The word stokvel is believed to have originated from the term “stock fair” which was used to describe auctions run by English settlers in the 19th century.
Today a stokvel is a savings or investment group – usually made up of like-minded individuals with similar goals – to which members regularly contribute an agreed amount, says Vusi Ndwandwe, Managing Executive: Retail and Business Banking Transactional & Deposits at Absa.
The group then decides on how that money is shared, whether that is a monthly pay-out or invested and then 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.
Stokvels are now big business. According to research company African Response there are 8.6 million individuals belonging to more than 421 000 stokvels in South Africa, with a collective value of R25 billion.
“While the term stokvel is uniquely South African the group savings model is prevalent across Africa. Joining a stokvel is the easiest way to save up for something special or to pay for an unforeseen expense,” says Ndwandwe.
“Saving in a group cuts across gender, age and even social class amongst South Africa’s African black communities. Today they take different forms and have many names such as umgalelo, mogodisano, masiqwabisane, but the fundamental principles remain the same.”
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. Stokvels 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.
“Some of the reasons people join stokvels include: covering the costs of funerals (burial society), buying groceries in bulk especially around the Christmas time, saving towards the purchase of household items such a TV, fridge or a deposit on a car, buying property, investing in a business, or buying stock or equipment for a business, savings towards a holiday, for a child’s education, or as a general investment,” says Mamapudi Nkgadima, managing director at African Response.
The South African 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% of the stokvels are banked and this served to bring more South Africans to the formal financial services sector giving them access to other savings, investment and protection offerings.
Not to be confused with pyramid schemes, which promise too good to be true returns on investments and use other investors contributions to pay these returns, stokvels offers transparency on how returns are generated thanks to clear record keeping.
“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 is as a safe place to keep your money until such time as you need it,” Nkgadima says.
Opening a bank account for your stokvel ensures that the people who will have access to the account are acting or mandated to act on behalf of the group.
“The safest route to go is to open a group account. Bank accounts opened in the name of one person leads to risk and there have been instances where people have stolen money from stokvels. Bank statements also act as a way of tracking how the money moves in and out of the account, and banks offer an extra layer of transparency though SMS notifications which can be sent to all members of the group.” says Ndwandwe.