Grow­ing SA’s hid­den econ­omy

Finweek English Edition - - INSIDE - jes­sicah@fin­week.co.za

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.”

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