Part I: How Can My Investment Group Implement A Successful Business Project?
“We are a group of ten women contributing five thousand and five hundred shillings each per month, but we need more skills to effectively manage our financial resources.” – Peninah Parsitau
Business Ideas, Opportunities, Development and Growth for Women Groups and Companies
Thank you, Peninah for reaching out to Aztramade Consulting Ltd for advice on how to effectively manage and invest your group's financial resources. Congratulations on the great decision you made to come together and pool your financial resources for greater economic benefit!
Sharing a common vision
Usually, the first hurdle is uniting many individuals around a common vision and goal they believe is going to be benefit them in the short, mid and long term. Groups often start out of the need to share the burden of addressing a particular challenge in a community of persons that have a common bond. The common social bond can be family, employment, local church, or local community of interest or economic pursuit. It appears that your group has already crossed this bridge.
Once the common social bond brings members to a point of familiarity with each other, a spirit of unity kicks in and they start thinking beyond the initial goal. They now think about how they can pool together their economic resources and technical skills for greater results that benefit each one exponentially than if they acted individually. At this stage, the group is seeking to benefit from what is commonly known as “the power of many”.
The power of many
The power of many has been illustrated well by the co-operative movement in Kenya and elsewhere globally. A member of a co-operative is able to access at least three (3) times their own individual contribution to implement an individual's priority project that they wouldn't otherwise be able, at least in the short term if they pursued it alone. The pooling together of individual savings funds makes this possible and it benefits both the individual and the entire group. A good illustration I like giving is this: as an individual you can at best earn about 7% interest per year on Kshs. 100,000 in an ordinary fixed deposit bank account in Kenya. However, the story completely changes to about three times that, or an interest of 13% when 30 members of a group each pools in Kshs. 100,000. With a total lump sum amount of Kshs. 3,000,000 as a group, you can now negotiate about 13% interest per year with the same or different bank. Each member just gained an additional 5% individually from the power of many. Each of the 30 members have not added a coin to their original Kshs 100,000.
Leveraging group contributions for higher earnings
A better example of how the power of many can earn you more income is when the 30 member group leverages its current total contributions of Kshs 75,000 per month to access a higher amount at an affordable interest rate for the sole purpose of investing in a viable, low or medium risk project to benefit all members. For example, the group can take an affordable loan whose total monthly repayment requirement is about 60% of thier usual monthly contributions. With about Kshs. 46,000 out of the Kshs 75,000 committed to repaying a loan every month, the group can immediately access a Kshs. 2.0 million loan repayable over 5 years to invest in a viable income generating project.
At an annual interest rate of 14%, the group would have repaid the capital of Kshs. 2.0 million plus an interest of Kshs. 789,000 by the end of 60 months (5 years). In this example, the important questions to ask are whether:
a) Can the selected project can earn your group profit above the interest cost of Kshs. 789,000 over the 5 years it has to repay to the lender?
b) Are all members ready and committed to continue the usual monthly contributions of Kshs. 2,500 per member per month for 60 months until the principal loan and interest is repaid? Alternatively; can your group commit (if it has) other income to the tune of Kshs. 46,000 monthly loan repayments for 60 months?
If your project can be proven to have potential of making at least 10% more profit above the loan interest of 14% p.a. that must be repaid, or a profit income of 22% per year in total, then that business project idea option is better than the fixed deposit option (7% p.a.) above in terms of income generation. However, the venture will be worth much more after the loan is fully repaid since the assets you invested in will be 100% yours it it should continue to earn the group 22% per year thereafter.
Your priority investment project can be based on a single or multiple business ideas. Examples of business project ideas that can be explored to determine viability include;
• Development and sale of dairy products;
• Development and sale of hay and other livestock feeds;
• Development and of sale of beef/mutton products;
• Development and sale of clean water
• Purchase and sale of urban plots after a designated period
• Providing transport services; taxi, passenger, heavy commercial, school, church etc.
• Development and renting commercial or office space;
• Development and sale of recreational services e.g. A camping site, provision of outside catering services, public address system, tents and chairs for major events, etc.
Group knowledge, skills and attitudes
However, to succeed, your group needs adequate capacity (knowledge, skills and attitudes) investment group dynamics, on identifying and executing viable entrepreneurship ideas, and business project management.
In particular, the leaders need to have capacity in group dynamics management. This includes knowledge of the why, the how, the when and the who of group formation, development and management. This involves knowledge, skills and attitudes on the:
• Formation and development of special purpose groups;
• Stages and life cycle of group development;
• Recognition of the stage of the group at all times;
• Nature of expected group conflicts and resolution mechanisms;
• Types of values and practices or habits that strengthen group cohesion and vibrancy.
Your group can be supported to acquire this capacity through a series of trainings and coaching sessions by an organization or experts that possess experience in transferring this kind of capacity.
In my next blog, I will share with you on the business project management capacity that your group needs to possess in order to succeed.
If you have any questions, comments or further inquiries concerning this article for the benefit of your investment group, please reach out to us through the following contacts:
Philip Koitelel is Principal Consultant at Aztramade Consulting Ltd
Tel: 0733477475/ 0722466060