Tougher scrutiny of dodgy ‘stokvels’ needed

This is traditionally the time of the year when informal money saving schemes, or stokvels, distribute year-long savings to members who often start these clubs with the goal of putting food on the table and making ends meet.

As South Africa grapples with rising food, petrol and utility prices caused by a stagnant economy, and households feel the brunt of rising interest rates, the voluntary associations of individuals who contribute a fixed amount of money to a common pool, has become an estimated R50bn industry. The use of stokvels to fund precise savings goals — from home improvements, travel, big ticket purchases and even school fees and stationery ahead of January — shows a determination to thrive in tough times. But as the industry evolves and digitises, so do the risks, as investors in United African Stokvel (UAS) learned the hard way this year after incurring losses estimated at about R100m.

It seems cash-strapped South Africans were lured by mastermind Darren Langbein with the promise of tripling their money within six months through investments in telecoms and property, in an upgraded version of the savings scheme.

Stokvels are largely self-regulated, and are exempt by law from being licensed as financial services providers. However, those holding member contributions of R100,000 or more are required to be registered with the National Stokvel Association of South Africa, which represents 800,000 such clubs and is approved by the Registrar of Banks.

This self-regulatory regime can easily be exploited by get-rich-quick schemes like Langbein’s UAS to market dodgy enterprises as stokvels instead of genuine investment funds that are heavily regulated by the Financial Sector Conduct Authority.

According to reports, the FSCA suspected the UAS of unauthorised business and breaching certain financial sector laws. It disputed UAS social media claims that it had applied for a financial services provider licence. Now its victims are counting their losses. Some have had their entire retirement savings wiped out.

It is not the first scheme to dupe people out of their hard-earned cash, and unless laws are tightened and regulators can make a more precise distinction between legitimate stokvels and scams, it will not be the last time that people are conned by charlatans.