Financial Ratios Formulae

This is a quick guide to financial ratios for cooperatives and saccos, extracted from Ojijo’sSuccessful Saccos – Managers’ Guide to Acquire, Retain and Grow Membership, Savings and Assets.

Do I have enough working capital? Will I be able to make payroll and the next flock of bills? Is my debt too high? Will I have any difficulty meeting long-term obligations? Am I using my assets wisely? Is my inventory too large, or does it take too long to turn over? How profitable is my business? Financial ratios help me answer these questions.

The massive amount of numbers in a company’s financial statements can be bewildering and intimidating to many investors. However, through financial ratio analysis, I will be able to work with these numbers in an organized fashion. Financial ratios are indicators used to analyze an entity’s financial performance. Financial ratios are used by bankers, creditors, shareholders and accountants to evaluate data presented on an entity’s financial statements. Depending on the results of the evaluations, bankers and creditors may choose to extend or retract financing and potential shareholders may adjust the level of commitment in a company. Financial ratios are important tools that judge the profitability, efficiency, liquidity and solvency of an entity.

A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical values taken from an enterprise’s financial statements. Financial ratios may be used by managers within a firm, by current and potential shareholders/investors (owners) of a firm, and by a firm’s creditors. Financial analysts use financial ratios to compare the strengths and weaknesses in various companies. If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios.

Ratios can be expressed as a decimal value, such as 0.10, or given as an equivalent percent value, such as 10%.

There are four main categories of financial ratios:

  • Liquidity,
  • Profitability,
  • Leverage/Solvency, and
  • Activity/Efficiency

Profitability Ratios

Profitability ratios help users of an entity’s financial statements determine the overall effectiveness of management regarding returns generated on sales and investments.

Profitability ratios are designed to evaluate the firm’s ability to generate earnings. Analysis of profit is of vital concern to stockholders since they derive revenue in the form of dividends. Further, increased profits can cause a rise in market price, leading to capital gains. Profits are also important to creditors because profits are one source of funds for debt coverage. Management uses profit as a performance measure.

There are several ratios that may be used to measure profitability and the income statement contains several figures that may be used for profitability analysis.

Return on Member Equity

A measurement of the co-op’s rate of return on member investment. Always given as a percentage. It shows the interest rate net profits yield on member equity.

Formula: Net Savings X 100 / Member Equity

Net Profit Margin (NPM)

Net Profit Margin measures how much out of every of Sales a company actually keeps in earnings, and hence, our measure of profitability. Profit margin, net margin, net profit margin or net profit ratio all refer to a measure of profitability. It is calculated by finding the net profit as a percentage of the revenue. Profit margin is displayed as a percentage; a 20% profit margin, for example, means the company has a net income of $0.20 for each of sales. It is also known as Net Profit Margin.

If the company has a high average net profit margin, it is a high margin of safety, hence, a decline in sales, or lower pricing, will not negatively affect our profitability.

Gross profit margin

The average gross profit on each of sales before operating expenses:

It will depend on the industry I am in, so it is important to measure yourself against industry benchmarks. It is an excellent way of assessing the profitability of each product.

Return on Assets (ROA)/Return on Investment (ROI)

This ratio is an indicator of how profitable a company is relative to its total assets. The greater a company’s earnings in proportion to its assets, the more effectively that company is said to be using its assets. ROA/ROI gives an idea as to how efficient management is at using its assets to generate earnings.

An average ratio of above10% is acceptable shows that the company is better at converting its investment into profit, making large profits with little investment.

Return on Equity

Return on Equity measures the efficiency with which stockholder’s investment has been used. In essence, it measures the company profitability by revealing how much profit a company generates with the money shareholders have invested.  Also known as “return on net worth” (RONW).  Net income is for the full fiscal year (before dividends paid to common stock holders but after dividends to preferred stock.) Shareholder’s equity does not include preferred shares.

From the above ratio, the company is efficient at generating profits from every unit of shareholders’ equity (also known as net assets or assets minus liabilities). A high ROE shows that the company uses investment funds to generate earnings growth. A higher average of above 20% means that the company is a lean, mean profit machine.

For example, if I have invested $200,000 and the business is generating a net income of $100,000 a year, my return on owner’s equity is 50 per cent.  It tends to increase over time as the business grows, especially if my personal investment remains the same. It is a useful way to compare what I have earned from my business to what I may have earned from another investment.

Efficiency /Activity /Asset Turnover Ratios

Activity ratios also known as efficiency or turnover ratios are used to measure how efficiently a business uses its assets. Asset turnover ratios consist of the sales figure in the numerator and the balance of an asset in the denominator.

These ratios measure the effectiveness of management’s decision making.

Inventory To Working Capital Ratio

Indicates the desirable inventory level for the working capital employed.

Formula: Inventory / Net Working Capital

Accounts Receivable Turnover

An indicator of how quickly the firm is collecting from its credit sales. This calculation is Average Gross Receivables, divided by the Net Sales, divided by 365. The results from this ratio may cause the firm to rethink its credit terms. Most firms invest a significant amount of capital in accounts receivable, and for this reason they are viewed as crucial corporate resources. Accounts receivable turnover is a measure of how these resources are being managed and is computed as follows:


Annual Sales
Accounts Receivable Turnover = ——————-
Accounts Receivable

A fairly high number by most standards would be considered very strong.


Inventory Turnover

An important resource that requires considerable management attention is inventory. Particularly useful if you have trading stock. Shows how often my business’ inventory is sold and replaced in a particular period.

This is another powerful ratio. It indicates the liquidity of the inventory. This is calculated by dividing the Cost of Goods Sold by the Average Inventory. Although monthly inventory totals would generate the best average, they are usually unavailable to an outside investor. Often times the beginning and ending inventory totals are the best available numbers.

Control of inventory is important and is commonly assessed with the inventory turnover measure:

  Annual Sales
Inventory Turnover = ————-


Generally, the higher the number the better. The less time goods spend in inventory the better the return the company is able to earn from funds tied up in inventory. A large stale inventory can distort the asset position of the company and should be monitored for that reason also.

For example, if you’ve spent $200,000 on stock over the year and you keep an average of $20,000 worth of stock on hand, your inventory turnover is 10 times a year. As a general rule, it is better to have a higher than lower inventory turnover. A low turnover indicates you have a lot of money tied up in stock for long periods, which is not good for cash flow. Too high a figure could indicate that you don’t have enough stock on hand.


Accounts Payable Turnover

Cost of Sales

Average Accounts Payable

The higher the turnover, the shorter the period between purchases and payment. A high turnover may indicate unfavorable supplier repayment terms. A low turnover may be a sign of cash flow problems.


Operating Expense Ratio

Compares expenses to revenue.


Operating Expenses

Total Revenue

A decreasing ratio is considered desirable since it generally indicates increased efficiency.


Earnings Per Share

Shows the earnings available to the owners of each share of common stock

Formula is:

Net Income – Dividends

Number Of Shares (Common Stock)

Days Receivable Ratio

Another measure of a business’ liquidity is how long it takes for the company to collect payments from clients, also known as day’s receivable ratio. Figure the day’s receivable of a business by dividing its average gross receivables by its annual net sales divided by 365. For example, a company with annual net sales of $365,000 and average gross receivables of $40,000 would have a day’s receivable ratio of 40 days.

Formula= 365* Average Receivables /Annual Net Income


 Liquidity Ratios

Liquidity is a measure of the business’ ability to pay its bills on time. It is the relationship between current assets and current liabilities. Liquidity is a sensitive barometer of month to month operations.

Liquidity ratios help financial statement users evaluate a company’s ability to meet its current obligations. In other words, liquidity ratios evaluate the ability of a company to convert its current assets into cash and pay current obligations. Common liquidity ratios are the current ratio and the quick ratio. The current ratio is calculated by dividing current assets by current liabilities. A general rule of thumb is to have a current ratio of 2. The quick ratio, or acid test, helps determine a company’s ability to pay obligations that are due immediately.

Net Working Capital

The difference between total current assets and total current liabilities. It indicates the extent to which short-term debt is exceeded by short-term assets.

Formula: Current Assets – Current Liabilities


Current Ratio/ Liquidity Ratio


The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. Also known as “liquidity ratio”, “cash asset ratio” and “cash ratio”.  It compares a firm’s current assets to its current liabilities.

If an entity cannot maintain a short-term debt-paying ability, it will not be able to maintain a long-term debt-paying ability, nor will it be able to satisfy its stockholders. It is safe to assume that current liabilities will be paid with cash generated by current assets. A profitable company still may have difficulty paying its short-term debt. Many companies use accrual accounting and are able to report high profits but are unable to meet its current obligations. The liquidity ratios look at aspects of the company’s assets and their relationship to current liabilities.


Quick Ratio/ Acid Test Ratio

The quick ratio of a business is a measure of its financial liquidity. It determines how easily a business could convert assets into cash to cover its liabilities. Companies that have a low quick ratio present a higher risk to investors. Figure the quick ratio of a company by deducting the value of its inventory from its current assets and dividing the total by its current liabilities. For example, if a company has $2 million in assets, of which $1 million is tied in its inventory, and $500,000 in liabilities, it has a quick ratio of 2 to 1.

Formula= (Current Assets – Inventories) / Current Liabilities

Solvency/Leverage Ratios

Solvency is the relationship of long term debt to owners’ equity. It is a measure of the proportion of long term capital being provided by the creditors (debt) versus the owners (equity). It indicates who is financing the permanent assets of the company.

Solvency, or leverage, ratios, judge the ability of a company to raise capital and pay its obligations. Solvency ratios, which include debt to worth and working capital, determine whether an entity is able to pay all of its debts. It is important to ensure the entity can maintain operations during difficult financial periods. The debt to net worth ratio calculation is total liabilities divided by net worth. Working capital is calculated by subtracting current liabilities from current assets.

Solvency Ratio

Indicates the amount invested in the business by the creditors with that invested by the members. The lower the ratio, the higher the creditors’ claims on the assets, possibly indicating the cooperative is extending its debt beyond its ability to repay. However, an extremely high ratio may indicate that the cooperative is managing its assets too conservatively.

Long-Term Debt to Working Capital

Indicates creditor contribution to liquid assets.

Formula: Long-Term Debt / Net Working Capital (Current Assets-Current Liabilities)

Long-Term Debt to Capitalization

Indicates the proportion of total capitalization provided by long-term debt.

Formula: Long-Term Debt / Total Capitalization (Total Debt +Total Equity)

Debt to Equity Ratio/Financial Leverage/Gearing/Risk

The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders’ equity and debt used to finance a company’s assets. Closely related to leveraging, the ratio is also known as Risk, Gearing or Leverage. Whereas the optimal debt-to-equity ratio is considered to be about 1, i.e. liabilities = equity; the maximum acceptable debt-to-equity ratio is 1.5-2 and less. The more non-current the assets (as in the capital-intensive industries), the more equity is required to finance these long term investments.

An average reducing D/E Ratio means the company is being financed from its own financial sources rather than by creditors which is a positive trend. Lenders and investors usually prefer low debt-to-equity ratios because their interests are better protected in the event of a business decline. Thus, with low debt-to-equity ratios, the company can be able to attract additional lending capital. Further, the low debt-to-equity ratio indicates that the company will be able to generate enough cash to satisfy its debt obligations. It also provides opportunity to exploit financial leverage.

Debt/EBITDA Ratio

This ratio gives the investor the approximate amount of time that would be needed to pay off all debt, ignoring the factors of interest, taxes, depreciation and amortization. Ratios higher than 5 indicate that a company is less likely to be able to handle its debt burden, and thus is less likely to be able to take on the additional debt required to grow the business. At a ratio of below 5, the company is able to pay off its debts.  This high ratio suggests that the company may want take on less debt, unless the cost of capital is greatly reduced.

A high debt/EBITDA ratio suggests that a firm may not be able to service their debt in an appropriate manner and can result in a lowered credit rating. Conversely, a low ratio can suggest that the firm may want take on more debt if needed and it often warrants a relatively high credit rating.


Debt Service Coverage Ratio (DSCR)

The debt service coverage ratio (DSCR), also known as “debt coverage ratio,” (DCR) is the ratio of cash available for debt servicing to interest, principal and lease payments. It is a popular benchmark used in the measurement of an entity’s (person or corporation) ability to produce enough cash to cover its debt (including lease) payments. The higher this ratio is, the easier it is to obtain a loan. The phrase is also used in commercial banking and may be expressed as a minimum ratio that is acceptable to a lender; it may be a loan condition or covenant. The average DSCR of above 1 indicating that the company is producing income which is sufficient to pay back its debts. In essence, the company will have cash flow available to meet annual interest and principal payments on debt.

Formula = Net Operating Income/ Total Debt Service (Amortization + Interest On Loans)


A DSCR of less than 1 would mean a negative cash flow. A DSCR of less than 1, say .95, would mean that there is only enough net operating income to cover 95% of annual debt payments. For example, in the context of personal finance, this would mean that the borrower would have to delve into his or her personal funds every month to keep the project afloat. Generally, lenders frown on a negative cash flow, but some allow it if the borrower has strong outside income.


Debt Ratio

Debt Ratio is a financial ratio that indicates the percentage of a company’s assets that are provided via debt. It is the ratio of total debt (the sum of current liabilities and long-term liabilities) and total assets (the sum of current assets, fixed assets, and other assets such as ‘goodwill’). The higher the ratio, the greater risk will be associated with the firm’s operation. In addition, high debt to assets ratio may indicate low borrowing capacity of a firm, which in turn will lower the firm’s financial flexibility. Like all financial ratios, a company’s debt ratio should be compared with their industry average or other competing firms.

Total liabilities divided by total assets. The debt/asset ratio shows the proportion of a company’s assets which are financed through debt. A debt ratio of greater than 1 indicates that a company has more debt than assets; meanwhile, a debt ratio of less than 1 indicates that a company has more assets than debt and most of the company’s assets are financed through equity. Companies with high debt/asset ratios are said to be “highly leveraged,” not highly liquid as stated above. A company with a high debt ratio (highly leveraged) could be in danger if creditors start to demand repayment of debt.



About Ojijo

Ojijo Pascal, a lawyer, author of 49 books, public speaker, consultant, entrepreneur, investor, poet, pianist, speaker of 19 languages, and InuaKijana Fellow, is the Founder & Lead at GoBigHub, a for profit social enterprise with a 10 year target of being in 1,000 African cities, connecting local entrepreneurs to local investors and contributing to 1% of Africa’s GDP. He is passionate about the role of enterprise in fighting Africa’s challenges of poverty, unemployment, and low productivity. He believes that connecting the entrepreneurs to local sources of capital while providing business mentorship and promoting group business and investment ventures through business clubs and investment clubs is the answer to build better lives in Africa. Read Ojijo’s Complete Profile Here.


Hostalite Signs MoU with Investment Club Association of Uganda to Provide club Management Software

Starting an Investment club is unfortunately not as easy as simply having a vision. Founding members face several obstacles in their bid to run and produce well-maintained club records.

East Africa’s leading web hosting and development company, Hostalite LTD on 25 August 2017 signed an MOU with the Investment Clubs Association of Uganda (ICAU). The event was held at the Ministry of Finance, Planning and Economic Development offices in Kampala.

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Investment clubs: Your key to financial freedom

An illustration of members of an investment club during a session. Investment clubs are an attractive source of funding. Illustration by Danny Barongo.  Investment clubs involve members who pool resources together before making informed investments. Eronie Kamukama explores how this investment avenue can help people grow their savings.

By Eronie Kamukama

Alfred Habaasa is anything but your usual Ugandan youth. In his mid-20s, the tax advisor at Ernst and Young Uganda is a leader of Group Connect Prudent (GCP), an investment club operating in Kampala. Together with 28 other young people under GCP, Mr Habaasa is investing his money in low risk securities with hope of getting a return after his money has appreciated.

But Mr Habaasa did not wake up one morning and start investing in securities. His story dates way back in 2012 when he was a university student. He wanted to keep in touch with his alumni from St Mary’s College Rushoroza Kabale, so he mobilised those in different universities and formed a group that would hang out once in a while.
It worked but six months down the road, the social group’s initial motivation slowly faded as people got too busy with their lives. The group had to find great cause to meet.
“We realised we needed another cause that would bind us and our resolution was to focus on financial growth,” Mr Habaasa says.

Investment club idea
Mr Habaasa says they started discussing money and eventually the social group settled for an investment club.
“We thought those into entrepreneurship needed money for investment and those with small jobs could top up on their salaries,” Mr Habaasa narrates.
In 2013, GCP was registered at Uganda Registration Services Bureau as a group limited by guarantee to prepare for any opportunities.
“The idea was that we should be ready for any opportunities if anyone wants to partner with us,” Mr Habaasa explains. They formulated a constitution, opened an investment club bank account in dfcu bank and started looking into increasing the group’s capital base.
The club members started saving between Shs10,000 and Shs100,000 solely for investment. Along the way, inconsistencies in scheduled payments cropped up. The club also got uncomfortable with stacking money on an account and waiting for an interest from the bank.

New beginnings
Strategy changed in 2015. “We planned for the money and we invested Shs3m in treasury bills. One member suggested we needed services of a fund manager and right now, we are investing in the money market,” Mr Habaasa says.
Stanbic bank as GCP’s fund managers was now in charge if investing the club’s Shs30m in low risk securities. GCP is currently doing long term investment but will reconsider lending their money once risk can be well-managed. However, Mr Habaasa wants more. Investment in the stock market is ideal for the club because money becomes more liquid.
“We want to develop a unit market so instead of buying and selling shares on the market, you can buy your units and sell them. If the price of the share is high, you can sell your units at a higher price and get a profit,” he explains.
GCP is one of the many investment clubs that bubbled a few years ago in Uganda.

An investment club is a small group of individual investors who come together to learn and share investment experiences and work together to become more successful investors by pooling their resources so as to make informed investments, according to Mr Peter Mulira, from Investment Promotion Division at Uganda Investment Authority.
A 2014 preliminary study by Ms Pascal Al Amin Ojijo, “Investment Clubs in Uganda- Preliminary Study on Strengths, Weaknesses, Opportunities and Threats”, indicates Uganda has experienced growth in the investment club aspect with most clubs running as limited companies, cooperatives and unregistered groups to lift people to financial freedom through saving, investment and internal borrowing.
Dfcu bank’s head of investment clubs, Mr Joseph Kasaija, says the growing culture cuts across all demographics as more Ugandans realise that they hardly have any savings besides those in National Social Security Fund. The response to join the clubs is even better among corporates because they earn a direct income every month.
Many clubs have, for years, operated informally, triggering a special interest among banks such as dfcu, Centenary, Orient and Bank of Africa. Some banks have more than 1,500 clubs registered. The Investment Clubs Association of Uganda is host to over 170 clubs.
Mr Kasaija says banks are interested in investment clubs to promote savings for investment and not consumption.
“We look at it in terms of creating intergenerational wealth, we want investments that will run for years,” he says, adding that “statistics are showing that Ugandans have a poor saving culture. If you look at the World Bank report that has just come out, it shows that Ugandans save less than 2 per cent of their income as compared to East Africa where countries like Kenya are above 18 per cent.” Any person who is of age and especially those that are earning an income should join an investment club.
It is usually echoed if you want to go far, it is better to go together than singly. Mr Kasaija says investments clubs are key because it is easier for people to raise capital that can transform the group in the shortest time possible.

Mr Mulira, on the other hand, says in the wake of poor distribution of wealth in Africa where the income classes greatly differ in levels, investment groups help to give equal opportunities to financial freedom through collective schemes. The creation of rural investment clubs can offer communities a safe and supportive environment to learn the basics of investing and financial literacy. It also enables them to invest in agro-supplies and products as a community and take advantage of economies of scale.
Mr Mulira further maintains that African startups are widely supported by Foreign Direct Investment (FDI), grants, donors, or foreign individual investors who do not necessarily understand the African culture and originality which directly hinders innovation through tough conditions assigned to accessing funding.
“Investment clubs can help solve some of the local problems by investing in domestic startups, which present attractive investment prospects. Some opportunities are presented through social enterprises, which not only can help impact and build a better Uganda but also give the clubs a return on investment at the same time,” Mr Mulira explains.
The high interest rates which directly contribute to high costs of doing business make investment clubs an attractive alternative source of funding.

Mr Mulira believes investment clubs can play a role in innovations through private equity funding to startups. This represents capital which brings in cash and builds the Small and Medium Enterprise capacity by accelerating the pace for growth of successful and sustainable enterprises.
The clubs can offer short, medium to long-term financing to SMEs with growth potential and seek high returns on their capital and exit after achieving their required returns.
Commenting on what to consider when joining an investment club, Mr Kasaija provides simple advice.
“I rarely encourage someone to join existing investment clubs unless that person has something unique that connects them to the group because it is a socially based group and you need to fit in,” Mr Kasaija says.

Chance for financial freedom?
To an extent, they are but experts say the old story of how Ugandans still hang on to the same old habit of consuming all their money and recommend sensitisation that will drive up savings before consumption culture. Existing investment clubs fail to ably diversify their investments, still lack a consistent saving culture, lack trust besides being financially illiterate.
However, Mr Ojijo says investment clubs should have clear financial goals that are understood by all members and to diversify their investment vehicles in relation to the club’s risk strategy.
On regular investment, he says: “Clubs should build up their capital first before beginning their investments. Once you begin the investment process, don’t stop. Try to avoid holding your contributions for more than three months before investing in opportunities.”

Investment Clubs: The Alternative Funding Source For SMES

An investment club is a group of less than 100 people who pool their money to invest in ventures they deem profitable. Usually, investment clubs are organized as partnerships and, after the members study different investments, the group decides to buy or sell based on a majority vote of the members.  Investment clubs a great networking opportunities, which provide members a platform to learn more about markets, running a business etc. The club meetings and working with people who have similar interests fosters the development of group relationships and member’s personal and social skills.

With the unequal distribution of wealth and income in Africa, investment groups are increasingly providing equal opportunities to financial freedom through collective schemes. The creation of rural investment clubs can offer communities a safe and supportive environment to learn the basics of investing and financial literacy. It also enables them to invest in agro supplies and products as a community and take advantage of economies of scale brought about by bulk buying.

Ugandans are very entrepreneurial people. Last year (2015), Uganda was named as the most entrepreneurial country in the world in a report by B2B Marketplace Approved Index. This was the second time running! In 2003, the Global Entrepreneurship Monitor, sponsored by the World Bank, published a study that ranked Uganda the most entrepreneurial country in the world. However their startups find it quite difficult to take off and be sustainable due to the high cost of capital which in turn leads to high cost of doing business. Investment clubs therefore provide an alternative and cheap source of domestic funding for projects compared to commercial banks and other sources of finance. It is important to note that some investment opportunities are presented in the form of social enterprises, which not only help to impact and build a better Uganda but also give the clubs a good return on investment at the same time.

Considering the high cost of capital, it’s imperative to explore alternative sources of finance. Although private equity is a relatively new investment financial model in East Africa (Uganda emerging as the second most active country after Kenya), it presents a lease of life to the SME sector. The investment clubs can be a good source of investment funds to established SMEs that want to expand through capitalization. The clubs can offer short, medium to long term financing to SMEs with growth potential, and seek high returns on their capital then exit after achieving their required return. Most of the investment clubs would not only provide capital but would also act as a partner to provide strategic and operational support due to their diverse background.

Investment clubs can bring in customers using their vast network and contacts, assist in advising on a management framework which can improve marketing and human resource management, improve new product development and provide technology support which is generally sorely missing in any SME due to inaccessibility.

The Investment Club Association of Uganda (ICAU) is one such club that meets to discuss challenges, opportunities and share any investment prospect which encourages cooperation amongst members to invest in sound and meaningful investments that directly contribute to employment. There is no minimum cap on investment and SMEs can get as low as $10,000 for their business unlike most private equity and  venture capital firms which have a 1 million dollar minimum cap for investment.

It is important for SMEs to be prepared to give up part of their shareholdings in the company and present a technological, creative and competitive advantage to the investment clubs with a strong financial record to support their pitch. The SMEs should have a trained and knowledgeable team to run the business with defined targets and should operate in a growing sector.

Investment clubs are a sociable way to do your investing, they are a great way to brainstorm ideas and share knowledge, and they can also be good for your wallet. However,  as with any enterprise that mixes friends and money,  it’s important that everyone understands the ground rules before you start. That means making sure members are in it for the same reason, that they agree on the investing strategy and objectives, that there are no personality clashes and that you have a competent treasurer to manage the accounts and produce statements.

If you get these elements right, your club has every chance of thriving as a unit.

Peter Mulira Jr

Hostalite Signs MoU with Investment Club Association of Uganda to Provide club Management Software

Starting an Investment club is unfortunately not as easy as simply having a vision. Founding members face several obstacles in their bid to run and produce well-maintained club records.

East Africa’s leading web hosting and development company, Hostalite LTD on 25 August 2017 signed an MOU with the Investment Clubs Association of Uganda (ICAU). The event was held at the Ministry of Finance, Planning and Economic Development offices in Kampala.

Cinnamon Clubs Software

Cinnamon Clubs is a premier investment club management software designed and developed by Hostalite Ltd.

The software is an easy to use software package that does not require advanced skills in information technology. At UGX 700 per member per month for a club of 20 members, Club officials can very easily register their clubs and add club members to the platform. Club members are able to interact with the system and access their individual records at any time.

According to Dickson Mushabe, Regional Manager E.A Hostalite Ltd, The club software will offer the ICAU membership wide ranging solutions for their clubs.

“The system is able to capture member contributions in accordance with specific club rules on regular payments and invoicing. Penalties on defaults can also be set up in the system and automatically deducted” he adds.

For clubs that use loan products, the club can initiate loan applications, process guarantees and keep track of repayments. Clubs whose members are spread out in different geographical locations, the Cinnamon clubs system has the advantage of being available online and can therefore be accessed globally.

“With Cinnamon clubs software, Hostalite, delivers on our commitment to listen to our clients’ needs and deliver valuable and practical solutions” notes Mushabe

Speaking after the signing, The Chairman ICAU, Mr. Stephen Luyonjo said that this was a very good strategic partnership which will enable the clubs manage their activities with ease

ICAU was founded by several investment clubs in Uganda to mobilize and support investment clubs to grow into high return investment vehicles for members. It is also supported by the Competitiveness and Investment Climate Strategy (CICS) program under Ministry of Finance, Planning and Economic Development. The umbrella organization comprises over 2400 members in their respective investment clubs.


In order for investment clubs to run well and deliver on the objectives of their membership, they need to have well-kept records.

Investment club officials face several obstacles in their bid to produce well-maintained club records. Most elected officials offer their services on a voluntary basis taking time out of the busy schedules of the rest of their responsibilities. Many are not trained accountants or financial management professionals.

In addition, some investment clubs have members who do not all reside in the same geographical locations. This poses challenges of communication and timely processing of financial statements of contributions, loan applications and loan repayment records.

Using investment clubs to raise money


She had an idea of what she wanted to do but didn’t know how to execute it. Although analysts and successful entrepreneurs largely agree that what matters most is the original concept of what you want to do and not the money you require to execute it, Ms Halima Mubiru had passed the initial phase and now only wanted a financial boost to start living her dream.

She couldn’t go to the bank for a loan because she didn’t have the collateral that the bank would need to approve her loan given the nature of her business—packaging and adding value to all kind of fruits.

Coupled with short repayment period and the high interests rates charges, Ms Mubiru for a minute thought her idea may well just remain “perfect” on paper and in reality it would never take off.
But, it was not long before she got a wind of investment clubs. Together with the like-minds, they formed a group of five people with whom they pooled resources every week to finance projects.
Of the five projects that were proposed, hers stood out because it was carefully thought out right from the beginning. What happened is that the team only refined her idea further and sunk in their capital.

Now all the supermarkets in town have their products—value added juices. And although they are yet to make super profits, life seems good. Meanwhile Mr Charles Kinoni, a baker is struggling to have his bakery on both footings. He is faced with the same challenges Ms Mubiru experienced about two-years ago—capital.

But the difference is that, unlike Ms Halima, Mr Kinoni has no idea how to raise capital to keep his bakery afloat. These two cases of Mubiru and Kinoni, are like the forces of good and evil. Whereas Ms Mubiru manages to sneak through, Charles seems stagnated. Eventually, like many others, he will wind up the business and move on as the vicious circle propelled by lack of ideas to raise capital without breaking a bank continues.

Speaking in an interview with experts on management of investment clubs, it was pretty clear that such initiatives are far better ways of raising money than earlier thought. “An investment club is supposed to help members put money together and fund their favourite investment,” Ms Barbara Asiimwe, the DFCU manager in charge of SMEs and women in business told Prosper last week when inquiring about the inroad investment club it launched about three years ago is fairing.

She said it is not only a good alternative for pooling together capital but far better than an arrangement where members are given money in rotation weekly. She bases her claims on grounds that investment clubs are professionally managed as opposed to weekly rotation schemes, where no binding rules apply.

“Investment clubs are sustainable because there are orders to follow. And as a bank we only help members kick start their investment,” said SMEs manager who also manages the Dfcu investment clubs.
She however said that the successes of the clubs largely depend on the commitment of the members. The bank only provides members with bank accounts and the products.

And after successfully experimenting with the ladies, the model has been replicated to accommodate men. She said: “Now we have investment clubs not only for women but men too, including for corporate and friends.”

Capital Markets Authority (CMA) has also started an initiative where it nurtures the saving and investment culture among university students across the country. So far, they are engaging eight universities.

In an interview with Daily Monitor, CMA Public Education Assistant, Daniel Kahaya said: “What we do is give students seed capital and they invest it in several investments of their interests.”
Since 2007, it has been doing just that with an intention to build what Mr Kahaya describes as investment atmosphere. To date, about 12 groups from several universities have been formed. To keep it competitive, CMA crowns it with an award for the best group.

Investment club
An investment club is a group of individuals who meet on a regular basis for the purpose of pooling money and retail investing. The invested sums can be between Shs100,000 to Shs250,000 per month. For some types of club pooling, money is not mandatory. Investment clubs provide members a means to learn about markets, while meeting and working with people who have similar interests.

The world’s first investment club was established in Texas in 1898, back in the days of the Wild West when few investments could be considered safe. Investment clubs were seen as an ideal way of spreading the risk away from just cattle.

Going by the 3 million bank accounts out of a population of more than 30 million, confirms that the biggest part of the population does not have a formal saving structure. In an earlier interview with Mr Charles Ocici, the Enterprise Uganda executive director, it was apparent that it is not always easy for individuals to save for future investment but if they are pooled in a group it becomes easier to accumulate some good money for future investments.

According to Mr Ocici, whereas individual savings yield less potential (capital), group investments provide an opportunity to pool good capital that can be used for decisive investment.
He said such groups normally end up developing stronger ties, which can as well assist members in times of hardship. Other benefits include learning from each other and spreading out losses that otherwise an individual would have incurred alone.

In such settings investment decisions are reached after consultations and due considerations, which certainly guarantee the success of such a venture. On the other hand, Mr Ocici also warns that investment clubs should prepare for future eventualities arguing that as time goes by the bear realities set in and in the absence of clear procedures on dispute settlement and sharing successes, the club could badly disintegrate.

He says: “You must always have provision for those who will say no and want to exit or in the event that your earlier cohesion gives way and you can no longer hold together, there must be an agreed way to deal with such realities.”

Mr Ocici says investment clubs must consider the likelihood of things getting challenging before they get easier. He adds that procedures must be laid down especially regarding the entry of new members.

Technical advice on how to manage business and book keeping, networking and to a large extent marketing opportunities will be arranged for them among other benefits.
Under investment clubs individuals are united to share similar investment or financial aspirations. Such individuals pool their resources to attain set investment goals.