How Investment Banking Can Help Your Chama
The success of most chamas has been attributed to investment banks, in Kenya we have many investment banks that have helped chamas grow into large entities with assets and capital for investing.
WHAT IS INVESTMENT BANKING?
An investment bank is a financial entity that assists individuals and companies in raising capital through making investments and engaging in the stock exchange. They enable business professionals and entities to find the most profitable investments, as well as maintaining them in the long term. KAIG is looking forward to work seamlessly with investment banks so as give investment groups and clubs a new platform of maximizing the profitability of their investments. The main services that investment banking is used for include;
1) Trading and promoting securities
The cash or other securities are traded in transactions. This is commonly known as facilitating transactions or market making. These securities are promoted by their investment bank. This is done through underwriting and investment banking.
2) Dealing with investors
Managing individuals and companies in regards to their investment; whether it is pension funds, hedge funds, or mutual funds. This is considered the “buying” side of investment banking.
Investment banks can help the company in preparing their prospectus and provide their vital data which becomes greatly beneficial to the company
Investment banks Versus Commercial and retail banks
One major distinct difference that investment banking has over normal banks which comprise of commercial and retail banking is that it does not issue out loans nor accept deposits. Investment banking services help investment groups/ chamas that require guidance to the next level in growing their investments. They are like consultancy firms that assist you decide on your next investment Strategy. In addition, investment banks offer services such as managing your assets prudently.
Investment banking is different from commercial and retail banking as it is used as a `sell side’ for trading (cash and other securities such as easy transactions) and security promotions (like research and underwriting) and / or a ‘buy side’ which includes public invest -ment in mutual funds, pension funds and hedge funds so as to maximize on their investment returns. Several firms have both the sell and the buy side.
Advantages of Investment Banking Investment banks help investment groups companies take new stock issues or new bond issues to the financial market, and generally mediate between the investors and the issuers.
These banks may buy all the shares available at an agreed preset price; they then will sell the same to the public thereby making profit. Alternatively,the banks act as intermediary for the issuers taking commission from them for the selling of the securities they want to sell.
Investment banks can also help the company in preparing their prospectus and provide their vital data which becomes greatly beneficial to the company as well to those who intend to invest in it. The banks also partake in the sale of big blocks of 3 securities (bonds and stocks) which
were issued earlier, like the companies involved in mutual funds, and sell to institutional investors.
What Chamas Should Look Out For When Choosing an Investment Bank?
- Consider the fees that may be charged by the bank and compare with other investment banks and choose the deal.
- Consider when the best time would be to start off investment banking for your chama / investment group.
- Consider the financial trends of the investment bank from its consistence and stability in the financial sphere.
- Enquire from other investment groups that have been successful on the best and appropriate bank path to follow.
- Ensure they are licensed by the capital market Authority.