Stokvel Saving: South Africa's Gym Buddy for Investments
WHY YOU SHOULD CARE
Whether you crave a Le Creuset pot or a live sheep, these savings clubs will help you save for it.
By Nick Dall
Eleven times a year, from January to November, Amelia Mxunyelwa, a domestic worker from Cape Town, and five other women from her church contribute R350 ($25) each to their stokvel, putting the money in a bank account that’s held in two of the members’ names. At the beginning of December, the women withdraw the year’s savings and all six of them go on a pre-Christmas shopping spree. They buy in bulk: six 22-pound bags of sugar, six 22-pound bags of mielie meal, six 24-packs of beef stock, six live sheep. “It’s nice to save in this way,” says Mxunyelwa, who has tried and failed “many times” to save on her own. With a stokvel “you have no choice,” she explains.
Mxunyelwa is by no means alone. According to the 2018 Savings and Investment Monitor produced by Old Mutual:
Roughly half of all South Africans belong to at least one stokvel, the country’s take on a rotating savings and credit association.
Overall, 44 percent of the country, and 61 percent of Black South Africans, belong to at least one of these savings plans.
The SIM — now in its 11th year — is the result of face-to-face interviews with 1,000 metropolitan households across seven South African cities. But, if anything, stokvels are probably even more popular in rural regions. According to the National Stokvel Association of South Africa, there are around 800,000 stokvels in the country, each comprising an average of 27 members, with a total annual market of $3.5 billion.
The name stokvel is a mashup of the “stock fairs” in which 19th-century Xhosa tribespeople would pool resources to trade livestock with the British settlers. In their current form, stokvels date back to the 1930s, when migrant labor — with little access to formal banking structures — flocked to the gold mines on the Highveld. These days stokvels exist alongside, not instead of, formal savings vehicles. In fact, SIM data shows they are on the rise: Penetration was 49 percent of the Black population in 2008.
The “biggest myth” about stokvels, says Lynette Nicholson, Old Mutual’s research manager, is that they are only for the low end of the market. Au contraire: The richer a Black South African is, the more likely they are to belong to a stokvel. That said, richer households do seem to be allocating fewer resources to stokvels than they have in the past. In 2018, the average monthly contribution among households in the lowest tier was $25.77 (up from $23.49 in 2017). Households in the highest tier contributed $78.15 on average, down from $113.35 the year before.
Like South Africans, stokvels come in many shapes and sizes. In the purest form, members contribute every month (or week, or quarter) and take turns claiming the kitty. This negates the need for a bank account and greatly reduces trust issues, as the money can be gathered and distributed during the same meeting. (Meetings are a big part of stokvels, as are written rules and strict penalties for late payments — in Mxunyelwa’s case you’ll have to fork out about $2 for being just one day late.)
Mxunyelwa’s Christmas-shopping club, known as a “grocery scheme,” is another simple and common iteration, especially among lower-income groups. Other schemes that are geared toward achieving a specific aim include “back to school” stokvels, where parents club together to buy stationery and uniforms at the beginning of the school year (Mxunyelwa belongs to one of these too — 10 percent of stokvel members belong to more than one scheme, but this figure rises to 18 percent for the highest-income bracket). There are even so-called Le Creuset schemes where members take turns buying themselves one of the French brand’s iconic enamel pots.
Because all but the simplest schemes require a bank account, the biggest banks in the country offer “stokvel accounts,” which allow between two and four people to act as signatories on the account.
Occupying a category all their own are the burial societies that help Black South Africans pay for the funerals that are so important to their culture. Members nominate beneficiaries, with close family members warranting higher payouts than distant cousins. Because death is unpredictable, the rules for burial societies are more complicated — in addition to regular (monthly or quarterly) contributions, members also have to chip in whenever someone makes a claim, to ensure there’s money in the kitty in case of emergencies.
As regulations against short-term lenders tighten, stokvels have adapted to fill another need. Regardless of what kind of stokvel you belong to, Nicholson says, it will be possible to borrow money from your stokvel — at usurious rates. For a fee of between 10 and 20 percent per month, you can get cash in a flash (these days it’s a matter of messaging the WhatsApp group chat) without needing to stand in line or fill out forms.
Stokvels remain so popular, says Nicholson, for three reasons. One, they force people to save (SIM respondents were more likely to default on loan repayments than on stokvel payments). Two, they’re easy to join. And three, members value the social aspect.
There is a lot to like about stokvels — most of us could certainly do with some peer pressure while deliberating over important financial decisions — but, Nicholson points out, due to their focus on short-term saving, they are not a financial cure-all.
She will be pleased to note, then, that more South Africans are putting money toward retirement annuities than ever before. The fact that 41 percent of the population still has no formal retirement provisions in place? Not so much.
- Nick Dall, OZY Author Contact Nick Dall