STOKVELS have helped millions of South Africans save for big ticket items, fund education, pay off debt or bury loved ones, while generating billions of rand for the country’s economy.

This is according to Vusi Ndwandwe, the managing executive for retail and business banking, transactional and deposits at Absa.

A stokvel is a savings group to which members regularly contribute an agreed amount. The group then decides on how that money is shared, whether it is a monthly pay-out or invested and shared at the end of the year.

Some stokvels even invest their money in long-term investment products such as property or a business venture. Originally informal savings agreements, they have evolved and banks are now offering savings products specifically designed for stokvels.

The government has also acknowledged the role of stokvels, helping to create a conducive environment for banks to offer formal savings products and processes to assist stokvels in keeping their money safe, while earning interest.

Today 41 percent of the stokvels are banked and this has served to bring more South Africans into the formal financial services sector by giving them access to other savings, investment and protection offerings.

According to research company African Response, there are 8.6million people belonging to more than 421000 stokvels in South Africa, with a collective value of R25billion.

Ndwandwe said while the term stokvel is uniquely South African, the group savings model is prevalent across Africa and joining a stokvel is the easiest way to save up for something special or to pay for an unforeseen expense.

“Saving in a group cuts across gender, age and even social class among South Africa’s black communities. Today they take different forms and have many names, such as umgalelo, mogodisano, masiqwabisane, but the fundamental principles remain the same.”

He added that for many South Africans stokvels are more than just savings vehicles; they are a safety net, providing a much-needed cash injection when times are tough and also a social network that can offer help and advice when needed and have also become an important means of fighting poverty and helping poor people stay out of debt, helping to reduce their reliance on loan sharks.

Mamapudi Nkgadima, the managing director at African Response, said some of the reasons people join stokvels include covering the cost of funerals, buying groceries in bulk, saving towards the purchase of household items such as a TV, fridge or a deposit on a car, buying property, investing in a business, buying stock or equipment for a business, saving towards a holiday, for a child’s education, or as a general investment.

“People should be wary of people offering them out of this world returns on their savings and calling it a stokvel.

“Stokvels are a secure savings method, which you should not view as a quick way of getting rich. Instead think of it as a safe place to keep your money until such time as you need it.”

Miziyonke Mtshali, the chief operations officer at the National Stokvel Association of South Africa, said the association has developed methods that stokvel groups have started to adopt and these are based on a single group pooling funds for both short-term goals such as groceries as well as long-term goals such as investing in a stokvel unit trust.

“We thereby allow the group to harness its ability to collect funds, and use that to create a better future for its members. Stokvels save an estimated R49bn annually. This is a massive contribution to South Africa’s economy.”

According to Nedbank, some seasonal patterns around stokvels have not changed and the bank is seeing large withdrawal spikes during the November and December period, normally being associated with bulk buying of groceries in the holiday season while other stokvels accumulate funds for school fees and uniforms, typically withdrawn in January.

“Nedbank is of the view that customers, mostly from social clubs, are shifting their banking and transacting choices, and starting to use e-wallets and bank accounts.

“We are also observing a rise in uptake of stokvels in the middle class; these focus on mid- to long-term group savings or purchase of assets, such as property. However, the dominant stokvel is still burial-related expenses followed by general short-term savings.”

Jo-Ann du Plessis, the head of pricing and product at FNB, said stokvels could be used as a way for funding groceries, burials, weddings, school fees or holidays.

Du Plessis said there were many reasons why stokvels are such a successful way of saving.

“One major reason is accountability, the fact that you are a member of a group that has a common goal and defined contributions makes it very hard not to commit to your savings responsibilities, which people are tempted to do when saving individually.

“There are some risks involved in starting a stokvel, the most common one being if someone doesn’t honour their commitment to pay. However, this should be discussed by the committee and a process put in place to deal with these instances.”

Du Plessis said it was easy to start a stokvel with a group of friends or colleagues but there are a few things to keep in mind, including:

* Make sure you know and trust the members.

* Be very clear about the goal of the stokvel from the outset - is it for buying groceries in bulk, paying a lump sum to a member each month or for investing purposes?

* Decide as a group on a set of rules and regulations that will govern the stokvel and have each member commit to this. This is unique to each group.

* Set regular meetings so all members stay in touch.