Many African countries have enacted and encouraged schemes meant to promote savings and investments among low income earners. These efforts range from cooperative societies, microfinance initiatives to the most recent, investment clubs. In Kenya, the emergence of the stocks market as a new way of investment has encouraged many low earners to form these clubs.

Investment clubs (a form of joint financial groupings) are becoming very popular in many African countries. Unlike merry-go-rounds, where members collect money monthly and give it to one member on a rotational basis, an investment group saves money every month but instead of the collected money being given to a member, the club invests the money jointly. These investments may be done in stocks, real estate among many other investment opportunities.

Investment clubs offer a number of advantages to members. They help to promote both savings and investments because the club is usually committed to regular saving and long term investing. Member, who are new to investing, learn a lot from more experienced colleagues and those who lack time to research investment options share in the research done by others. Even though members contribute little money the bundling effect of the club enables them to buy into big investments.

Investment club’s membership comes along with responsibilities. First is commitment to attend meetings and hold positions such as chairperson, secretary or treasurer. Perhaps the biggest challenge faced by most investment clubs is the issue of values: the club is made up of members with different sets of values and it is feasible that there will not be consensus on all issues. Some clubs agree ahead of time on values to be followed and whenever there is conflict the majority decision rules.

People interested in forming an investment club need to properly understand and handle areas such as the legal form of the club, accounting policy, investment strategy and other general club’s policy and rules.

Most investment clubs are registered as partnerships, mainly due to tax considerations and the fact that they are easy to form. Clubs can also be formed as private limited liability companies or cooperative societies. However when choosing what form of registration to take, its important to consider regulatory and tax requirements, as well as the legal protection it will offer.

Proper accounting is also vital for successful performance of any investment club. A proper accounting policy ensures that all club’s transactions are well documented. Accountability is an absolute must. Constant financial reporting will not only help members understand the financial status of their club, but also act as a motivator where positive profitability is indicative.

Developing and regularly reviewing the group’s investment strategy is vital too. This involves deciding the amount to be invested in any particular security, depending on the clubs objectives and the risk levels agreed on. For a start, investment clubs usually invest in largely low risk to medium risk securities. As they grow they move into high risk investment portfolios. The club’s broker or investment agents can advice on the winning strategy to be taken by the group considering the market conditions.

The club should have clear rules on issues like joining and leaving the group, payment of dividends and member contributions. This will enable proper operation of the club, avoid inviting members of uncorrelated objectives to the club’s and evade a cash crunch incase a member decides to leave. Such rules may change from time to time depending on a decision passed by not less than 75% of the members.

Investment clubs are a sociable way to do your investing. They are a great way to brainstorm ideas and share knowledge, and can be very good for members’ wallet. But - as with any enterprise that mixes friends and money - it's important that everyone understands the ground rules from the word go. That means making sure members are in it for the same reason. Then all that’s left to do is pick the best investments!