A friend narrated a story of a village savings group aka ‘ikimina’ in a neighbouring country which he visited to advise on savings and investment. After his presentation, they told him they already knew all about this. They told him how every week each of the members save the equivalent of 1000 Rwf with the kimina. At the end of the year, they buy cows. They then slaughter the cows and each member gets 15-20 kgs. They have enough meat to last them from Christmas to new year and they are happy. In the new year they repeat the same cycle. Many bimina in Rwanda operate on a similar ‘save to consume model’. The most popular type is probably the ‘merry-go-round’ group. In this type, each member saves with the group the same amount of money every month. And at the end of the month, the total sum is given to one of the members. For example if the group is made up of 12 members and each member contributes 50,000 Rwf per month, the receiving member will get 600,000 Rwf. The receiving member is free to do what he or she wants and may choose to treat themselves to a new phone. The next month the lumpsum is given to the next member on the list. This goes on until every member has received the lumpsum and the process is repeated. These bimina have nailed the concept of saving. And this is the first step towards investment. But the investment potential of many of them has been limited by their short term outlook. They prefer to “slaughter and eat the cows” as opposed to fattening them first. By transforming themselves into Investment Clubs with a long term outlook, these bimina would make more out of their money. Some of Kigali’s biggest buildings were constructed by groups of business associates which started out as Investment Clubs. An Investment Club is a group of people, typically less than 50 who pool their money and invest in ventures they deem profitable. Each member saves a set monthly contribution with the club consistently for a few years as the club looks for avenues to invest it in. Since the members are normally from diverse professional backgrounds, the club is able to leverage their networks and skills to identify and participate in money generating schemes. The relationship between the club members is governed by a constitution. The constitution will typically set out the objectives of the club, how to join or exit, electing officers, the monthly subscription, how to make investment decisions and how to resolve disputes. The club is run by a team of volunteer officers who will normally include a chairperson, secretary and treasurer. The most important organ of the club is the Investment Committee. It discusses and then recommends investment opportunities to the club members for approval. The club makes investment decisions based on a majority vote of the members, typically 75%. For members who struggle with saving, Investment Clubs enable them to become better savers since they are held accountable by the club. Also, the club provides a platform for members to learn more about investment, markets and running businesses. And it draws the members closer to each other through working together on common goals. In addition, the club enables the members to invest in risky or higher valuer assets which they would otherwise have not been able to on their own. Investment Clubs also offer cheap loans to members. Most investment groups start off as clubs. A club is not a legally recognized entity. As such it has no legal requirements to fulfil. This has its advantages. For example, an Investment Club is not required to register or make any filings with the Rwanda Development Board or Rwanda Revenue Authority unlike companies. However, not being a legally recognized entity has its downsides. For instance the club can not borrow money in its own name from a bank. Also, the club cannot enter into contracts in its own name and this may make other parties hesitant to deal with it. Therefore, as the club matures and starts investing in assets, it is inevitable that it will want to transform into a legally recognized vehicle. In the Rwandan context most mature clubs register as companies. Investment Clubs now also have the option of converting into partnerships with the introduction of the partnership law earlier this year. While Investment Clubs have great potential to transform the lives of their members and society as a whole, this potential has yet to be fully exploited. Many do not have a common vision and enabling structures and this sets them up for failure. Some members form Investment Clubs with former schoolmates because they want to keep the comradeship they had at school. But the original excitement of reuniting with their old buddies wears off and they realise the comradeship does not translate into shared vision and goals. In some cases, the treasurer of the club ‘disappears’ with the all the club’s money. Or a member borrows all the money of the club and fails to pay it. In addition most Investment Clubs tend to invest in less risky assets like treasury bills, treasury bonds and land. This is because they offer guaranteed albeit sometimes lower returns. While these are sensible investments, a more diversified portfolio with a mix of risky and less risky assets would make better use of the pooled money, networks and skills of the Investment Club members. Perhaps Investment Clubs can also venture into lucrative and more transformative projects like providing alternative source of funding to SMEs either through loans or through buying equity. Or they can venture into constructing houses which would reduce Rwanda’s housing deficit. For Investment Clubs to venture into these more risky projects, they would have to be run with good governance structures and robust Investment Committees which thoroughly assess the viability of the projects and report to the members. Membership would have to be drawn from people with similar long term vision and financial resources. And Investment Clubs would patiently grow their capital for several years with a long term view. The views expressed in this article are of the author and do not constitute legal advice. The writer is a business lawyer and Partner at Trust Law Chambers rbalenzi@trustchambers.rw Follow on Twitter @Richard Balenzi
