Feature: Savings groups provide solid financial aid to Kenyan small businesses

If it were not for members of her group, Grace Mutuku, a grocery operator in Komarock, on the east of Nairobi, Kenya, would have closed her business some weeks ago.

The trader, who has been in the trade for close to five years, was on the verge of winding up her business following a tumultuous time.

"My husband was sick for over a month and with no any other source of income, I ended up using money meant for my business on his treatment," she said Monday.

Having spent a fortune, Mutuku had no cash to buy more stock and her business was facing closure.

However, her saving grace was that she is a member of a savings groups, popularly known as chamas in the East African nation.

Mutuku reached members of her group and explained her plight. Though she had initially taken a loan of 495 U.S. dollars that she was repaying, they did not let her down.

"I was offered 198 dollars over three weeks ago that I used to kick-start my business. If I was not a member of the group, where I also save my money, I would have closed shop now and been out of employment,"Mutuku said.

Her story is shared by thousands of small, informal traders who face financial challenges in Kenya.

Besides being the source of capital for hundreds of small business persons, the chama helps them maitain their business.

"If you are not in a chama, it becomes hard for your business to survive as a small trader. Myself I have gone to my chama for cash to boost my business many times," said Nahashon Kariuki, a second-hand clothes dealer in Nairobi.

The last time he sought a loan from his savings group at Gikomba market, where he operates from, was last month.

"I bought a bale of men's shirts and they did not turn out as I had expected. Most of them were not of good quality, which means I barely raised cash to buy my next bale. I had no choice but to reach out to the chairman of our group, comprising of men only, for a 148 dollars loan," he recounted.

With high borrowing rates of up to 28 percent and strict lending conditions offered by banks and micro-finance institutions, chamas are the only place the small business persons can get money easily in case of distress.

Through the groups, members practice a saving model called table-banking, which involves contributing money at each sitting and lending out to any member in need.

A member is entitled to up to three loans as long as they have contributed good number of shares and have guarantors, normally from the group.

"With our chama, you get your loan almost instantly. I applied mine at about 10:00 am and by 3:00 pm I was able to get the money and buy stock the next day," said Mutuku.

Marceline Otiato, the chairperson of the Nairobi-based Uzima Savings Group, said most members of the group engage in small businesses, though some are in employment.

"Majority of those who borrow the money from the group are not the salaried but the traders who run salons, groceries, clothes shops and eateries. When they are in financial distress and as group, we agreed to process such loans faster."Otiato said.

Henry Wandera, an economics lecturer in Nairobi, noted that the chamas are the perfect remedy for the small businesses in financial distress.

"The big firms can go to banks and get the money, but not the small traders because they are considered high risk. Besides, the process takes long. It is good chamas have stepped in."the professor said.

According to Kenya Association of Investment Groups, chamas control over 20 million dollars of assets in the East African nation. Endit