Safety in numbers still model of choice
| Started as informal get-togethers in someone’s home during apartheid, stokvels are becoming increasingly more sophisticated and attracting the attention of the banks
WHOEVER said South Africans did not save was telling a 92km-tall story.
The estimated 800 000 stokvels — savings clubs — in South Africa generate R44-billion a year. R44-billion in R100 notes stacked on top of one another would make a tower about 92km high.
Stokvels emerged during apartheid partly because black people had little access to formal financial services, but they are no longer something that just happens in people’s kitchens — many have grown into monthly dinner parties and book clubs.
But many things are still the same — stokvels are still divided largely along racial lines and their members are usually women. Male members tend to be part of burial societies and clubs focused on investment.
As the middle class has swelled, so stokvels have become increasingly suburban and sophisticated. Some club members now come from high-
Stokvels are increasingly being used for luxury purchases such as holidays and cars
powered jobs with six-figure salaries. And although they have in the past been considered informal schemes, that perception is changing fast. According to Audrey Mothupi, inclusive investment manager at Standard Bank, stokvels are a financial services product and need to be classified as such.
There are several subcategories and the model is easily adapted. But most of the cash — about R25.4-billion a year — goes into pure savings schemes; about R8-billion goes to burial societies and about R5-billion circulates in grocery stokvels.
The basic operation involves people joining up and then meeting at set intervals — usually once a month — to socialise and pool their money. The social element is critical — people will not join or stay if they do not enjoy the company or trust of the other members. Most clubs are made up of family or friends and co-workers, but in some rare cases members are recruited through adverts.
A typical stokvel will have 12 members who meet once a month and contribute an agreed amount, which varies depending on the purpose of the group. It is usually determined by the members’ living standards measure (LSM). Mathupi said contributions could vary from a few hundred to several thousand rand a month.
Each member takes a turn to host and direct the meeting, and a designated treasurer or treasurers will manage the cash. The way the members get their share of the money depends on the purpose of the scheme. Sometimes one member, often the hostess, gets the full amount each month, or the entire pot is divided up in one designated month.
Participants say the meetings start off quite formally — business is concluded first — and then the members relax. That month’s host or hostess caters for the event.
As the model has evolved to include high-net-worth individuals, stokvels have increasingly been used for luxury purchases such as holidays and cars.
Investment groups are gaining traction as people try to benefit from the economies of scale derived from pooling their money. An estimated R3-billion a year is invested and Mothupi said the numbers were growing.
Then there are funds focused on venture capital. One such fund, run by a group of Johannesburg-based professional men and women, identifies promising small-business opportunities to finance.
A common but risky endeavour is for stokvels to make loans at interest rates of between 20% and 50% a month. The members actively recruit borrowers and are responsible for confirming their ability to repay the loans.
Investment houses— and banks — are keen to cash in on the action. On its website, etfSA explains how to set up a stokvel and use exchange traded funds. It also provides templates for the necessary paperwork.
Banks have created products designed specifically for stokvels — Standard Bank’s Market Link Account or FNB’s Smart Solutions Stokvel Account are just two examples. Financial institutions are also making a concerted effort to visit townships and informal settlements to get a foothold in the lucrative lower-income stokvel market.
Stores such as Makro and Metro Cash & Carry have long been tapping into this lucrative lower-LSM market, putting together and delivering the groceries on stokvel members’ lists.
The success of stokvels has a lot to do with the pressure on members to contribute the monthly amount to the pot. This social pressure, worth R44-billion, has focused the minds of financial institutions and the model is being replicated in various formal and quantifiable ways.