April 11, 2023   by
Lessons learned the hard way: When a chama goes wrong

Chama failure has been witnessed in recent years. However, chama members can work to avoid various pitfalls that could be leading to failure.

Chamas, also known as investment clubs or rotating savings and credit associations (ROSCAs), are a popular way for individuals to pool resources and invest in various opportunities.

They have been around for centuries and are prevalent in many cultures worldwide.

By pooling resources, members of the chamas can invest in opportunities. The opportunities include real estate, stocks, or businesses, that may not have been accessible to them otherwise.

Over time, there has been a rise in interest in personal finance and investment. While chamas have really helped many people achieve financial success, some of them fail, leaving members with losses and frustration.

Here, we explore some of the common pitfalls that lead to the failure of Chamas and how to avoid them.

Lack of Clarity and Structure

When coming up with a chama, it is essential to have a clear purpose, objectives, and rules that all members agree upon. Therefore, by having clear goals and objectives, it is possible to avoid failure which is majorly brought about by a lack of clarity and structure.

In a chama where things are not clear, misunderstandings and disagreements can arise among members. This could cause major conflicts and in some instances, the ultimate dissolution of the chama. Therefore, members starting a chama need to have a clear vision of what they want to achieve so as to avoid confusion among members.

Members also need to have a clear understanding of Chama’s investment goals. This is in terms of the investments that the group will make and the expected returns. Additionally, a group should have a solid plan for managing Chama’s finances, including how to collect and distribute funds, how to delinquent members, and how to deal with emergencies or unexpected expenses. 

By having great clarity and structure members are able to focus on achieving their goals and ensure that everyone is on the same page.

Lack of Communication

Lack of communication is another common pitfall that leads to the failure of chamas. 

In any group, communication is key and as a result, a chama is no exception. It is very crucial for members to be on the same page, therefore, regular communication with each other is crucial.

It is important for members to also address concerns promptly and respectfully so as to avoid chaos in the future.

In most instances, we witness that a lack of communication can lead to misunderstandings, mistrust, and the breakdown of a Chama structure.

By having regular meetings, members are able to discuss Chama’s progress, challenges, and opportunities. The regular meetings also provide a forum for members to air their concerns and make suggestions for improving the group’s operations. In this case, members should be open to listening to each other. This can help in finding solutions that benefit the group as a whole.

Poor Management

In an instance where chamas are poorly managed, there is a high risk of failure. Ensuring effective chama management is critical as it ensures that a Chama is successful.

Basically, proper management involves a wide range of responsibilities which include record-keeping, financial management, decision-making, and conflict resolution.

As members decide on their group leaders, they should ensure that the leaders have the necessary skills and experience to manage the Chama effectively. The group leaders should be able to keep accurate records, make sound financial decisions, and resolve conflicts fairly and respectfully.

By having a clear leadership structure, the group leaders are aware of their responsibilities and their roles are also well-defined. Therefore, the group leaders are able to know what is expected of them and also clearly know who is responsible for specific tasks.

Lack of Commitment and Accountability

Another common pitfall for Chamas is the lack of commitment from the members. For a chama to succeed, all members need to demonstrate a high level of commitment and accountability.

Chama commitment calls for members to be willing to invest their time, money, and effort into achieving the chama goals so as to ensure success.

A lack of commitment among members is witnessed among members who fail to attend meetings, miss payments or fail to contribute their fair share of Chama funds. When members do this, we witness a strain on group finances and tension among members. This could eventually result in the failure of the Chama.

Members who lack commitment may skip meetings, miss payments, or not contribute their fair share of Chama’s funds. This can put a strain on the group’s finances and create tensions between members.

To prevent this from occurring, it is also essential to hold members accountable for their actions. This is especially when it comes to financial matters. Chamas consider transparency and honesty crucial and should hold members accountable for any mistakes or discrepancies.

Chamas can put in measures to ensure success by having clear membership requirements and expectations. By doing this, all members are able to understand the group’s rules and obligations and be willing to adhere to them.

In addition, the members must be willing to contribute regularly and follow the agreed-upon rules and regulations. 

This will help the chama from collapsing or eventual failure.

Poor Investment Decisions and mismanagement of funds

How we manage our funds and the investment decisions we make highly determine the success of our chama.

Chama investment for the purpose of growth after avoiding all Chama failure
Image illustrating chama investment

If members make poor investment decisions, we can incur losses that could ultimately cause the chama to fail. Therefore, to ensure chama success, it is very crucial to have a sound investment strategy. Also incorporating thorough research before making any investment decisions is crucial. By members diversifying their investments, they are able to minimize risks.

In the case of mismanagement of funds, chamas could also fail. All members have the responsibility to have a clear understanding of how we manage funds and distribute profits. Also, chamas could invest in a well-defined financial management system that could include proper record-keeping and reporting. All members should also be aware of any fees and expenses associated with managing Chama’s funds.

Lack of Financial Literacy

Knowledge is power. It is therefore very valid for members to be knowledgeable of the risks and benefits of different investment opportunities. 

It is also very necessary for the members to have a basic understanding of financial terms and concepts. This includes risk management, diversification, and portfolio management.

By ensuring that members are aware of making proper investment decisions, it is possible to mitigate any risks that could lead to the failure of the chama.

In conclusion, Chamas have proven to be a great way to achieve financial goals. Therefore, there is a need to avoid common pitfalls that lead to Chama’s failure. Members must have a clear understanding of the group’s purpose and objectives, communicate effectively, manage Chama’s finances, and be committed to its success.

Effective Chama management requires careful planning, effective communication, and strong leadership. With these elements in place, Chamas can be successful and provide their members with a great opportunity to achieve financial goals and build stronger communities.


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This post was written by Cynthia Njoki

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