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Meet a SWEET group of investors

NAIROBI, Kenya – June, Makena and Awino had made the decision. They were going to form an investment group, a “chama”.

Each one of them knew of at least one other group that had been very successful at pooling their money and investing together. The three ladies had been very close friends since high school. Makena and June had worked in the NGO sector for the past five years, having joined just after graduating from university.

They decided that they would invite nine other ex-school mates to join the group, which they would call the Sisters With Eternal Energy and Trust (SWEET). The main criteria for membership was friendship, and people that enjoyed each other’s company. Those who were invited agreed to join and the first meeting was held where office bearers were chosen.

Makena would be Chairperson, Rachel the Treasurer and Njambi the Secretary. No thought had been given to what skills the members chosen would be bringing to the group. Of the twelve members, three were engineers and four worked for their family businesses. It just so happened that there were no lawyers, finance professionals or entrepreneurs in the group.

Meetings would be held once a month, each member would contribute Sh10,000 every month, and investments would be made in shares, Treasury bills and after a couple of years the group would venture into property. After every meeting, the official business was set aside and the social agenda took over. Wine, beer and bitings flowed freely, and a great time was had by all.

After a couple of years of diligent contributions amounting to Sh3. 5 million, monthly meetings, investing in a booming stock market and a two-acre property in Upper Matasia, SWEET had done incredibly well. They had an investment portfolio valued at just over Sh10.5 million.

Life was good.

However, during this time no audited accounts were prepared and no taxes were paid to Mr Waweru at the Kenya Revenue Authority. One day, Mr Waweru’s boys showed up and decided to assess SWEET. The group was slapped with a tax assessment and penalties of Sh3 million.

Where was this money going to come from? No problem, they would sell the Upper Matasia plot. The lawyer handling the sale informed them that the title deed was in the name of someone else.

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“Did you ever carry out a search on the property? Which lawyer carried out the purchase for you and did you know them well? Did you ever see the title deed?”

The answer to all three questions was no, no and no. Njambi, through her cousin’s brother in law – Mbugua, had presented this once-in-a-lifetime investment opportunity, but the purchase had to be completed very quickly and he would handle everything. Njambi had failed to disclose the fact that the land had actually belonged to Mbugua’s brother, a well-known conman in Ngong town. The members were devastated, fingers were pointed at Njambi and Awino and a rift began to form between these two members and the rest of the group.

But all was not lost. They still had their investment in shares. A month earlier, when the stockmarket began to perform badly, their broker persuaded them not to sell because they were getting cheaper and it was just a matter of time before the market rebounded. The value of their share portfolio had plummeted by 40 percent, but they could still sell most of their shares to raise the tax arrears.

A day after a decision had been made to sell the shares, but before the sell order had been placed, news broke out that their stockbrokers had been placed under receivership.

After going through these experiences, the level of trust among the group members declined to an all tome low, attendance at meetings averaged four to five of the 12 members, and contributions had declined from Sh120,000 per month to an average of Sh40,000 per month.

Where had things gone so wrong?

(Origins Investment Group Advisors.


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