Growing SA’s hidden economy
HAVING PUT NATIONAL SAVINGS
MONTH (JULY) behind us, many South Africans are (hopefully) now acutely aware of how dismally poor they are at saving. We trail behind other developing countries, and make places like India look like paragons of macroeconomic prowess. On an individual level, we would rather visit our evil in- laws twice a week than take a hard look at our spending habits. There are some positive trends, however, which largely go unnoticed among all the familiar doom and gloom. One of these trends concerns what many financial gurus like to call the ‘hidden economy’ – the use of informal, group saving mechanisms; most commonly stokvels. THE STOKVEL UNIVERSE Stokvels are group savings schemes that provide mutual financial assistance, as well as various social and entertainment needs. They take on different forms and functions: ranging from burial stokvels, saving stokvels, grocery stokvels, investment stokvels and even birthday celebration stokvels.
According to local research specialists African Response, a very noticeable trend in the stokvel population is that of burial societies. “They are by far the largest segment in the stokvel universe and have overtaken saving stokvels as the ‘major’ type of stokvel,” commented Mamapudi Nkgadima, MD of African Response. “It is a fact that many spend fortunes preparing for death in their community or family and limited resources towards saving or investment. Fu- nerals – or the prospect t of a funeral – is an expensive issue in n the average stokvel member’s life.”
A 2014 survey conducted ted by African Response revealed that 23.4% of the South African adult population ulation belong to a stokvel – equating to over 8.5m members, whose collective ctive savings are estimated at R25bn. . Yet according to Poovi Pillay, head of Segment at Nedbank, this number could ould be closer to R44bn – taking into account that the survey wasn’t able to o reach all the stokvel members.
Many financial institutions utions have sought to move into this is informal sector, by providing services rvices that tie into specific stokvels – such as insurance companies becoming coming involved with burial societies. eties. ADDING VALUE Pillay warns against institustitutions becoming too close to certain social functions however, saying that the social construct and social roles need to be left intact and encouraged. Where he does see financial institutions getting in on the trend, however, is by providing much-needed functions such as security, governance and spurring innovation.
“There is not enough formal governance among stokvels, for example, and members have no recourse if their money suddenly disappears,” Pillay explains. “Banks can play a critical role here by ensuring that there is security and regulation.”
He highlights education as another important role for financial institutions, providing basic information to people who lack formal access to financial lit- eracy training and know-ledge. Educating members around the power of compound interest, for example, could encourage more efficient and effective savings habits.
“Less than half of what stok-vels collect – in their entirety – gets saved or invested and this is an area that needs to be looked at,” states Nkgadima. “Stokvel members should be encouraged to explore value adding ways to strengthen their collective savings. It is worth getting closer to stokvels and understanding areas where value can be added to ensure that stokvels are contributing to our economy while educating stokvel members on the best way to save for a better future.”