Ponzi fears mount as 20 000 flock to ‘stokvel’

THE Financial Services Board (FSB) has raised the alarm over a popular new online stokvel, The Wealth Hub, which signed up more than 20 000 people within weeks.

The regulator said this week that neither The Wealth Hub nor its three top bosses were registered with it. It added that it was concerned that Wealth Hub CEO Dr Ngoato Takalo had given the impression that the scheme was registered as an authorised services provider.

Asked if the stokvel was legal while speaking on Talk Radio 702 a few weeks ago, Takalo replied: “We have been everywhere, even to the National Credit Regulator and we have asked advice.”

This week, Takalo told Business Times that she and her fellow directors had been advised that “a stokvel is not governed by the banking laws . . . or the FSB because it is not a deposit-taking institution”.

She added: “We got advice about banking regulations and we were told that we were not an investment company.”

While investment companies must be registered with the FSB, and banks must be licensed by the Reserve Bank, stokvels do not have to be registered.

But this means that South Africans who put money into these schemes would not be protected should they collapse.

In its three months, The Wealth Hub has attracted thousands of South Africans. A glance at the Facebook site gives an indication of the variety of people who have joined, from mobile young people to middleaged women.

The three people behind the scheme — Takalo, a former vicechancellor of North-West University; Dr Lizette Kleynhans; and Stefan Minnaar — said this week that the scheme had grown faster than expected.

Minnaar said the scheme had hit its launch target of 20 000 members within weeks.

But it is the structure of the scheme that has raised concerns.

To become a member of the stokvel, one must first join The Wealth Hub Network. This requires that members pay a monthly fee of R295 in return for access to educational material on financial, travel and personal development training.

Once members have completed The Wealth Hub Network course, they can join the stokvel — which requires them to shell out more money.

A stokvel member pays a R100 administration fee at the first level, and R200 each to three people who are a level up. The member is then “assigned” 39 new members, who each pay the member R200. This means that the stokvel member has R7 800 at the end of the first level. In theory, this continues to the third level, where the member pays out R4 000 to three people ahead of them, as well as R2 000 administration costs — and is paid R156 000 from those behind them in the queue.

Members are then expected to return to the bottom level and reinvest in the scheme, supposedly to ensure that funds “do not dry up from the bottom”, the promotional material says.

Said Minnaar: “If you had asked us three months ago if we thought there would be this kind of interest in the stokvel, . . . it appears there was a need for this type of organisation.”

When asked what would happen when the stream of new members dried up, Takalo said The Wealth Hub was considering branching out into new “specialised stokvels”, including schemes that would invest in property or agriculture.

Some people might be betting on The Wealth Hub as the answer to their money problems. ‘STOK’ MARKET: From top, the three brains behind The Wealth Hub are Ngoato Takalo, Lizette Kleynhans and Stefan Minnaar

On May 10, the night before the stokvel launch, members prayed for the company’s success. Nomsa Lerato, an excited member, said: “I have been struggling a lot, [and have] no electricity in the house. I no longer answer ‘087’ and private numbers because I know [they are] debts. I can’t wait . . . I am looking forward to seeing my bank account with five digits.”

But Andile Mazwai, head of the National Stokvel Association of South Africa, said The Wealth Hub had none of the characteristics of a stokvel and was not part of his stokvel association: “The public are lulled into a false sense of security when they hear ‘stokvel’, a concept they know and are comfortable with.

“[But] a stokvel does not pay commission for bringing in new members, and is generally made up of people who know each other.”

Mazwai said that although The Wealth Hub called itself a direct marketing scheme, “the educational material . . . is not displayed on the site. The public have no idea what they are paying for.”

Others have raised concerns on Facebook, asking if the stokvel was a pyramid scheme.

Molebatsi Ramalapa asked: “Is this not a Ponzi scheme, people?” Another member replied that it was “an intelligent stokvel”.

In a Business Times interview, Takalo insisted that The Wealth Hub was not a pyramid scheme: “The purpose is to provide people with sufficient capital to start their own businesses or empower themselves. We have seen a lot of people ... establishing informal working groups where they can share their expertise.”

In April this year, the FSB issued a warning about the growing number of pyramid schemes.

A pyramid scheme is understood to be an unsustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public.

The scheme collapses when the money being paid out exceeds that coming in, leaving investors out of pocket.

A stokvel is not governed by banking laws or the FSB . . .