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Investment clubs: Your key to financial freedom

Adapted from The Daily Monitor

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.

Opportunities
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.”

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