Running a stokvel like a business
Mandla Khumalo talks to experts about how organisations can be innovative and professional
WHETHER you are saving to give your loved ones a decent send-off or for big purchases or groceries, it is no longer enough for people to form a stokvel. But what sets stokvels apart is how they are run.
For members to reap the benefits, experts advise that stokvels should be run professionally, like businesses.
Dr Abdul Latif Alhassan, a lecturer at the University of Cape Town’s Graduate School of Business, says it is critical for schemes to develop their saving methods beyond the traditional ways. Abdul says there are encouraging signs showing that stokvels are beginning to innovate.
“From the traditional functions of stokvels as rotating savings and credit associations, the concept is based mostly on trust and peer pressure to monitor the behaviour of its members as an informal organisation,” says Abdul.
“However, in recent times, stokvels are being developed along the lines of modern financial arrangements where the option of investments are included in the formalised stokvels. These therefore necessitate the institution of an executive body to manage the investments of members in the association.” Abdul says the organisational structure is also crucial to promote transparency and accountability.
He says accounting and auditing functions are also crucial because the stokvel groups’ finances are becoming more complex with time.
“( These) are very critical to sustain the basic foundations of the association like trust,” says Abdul.
“This also helps in attracting new members and increasing the benefits, the periodic or rotating large sum payments, of members.
This increases the financial benefits to the members and continuous ability to contribute to their membership scheme.”
But confronted with the unpredictable changes to the global economy and individual members’ circumstances, it could be difficult for the traditional stokvel groups to survive financial storms.
To counter this, they need to set up investment arms to fully protect themselves from tough economic conditions.
“The modernised version of the stokvel could resort to insurance and other risk management mechanisms to smooth out the effects of bad economic and human conducts,” advises Abdul.
“In this case, not all investment returns will be passed on to the members. Hence, in terms of lower returns, the provisions set aside from period of high returns could be used as a top up.”
Financial wellness expert Andile Fulane, who is also chief executive of Seed of Prosperity, shares Abdul’s sentiments.
Andile says stokvels can use simple bookkeeping systems which allow members to make contributions to the bank account from their cellphones and see the balances. “When a member cannot afford to contribute anymore it must be clear what should be done, even in the event of a misconduct by one member,” said Andile.
“Normal cases would be sent to the small claims court in cases where fraudulent activities are claimed. It is important that stokvel members don’t take the law into their own hands.”
Riaan Appelgrein, a senior manager for consumer financial solutions at Standard Bank, emphasised that, although stokvels “provide a wonderful opportunity for people to save together for a common goal”, the constitution needs to spell out the benefits for members.
Some stokvel groups are being modelled on business principles, are getting sophisticated, and invest in property and the Johannesburg Stock Exchange (JSE).
Meanwhile, professionals and high earners are also embracing the saving schemes.
“More and more people adopting the principles of community saving are doing so for purposes other than what was the accepted norm some years go,” said Riaan.
“Whether higher earners and professional people are taking to the concept of group saving because of the tightening economy that is digging into even their pockets, or because they find it great to benefit from a lump sum payout so that they can meet major obligations has yet to be better researched.
“What is obvious, however, is that savings and investment clubs are now becoming more common. At Standard Bank we see stokvels being formed to help members participate in various investment vehicles, including property and the JSE.”
Riaan says banks are stokvel friendly and have made it easy for them to set up group scheme accounts. Members need to turn the peer pressure into positive advantage.
“Everybody is working towards a common objective, which is safeguarded by a stokvel’s constitution, making the achievement of purpose fun and a topic friendly conversation,” says Riaan.
“It is easy to find a reason not to save. But, when you could disappoint fellow members or even alienate friends by not meeting your obligations, the picture changes significantly.”
When a member cannot afford to contribute anymore it must be clear what should be done