Like many South Africans, I grew up with stokvels. In the village of Nzhelele in Limpopo, my mother was part of a stokvel and I saw how each month she would put money away. But I also saw how the stokvel funds could be doing so much more - and be used to help communities in a much bigger and vital way.
Simply put, stokvels are South Africa’s version of Rotating Savings and Credit Associations (ROSCAs) or Accumulating Savings and Credit Associations (ASCAs). Typically, ROSCAs are made up of 5-20 people who contribute an agreed periodic amount to a central ‘collective savings vehicle’ known as the central pot. Each member gets to receive a lump sum of the combined contributions at least once during the lifetime of the ROSCA. ASCAs, on the other hand, have a similar membership to ROSCAs, but members are allowed and allocated the collective savings only at the end of the year. Each month or week, members will contribute an agreed amount and at the end of the year, the ASCA will then share the savings with their members or collectively buy items that will be shared by the members.
Current estimates are that there are over 820 000 stokvels in the country with a combined membership of 11.4 million people, handling over R44 billion per annum. Most of the money is paid out monthly, to individuals, who spend it on consumables – food and groceries. And that is where it often ends.
In-depth research into 36 stokvels revealed that the majority of members were not aware of how the money they generated could be invested or put to better use. The money received from members usually goes into a savings club account at a bank, where it is known as a “lazy deposit” as the amount gains little to no interest and banks are able invest the money profitably, all with no benefit to the stokvel members.
Next to banks, big retailers are the other real beneficiaries of the way stokvels currently operate - cashing in on the money deposited, which often translates into bulk buying once a year. Many stokvel members club together to buy groceries, sending trucks to hypermarkets to buy items which are perhaps reduced by as little as 1% in price. A group can easily spend R200, 000 on groceries.
Financial education of stokvel members is essential to increase awareness of how better investment and management of the money could result in bigger benefits to members. Members need to be made aware of the power of investing as stokvels, the power of collaboration as a whole, and the impact that SMMEs could have in their communities with their help. A targeted education programme could enable stokvel members to transition in their thinking from being consumers to being investors and therefore begin to exhibit investor attributes and behaviours.
In many instances, hearing of the investment successes of other stokvels has led to members becoming interested in transforming their own stokvel. By informing themselves of what other stokvels are doing, learning of other ways of investing and using the strength of their numbers, much can be learned about better ways of running a stokvel.
This is a proven way in which financial education can take place – by stirring up discussion internally and identifying areas where there is a lack of understanding which requires explanation or more information. It is important to note that financial education alone, in its traditional form, does not always lead to financially educated decisions being made. Research indicates that numerous factors come into play when financial decisions are made. Instead, each group needs to find the kind of solution that works for them.
Of course, financial education of stokvel members in and of itself is not sufficient, a reform of financial institutions is also called for. The World Bank’s Findex measures financial inclusion in terms of the number of bank accounts held in a country, which is challenging as it begs the questions of who really benefits from people having a bank account?
Having a bank account is good for banks because they are able to use the lazy deposits received from stokvels for short-term investments without benefiting stokvels. But stokvels need more than a bank account; they need a platform that will enable them to financially benefit from their R44 billion economy. This is why it is helpful to talk about financial mobility rather than financial inclusion when talking about stokvels - financial mobility meaning a change in financial status. This new measure would ensure that banks start playing a more active role in helping stokvels create returns from their investments.
The National Stokvel Association of South Africa (Nasasa) also needs to advocate more for stokvels. In its current form, it contributes to the status quo of stokvels. Its website advertisement states: “The stokvel economy is an estimated R44 billion in South Africa alone, what is your market share of this economy?” This clearly shows that their intent is to get corporations to gain access to these funds – rather than empower stokvels. They partner with big retailers who give stokvels relatively low discounts in return. So banks and retailers are gaining most from stokvels – with the members - who often happen to be the poorest and most vulnerable members of society – gaining least.
While transitioning from consumers to investors may not be easy for stokvel members, it is important that they begin to recognise their ability to leveragetheir collective strength to secure the advantages of being one of the biggest buyers in the economy.
Stokvels are not the primitive organisations many believe them to be. They are actually very dynamic organisations. They employ sophisticated financial models although they do not have the education to back up their ideas. There is much to learn and future researchers and institutions should approach them with that mindset.
Rudzani Mulaudzi is an MTN Solution Space Scholar and an alumnus of the MPhil in Inclusive Innovation at the UCT Graduate School of Business.