South African Stokvel – Creating A Trustworthy Environment For Saving Money

“Stock fairs” had it’s being in the Eastern Cape in the early 19th century.

What started as a simple savings solution has today grown into a fascinating range of stokvels for every possible need in life, ranging from joyous occasions such as the Christmas stokvel (saving for a generous December food shopping spree), to a hybrid of the stokvel, which lends financial and social support to families.

A Stokvel is group savings scheme, where members contribute a fixed amount of money to a common pool monthly. Money is drawn either in rotation or when a particular need or occasion arises.

A stokvel is a group of friends who contribute an amount each month, say R 500.00. In a stokvel of 12 friends, each person gets one chance a year to take home the month’s collected cash. So once a year each person in the group gets a lump sum of, in this case, R6 000.00.

Making Social Cents? – complexities of the cultural, social and financial interface of this thriving industry.

Stokvel is not necessarily limited to only poor or rural South Africans. In fact, executives in urban areas belong to highly sophisticated stokvels that generate significant income.

The total amount invested in stokvels annually by this sector is estimated to be R1.3-billion.

“In this ‘ubuntu society’ people look after each other’s needs and share resources. Trust is the other side of the ubuntu coin, which is probably best translated as a common humanity,”.

Stokvel is a savings scheme by group of people who save a regular amount each month, a stokvel will enabled you to amass wealth while avoiding the debt trap. Banks charge high fees and high interest rates, but stokvels have none of these disadvantages.

Urban legend has it that stokvels are so addictive that members sometimes save enormous amounts relative to their earnings.

Stokvels is a “traditional” investment vehicles.
Born from a need to create a trustworthy environment for saving, the stokvel has gone beyond the role of simply “making life easier”.

Stokvels are about economic empowerment, enabling enterprises to flourish; it’s about job creation and about developing closer relationships.

“Although Stokvels are regarded as somewhat traditional and some would say outdated social structures.

Research study into Stokvels examines this financially significant South African phenomenon. Why should we be interested in Stokvels? Estimates are that the total investment in Stokvels and Burial Societies in South Africa reach the R1.3 billion mark.

Stokvels are not just the domain of a few – very few industries are not “touched” by stokvels – directly or indirectly. Stokvels are all about group affinity and networking – the group rather than to an individual. They provide a powerful and cost effective distribution network which yield great influence and spending clout.

Many of the strong leaders in stokvels are highly regarded and respected leaders in their community. The brands or corporations they endorse are therefore more likely to be embraced by their community.

Reasons for belonging to a Stokvel:

There are many and varied reasons for belonging to a Stokvel, ranging from a strong form of social collateral which satisfies social needs, to a form of self-discipline and commitment which enables people to have a lump sum to use for a specific purpose or to grow their money.

Many stokvels members emphasise the importance of the social prestige of belonging to a stokvel (members are invited to join one – they cannot just go and join up) and the fact that this membership reflected common values and good understanding.

Understanding the communities these informal schemes operate in:

The communities in which Stokvels operate are dynamic – there is a strong sense of Ubuntu. Poverty and apartheid have weakened the social fabric of many poorer communities and there is a strong sense of a need to pull together and create solutions.

Savings instruments for the poor tend to be time and event bound and this influences their capacity to save and invest in the future. There is a common misconception that the poor do not save, however they need to accumulate large lump sums of money for a variety of reasons, such as:

School fees Feasts (celebrations such as weddings, coming of age and funerals) Specific item (usually furniture or appliance) Monthly cash flow is not enough to purchase these items without savings. What is important to note, however is that the poor DO SAVE, but in a very different manner. It would appear that their saving is Connected to a specific time Purpose or event driven With specific intent.

Consequently, this leaves them vulnerable to unplanned occurrences and events. It is important to realize the extent to which the poor have very complex financial lives – sustaining survivalist business and entrepreneurial business are not easy. For many households juggling their grants and the demands of many family members on a small budget is a challenging and complicated process.

Stokvels and other informal financial instruments are readily accessible, well understood and appropriate. Stokvels rely on

(a) the principle of reciprocity and

(b) mutual trust for sustainability If you get the support of one member, you have the support of all, BUT the converse is also true:

Enjoy proximity to their clients Have personal relationships with their clients, therefore detailed and intimate information about their clients Maintain good speed in transacting business. Are more cost effective in financial intermediation – in mobilising and deploying funds.

A critical part of this success is the breaking of a cycle of vulnerability and poverty which leaves people literally living from hand to mouth.

Stokvel Savings represents security and creates a chance to dream.