btw, but they really should). For Cytonn, an investment company primarily in real estate, CRISP is one way to raise funds for their operations and projects. And since their business has a high rate of returns, they can afford to pay investors higher interest rates than a bank on their savings. Currently, for a one-year-savings plan, they give you 15% for savings in Kenyan shillings (and 4% for savings in USD). For perspective on how crazy 15% is, in the US, the savings accounts with the highest interest give less than 2% APY (annual percentage yield)—the average is actually 0.06% APY. Of course the concern with this high a rate is: how safe is my money? First things first: don’t be greedy and put all your savings into a plan like this. Two, while companies like Cytonn may not be as regulated or insured as banks, they have certain reporting and governance structures that can give you a hint of how much you can trust them. Three, most of the saving plans are short term (6 months to 3 years) so that minimises the risk.
Small businesses (e.g. matatus, farming, shops, trading)
What would this list be without the ubiquitously-Kenyan concept of the side hustle? Most Kenyans have a side hustle which can be a good thing or a bad thing. It is a bad thing when your public school English teacher misses a lesson or two every week to pick up stock for their mtumba stall in the local market. I am not even making this shit up, BTW. While it’s understandable why a lowly-paid government teacher might want an extra stream of income, it is unfair to the students to miss learning time for it. So, rule number one for the side hustle: it should not affect your primary work. While leaving your coat on the chair might fly in a government office, in most organizations, you’ll see the door faster than you can say biashara. In most jobs, you must perform. And growth towards excellence will always require investing more than the bare minimum.
My sense is that the best form of side hustle is one that doesn’t eat much of your time. One that you can entrust one or two other people to run on a day-to-day basis (job creation yaay! ) while managing it with a light footprint. A good example of this is a matatu, farming or trading business. When you have a matatu on the road, you can go about your work without worrying about it. The driver can then remit your earnings on a daily or weekly basis. Of course, that’s if you hired a trustworthy driver and conductor. Sadly, traffic officers (and in some cases vigilante groups) will tax you while providing no value at all. The disadvantage of managing such a small business lightly is that you’re likely to learn less about its dynamics and so risk failure. As such, striking the balance between managing the small business while not eating into the time and energy needed for your job is critical.
Of course there are a million ways to build a side hustle — I’ll touch on a few in a future article on passive income. Whichever you choose, be sure to do it right. Preferably, do something you also enjoy doing. If you like photography or design, maybe figure out a way to monetize it on the side. Remember though, your clients don’t care whether you’re employed or not and your manager doesn’t care whether you have the business or not (well, unless you’re selling company wares or leeching off their IP).
British comedian John Oliver probably gave the best definition of cryptocurrency I’ve come across: everything you don’t understand about money combined with everything you don’t understand about computers. But worry not, if a dummy like myself who flunked both Economics and Computer Science in college can get the basics of what cryptos and blockchains are, then anybody in the world can. Here’s the thing: most people who know a thing or two about crypto and blockchain learnt it in the last two years — most likely due to one of the most incredible price rally in history (Ethereum price grew by 10,000% last year). In fact, more than 99.999% of the the world population didn’t know a thing about cryptocurrency 10 years ago because, well, Satoshi Nakamoto had not published the white paper on whose back Bitcoin, the first and most valuable cryptocurrency, was built.
Believe it or not, I first learnt of Bitcoin five years ago in the summer after my sophomore year at Colgate. I was trying to figure out the cheapest way to send money from the States when I came across the concept of sending digital currency that would not be regulated by banks. Regrettably, I paid little mind to the concept until early last year when the price of bitcoin grew exponentially and I chanced upon an article by former PS Bitange Ndemo on the Business Daily. Wah, maybe I’d be a millionaire if I had taken the whole Bitcoin thing seriously in 2013.
In this second coming of crypto, I was determined to learn as much as I could about cryptos and blockchains — and probably make a buck or two. In the last year, I have read hundreds of pages and watched hundreds of videos about cryptocurrency and blockchain. Sheila and I also bought cryptos worth a few cents too. I now understand that while crypto may be shiny and attractive, it is the underlying technology —the blockchain—that will actually change the world. It is blockchains that will create powerful, distributed systems that will usher in a new era of trust. I introduced Sheila to crypto and blockchain and now I bet she understands how blockchain will do all this better than me. After all she’s the techie and I’m a simple writer/psychologist. In many ways, the blockchain concept and technology is to our generation what the Internet was to the generation before ours: seemingly inscrutable yet teeming with potential. We all know what the Internet has done to business and society over the last two decades—for better and for worse. We owe it to ourselves to study blockchains and cryptos and to bring their potential to life, while limiting the negative effects on our individual and collective welfare. Here are two fun videos to get you started on that journey:
As for crypto as an asset class: it is exciting, but extremely risky. The rule of thumb: do not put in more than you can afford to lose. As in, don’t be greedy. A crypto token value may grow by 1000% but it may also grow by -100%. Crypto nuts may scream HODL from the highest citadels of the Web, but ultimately, you are responsible for your money. Though, HODL might not be the worst advice coz it encourages long-term investment.
If you’re Kenyan and are wondering how to go about trading crypto, here is a short and reliable guide to get you started. It’s important to note that there are plenty of fees involved in the process, third-world tax, I suppose.
Note on asset allocation:
In the last three articles, I have discussed 10 major investment types that an investor should consider while building a diverse portfolio: land, real estate, stocks, bonds, retirement schemes, unit trusts, chamas, alternative savings plans, small businesses, and cryptocurrency. One last thing before I sign off. While competence is learning about and investing in the various vehicles, wisdom is determining when, what, why, how and how much to invest in each. The wise investor is likely to do much better in the long run than the knowledgeable investor. I am not wise enough to give advice on wisdom but I am always working towards it. Fortunately (or maybe unfortunately), wisdom is not directly proportional to how much you own or how old you are. You can always grow your wisdom by having a strong set of values and learning everyday from your experiences, the experiences of others and more. Personally, I take calculated risks. I take on more risk than my parents and most people around me, but I make sure they are not stupid gambles. At the moment, most of my assets are low risk (land, savings, bonds) yet while I tread cautiously when dealing with more risky assets (stocks, cryptos, etc), I also appreciate the potential that that risk holds in both financial and non-financial returns.
All in all, as J. Cole’s KOD album motto goes: choose wisely.