STOKVELS are growing in popularity as a savings vehicle, despite official statistics indicating that SA has a very low savings rate.
It is believed stokvels originated in the Eastern Cape in the 19th century, when black people would pool their resources together to participate in stock fairs — livestock auctions.
Since then, stokvels have sprouted across the country and attracted a wider demographic. Recent studies cited by the National Stokvel Association of SA (Nasasa) reveal that there are more than 11,4m individual stokvel members, belonging to over 811 000 groups. Collectively, stokvels are said to save R44bn/year.
Nasasa is a representative self-regulatory body approved by the Registrar of Banks, with its members enjoying protection under the Banks Act. The act prescribes that all stokvels in SA must register with Nasasa.
The growth of stokvels is on a par with that of traditional burial societies, which stem from the old migrant labour system.
Under that system money was cobbled together to transport the dead home for burial. Today, burial societies collect small monthly premiums
and pay out a pre-determined benefit when somebody dies.
The FinScope survey by FinMark Trust released late last year says there has been a significant increase, with burial society membership having risen from 20% of the adult population in 2004 to 32% in 2014, and formal funeral cover in 2014 doubling at 33%, from 15% in 2004. The survey found that, after basic survival needs such as food and water, the biggest financial concern for lower-income earners was the need to provide a funeral and a proper send-off for loved ones.
The survey reports that people tend to belong to multiple burial societies to ensure coverage for all family members and that many costs associated with a traditional funeral are not covered in standard policies.
Research by personal finance expert Maya Fisher-French shows that typical funeral policy payouts are enough only to buy a coffin and pay for the storage and transportation of a body. Other costs, such as buying funeral food and a tombstone, often have to be funded by savings or by going into debt. It is therefore not surprising that so little is allocated to retirement and debt repayments by the majority of the population.
It also underpins the high demand for informal savings options like stokvels, neighbourhood societies and sports clubs.
Stokvels serve as rotating credit and savings unions in which members contribute money to a central fund over a period. Each month a different member receives the money in the fund, which was collected that month. Neighbourhood societies register families in a neighbourhood, then collect money from those on the list on behalf of a bereaved family when there is a death.
According to London School of Economics anthropologist Deborah James, part of the reason for these vehicles’ spectacular growth is a mistrust of formal financial institutions, which have failed to extend fair terms to black people for many years.
During a talk on financial wellbeing at financial services firm Alexander Forbes last week, she related how a teacher bought a hi-fi system worth R2 000, but ended up paying R5 000 after various charges and insurance had been added. “Worse still, the teacher received a lawyer’s letter claiming that he had missed several instalments, and he was charged R2 000 for putting a garnishee order on his account,” said James.
The credit manager in the store was unsympathetic. The teacher felt the furniture industry was stacked against him (see Cover Story), and along with other teachers founded a savings club aimed at putting together a sizeable cash sum each year to buy furniture, among other big items.
A University of Pretoria research paper on high-budget stokvels authored by Lujja Edmund Kibuuka says members also join to accumulate lump sums for birthday parties, holidays and the purchasing of consumer goods, and to take advantage of investment opportunities.
Other benefits of stokvel membership are the avoidance of high charges, social fulfilment and the advantages conferred by collective saving — halving the average saving time and avoiding low returns on small amounts of individual savings.
Kibuuka discusses how stokvels are an invaluable source of business and personal advice — while white-collar formal sector employees may not understand the problems faced by those operating in the informal sector, stokvels are peopled by those from the same social background.
But finance minister Nhlanhla Nene has warned against the vulnerability that vehicles outside the formal financial system can cause. After pointing to positive data on the increasing number of people with bank accounts in sub-Saharan Africa at a talk last week, he said financial exclusion remained high.
“Many of our people still do not have savings accounts, do not receive credit from formal credit providers, do not have any type of insurance and rarely make or receive payments through formal financial institutions, thereby increasing their financial vulnerability,” he said. “The excluded rely on the cash economy and consequently on less efficient, inadequate and higher-risk financial services.”
