Spot the difference: Real investments, legitimate stokvels and illegal pyramid schemes

By Supplied Time of article published Sep 9, 2020

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Now, more than ever, South Africans need access to information and education to empower themselves to better manage and protect their money. According to research conducted in April 2020 by consumer credit reporting agency TransUnion about the effect that Covid-19 and the lockdown has had on consumer finances, 79% of South African consumers said that their household income has been negatively impacted.

“This is why South Africans should be even more wary of get-rich-quick schemes,” says Lyndwill Clarke, Head of Consumer Education – Financial Sector Conduct Authority (FSCA), “as scammers are looking for the financially desperate and vulnerable during this time.”

It’s important to ask the right questions when a person or company asks you to invest with them.

Clarke suggests these guiding questions to help you distinguish between a real investment, a stokvel and a pyramid scheme:

  • Are you registered with the FSCA to sell this financial product or service?
  • What is your Financial Services Provider (FSP) license number for verification with the FSCA?
  • Can you show me proof of your company registration?
  • In the case of a stokvel: are you registered with National Stokvel Association of South Africa (NASASA) or similar body recognised by the Prudential Authority (PA)?
  • Also for a stokvel: can I see your constitution?
  • How long have you been in the investment business?
  • Is the company you represent an established and respected financial institution?
  • Are you registered with the Financial Planning Institute (FPI)?
  • What are your qualifications?
  • Do you require me to introduce other people?
  • What are the risks of this scheme
  • What product am I investing in? Be especially careful of crypto currency products as they are not regulated in SA and there is currently no recourse available.
  • Will I receive copies of signed documentation?

“Because financial services can be so specialised and the information about financial products can sometimes be difficult to understand, it’s always better to seek the assistance of an authorised financial adviser or planner who will help you determine what product suits your needs and your pocket,” says Clarke.

It’s also important to note the key differences between investments, stokvels and pyramid schemes:

“If it looks too good to be true, it probably is. This old saying still rings true, especially when it comes to looking after your hard-earned money in these tough times”, says Clarke.

If you suspect you have been defrauded due to a pyramid scheme, please report this to the South African Police Service. The National Consumer Commission (NCC) and the South African Reserve Bank also have jurisdiction and can be reported to. Go to or


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