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 kinds of fruits.

Coupled with a short repayment period and the high-interest 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 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 outright 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 the 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 favorite investment,” Ms. Barbara Asiimwe, the DFCU manager in charge of SMEs and women in the 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 an 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 bookkeeping, networking, and to a large extent marketing opportunities will be arranged for them among other benefits. Underinvestment clubs, individuals are united to share similar investment or financial aspirations. Such individuals pool their resources to attain set investment goals.