Many Chamas operate in a very informal fashion. No registration, just people who meet, contribute money and bank it or invest it without any sort of formal identity for the Chama. Whilst this type of arrangement may work in the initial stages of a new Chama or a merry-go-round; it is always a good idea to formalize your Chama. This comes in handy especially when you want to borrow money from the bank for investment such as in real estate and even when you get into serious investments such as the stock market etc. Today, many financial institutions insist on dealing with registered, formal Chamas as they feel that these are serious investment clubs that they can trust.
Thus, you need to satisfy certain administrative requirements, especially registration and licensing. Only then can your Chama formally be considered a formal investment club. The formal requirements for starting and running a Chama can prove expensive, and as a result many Chamas particularly new ones prefer to operate informally. Although the formalization process may seem burdensome and time-consuming, you need to do it only once; then you stand to gain a lot from this investment of time and money.
Advantages of formalization
Chama formalization has particular benefits for investors with even the smallest of Chamas. Many small chamas are trapped in low-productivity operations with little access to finance as financial institutions resist dealing with informal Chamas. Formalisation, therefore, benefits the Chama in many ways. Formalisation helps to ensure access to credit, which may mean the purchase, for example , of the first real estate property such as a piece of land that is a step towards sound investment Registered Chamas have access to financial services not available to unregistered Chamas; for example, public courts and private commercial banks. Formalised Chamas are less risky and enjoy increased longevity. Successful registered Chamas tend to outlive their founders and can continue over generations. Resources come together as Chama members join forces to establish a Chama’s capital and capabilities. Formalisation enhances Chama members confidence and protection, and promotes investment development.
How to formalize your Chama
You need to set up your Chama as a unique legal entity that can engage legitimately in commercial activities. There are three basic procedures:
For a Chama to be recognized as a unique legal entity, it needs to be registered.
This ensures that the Chama operations are within set rules and regulations and that its operations pose no threat. Investors need to seek information on where and how to obtain the relevant formalization from the Ministry of Gender and Social Services.
Formalising your Chama might sound scary, but you should realize that your 1,000 shillings or 1,000 shillings initial contributions will be growing into a significant pile of wealth. You’ll need to have formal structure in place to protect yourselves in case one member turns out to be not good and also for investment purposes. Don’t neglect this formalization issue. For your Chama to be recognized as a legal entity, visit the Ministry of Gender and Social Services or you get a lawyer to help you.
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