Banking on billions in stokvels
Cape Town - Today’s million dollar question: how much do you think is invested in stokvels in South Africa annually? Go on, hazard a guess.
It is common knowledge that stokvels, traditional community-based savings groups, have collectively built up a very large pool of funds. Many people are aware that this old-fashioned way of investing and borrowing has survived, even thrived, modernity, such as it is, in South Africa. Still, most would be surprised to hear that the value of the pot is R45 billion a year.
The origins of Stokvels can be traced to the early 19th century and the rotating cattle auctions held by British settlers in the Eastern Cape, known as stock fairs or “stokvels” to the locals, who would pool resources to trade livestock. Since then, stokvels have existed as groups of people bound by a common cause, such as friends, family or colleagues, pool financial resources for the benefit of the group.
The savings are used to help members pay for everything from burials and celebrations to school fees and groceries. Groups such as burial societies typically have around 50 members, while investment and grocery stokvels tend to have between 10 and 20 members.
Speaking to African News Agency, the National Stokvel Association of SA (Nasasa) spokesperson Nomsa Mazwai said: “The history of stokvel groups is as old as the story of gold in South Africa. As soon as there was migrant labour, there was a need for migrant workers to work together in order to survive outside of their social settings back at home … In the absence of family, migrant workers had to form social safety nets to ensure their survival outside of their communities, and also to enable them to send support back to their homes.”
During apartheid, when non-white South Africans were excluded from just about every part of the mainstream economy except providing the manpower to build it, stokvels were a key savings and credit mechanism for the disenfranchised masses. They performed additional social functions, cementing existing relationships and creating new ones, including giving migrant labourers and displaced people an avenue into social networks.
In the late 1980s, the apartheid government, recognising the power of stokvels, tried to ban them.
Nasasa was formed in 1988 out of resistance to this and in a bid to secure legal representation and protection for stokvels.
Today Nasasa, a self-regulatory body, is approved by the Registrar of Banks, with its members enjoying protection under the Banks Act of 1990.
Little has changed to the basics of the system over the years despite it having grown to a massive market today, with an estimated membership of 8.6 million people. One change that is starting to take root, however, is that many stokvels are investing their money in more modern ways, such as unit trusts.
“In 1994, with the entry of a democratic society and a removal of the barriers to entry in the banking industry, an assumption was made that stokvels would no longer have a purpose. However, instead, we have seen an increase in the prevalence of stokvels in South Africa,” revealed Mazwai.
“We can now be assured that stokvels are part of our social culture in South Africa and a form of social security, which will continue to exist in the foreseeable future. This is the reason why FMCG [fast-moving consumer goods] companies, banks and the financial services industry have come to accept that to grow their businesses, they need to speak the language of stokvel groups all over the country.”
The financial industry is responding by creating specialised products such as Investment Solutions’s three new unit trust portfolios aimed directly at the traditional collective savings market. So specialised, in fact, that the leading South African fund manager, which has R321.5 billion assets under custodianship, launched these portfolios in partnership with Nasasa.
Many financial services groups have tried in the past to get their hands on the loot but, says Alexander Forsyth-Thompson, project leader of the Investment Solutions stokvel initiative, most of these attempts failed because the focus was on selling traditional products. Investment Solutions has taken a different approach and is starting to reap the rewards. Forsyth-Thompson told African News Agency that it has taken two years of education on both sides.
Stokvels are generally well-organised with very little defaulting on contributions. These groups are stable because they deeply rooted in existing and valued relationships in the community.
“People do not default on contributions because of the discipline and peer pressure stokvels create. This means they are a successful alternative to formal savings,” says Forsyth-Thompson.
He says stokvels represent “a massive opportunity for financial services industry”, yet they continue to be left out in the cold, largely ignored as a legitimate form of saving. He notes tax-free savings allowances, where the focus is entirely on individuals, as a case in point.
Investment Solutions recognised there was an urgent need for education … on all sides of the table, not just financial literacy among potential investors, but an understanding of the market among the institutions. Respectful of the history and aware of other organisation’s failure to crack this market, Forsyth-Thompson embarked on a journey of discovery which, he says, soon turned into a passion project. He started attending stokvel indabas in Gauteng and spending time with Andrew Lukhele, Nasasa chairman and author of “Stokvels in South Africa”, a book on the history and progress of stokvels in South Africa.
The research took years.
“I had been talking to Andrew for two years and was only just beginning to get an understanding of it,” he says.
One thing that became clear was that the stokvel system is not broken and, therefore, does not need fixing. The clubs generally have a constitution of their own and do not need rules imposed on them.
As a result, Investment Solutions does not attempt to interfere with what people were doing or customise the stokvels; rather they customised their own product. Forsyth-Thompson says Investment Solutions intends to sustain the integrity of stokvels while providing them with “solutions to do what they already do, just more effectively”.
“We Fica the stokvel,” he says, “not individual members, and then leave them to manage their stovel according to their constitution.”
So how have they been received? Forsyth-Thompson says people have been hugely receptive and Investment Solutions has been overwhelmed by the demand for education and information.
Nasasa’s Mazwai added: “A common misconception is that stokvel groups do not have an appetite for investment. Some groups who collect funds on a monthly basis, especially burial societies, would have surplus funds at the end of a one-year cycle. They understand that this money does nothing for them simply sitting in a bank account.”
Again Forsyth-Thompson reinforces the importance of focusing on the needs of the individual stokvel: “If a stokvel has money it will not need within the first year, it may not be in its best interest to leave it in a bank account being weakened by inflation. There may be better ways to utilise this money, which is why we are marketing three unit trust portfolios: a conservative income-type portfolio with bonds and cash; a moderate portfolio with a three-year investment horizon; and a moderately aggressive portfolio with a three to five-year horizon.”
The upside for the institutions that find their way into this market is huge, not just in terms of access to a large pile of cash but also because of the breadth of the influence of these savings club. “You would be amazed at the membership,” says Forsyth-Thompson, adding that many prominent South African businessmen are still members of their original stokvels, which can include everyone from the tea lady to the managing director.
“We have met stokvels with millions of rands saved to advise them on how best to invest this money,” he said, adding: “With stokvels growing faster than the pension fund industry, this crucial market cannot continue to be ignored by the financial services sector.”African News Agency