Stokvel as a fund model
PROS, CONS: IT’S SIMILAR TO BUSINESS LOAN
A challenge is finding the right entrepreneurs willing to join a saving-to-payout financial solution.
In the past few weeks we have been discussing stokvels and how they have evolved over the years, offering an array of financial solutions. A question in this regard could be asked as to whether or not entrepreneurs could adopt a stokvel financial solution to aid in their funding efforts.
Stokvels by their nature are a pooled investment or savings vehicle that benefit each member during the life cycle of the stokvel. And this is what can be intriguing to an entrepreneur: the possibility of a cash windfall.
Small businesses are all too familiar with the challenges of cash flow and raising funds. Could a stokvel be a possible alternative solution? There are definitely arguments both for and against the idea.
A business stokvel offers not only interest-free cash, it also allows those who do not qualify for bank loans a means to raise cash. More importantly, a stokvel is like paying debt repayments upfront – before receiving the money – which removes the burden of interest-added debt repayments from the business.
One of the main arguments against a business stokvel is that in a sense it’s similar to a business loan in that one would contribute monthly to it, much as you would make monthly repayments to a loan. As such, why would you take the risk of a stokvel over a proven, safer mechanism such as a business loan?
We also cannot ignore the risks posed by a business stokvel, which are primarily due to the larger sums of contributions required. Unlike a grocery or burial stokvel, a business stokvel requires larger contributions, in the range of R10 000 to R30 000 per month, for it to be worth the effort.
The risk of contributing R10 000 for eight months, amounting to R80 000, is clear. What if the stokvel dissolves before you receive your payout?
A possible solution could be a shortterm payout horizon but that would take away from the lump sum 12-month payout which a business probably requires over a three- or four-round savings period.
Another challenge is finding the right entrepreneurs willing to join a saving-to-payout financial solution. The first option could be to approach family and friends, but that could possibly create a nonprofessional stokvel where members have a relaxed attitude, not fearing the consequences of default or other irregularities due to their relationship with you.
Therefore, it might be wiser to look for entrepreneurs with whom you have no relationship, who will bring a professional approach focused on the objective. But how and where to find willing entrepreneurs to join a business stokvel is the million-dollar question.
Munya Duvera is chief executive officer at Duvera Elgroup
Unlike a grocery or burial stokvel, a business stokvel requires larger contributions, in the range of R10 000 to R30 000 per month, for it to be worth the effort.