Stokvels: A Mechanism of Informal Social Security

For centuries people have entered into various forms of money saving schemes in an attempt to save and grow their money. People try to save and grow their money for a variety of reasons, such as, saving to go on holiday; saving for school fees or saving for their retirement. South Africa has seen many communities creating social schemes that will enable them to achieve these goals. An example of such a scheme is known locally as a “stokvel” or “society”. The stokvel mechanism is largely used by low to middle income earners, many of whom are women and is an alternative method to formal banking.

A stokvel is defined in the schedule to the Financial Advisory and Intermediary Services Act as “a group of natural persons amongst whom a common bond exists joined to form an invitation only group savings scheme and that consists of members who have pledged mutual support to each other towards the attainment of specific objectives; it establishes a continuous pool of capital by raising funds by means of subscriptions of or contributions by members…”

As mentioned, stokvels are unique to urban areas and are a form of informal banking. There is no official recognition of these mechanisms in the formal banking sector, yet it is a multi-million rand industry. Stokvels were created to provide financial aid to its members who were initially low-income earners and could not afford the rates that were offered by traditional banks, therefore communities, out of necessity decided to create a mechanism that would be unique to them and would be best suited to their needs.

There are different types of stokvels, some are focused at burial funds; saving for monthly groceries; yearly or monthly pay-outs, or investments to achieve various purposes.

Members of stokvels are free to create their own constitution which will regulate its composition; the reasons for which the money collected is to be used; who will be the treasury; where the money will be invested and so on.

Ordinarily, stokvels are formed by people who already know each other through different social interactions. At times the public gets involved with a particular stokvel through word-of-mouth, through the church or simply through living on the same street as another member. There is rarely any form of formal advertising done.

Each Constitution of a Stokvel is different, however, the basis of them are the same in that each member will be required to contribute an amount to the Stokvels’ ‘kitty”, whether that be monthly, fort-nightly or weekly. The money is then invested and paid out to each member on a rotational basis. The contributions are usually small amounts, sometimes as little as R50, but the amount will vary depending on the purpose of the Stokvel. The Constitution of the stokvel provides for its checks and balances and regulates all aspects including the number of members that may participate in the stokvel.

More and more stokvels are using the option of getting its constitution endorsed by the police, by way of an official stamp, the purpose of this is to give it some form of legal validity and provide security to its members.

There are obviously many differences between the formal banking sector and stokvels, examples of such being that banks are heavily regulated by legislation whereas the rules applied to stokvels usually differ from one to another and are decided on by its members. Stokvels are group based and founded on mutual support.

Stokvels are attractive for these reasons and the personal nature of the service offered and the individuals’ involvement therein. Stokvels often organise social gatherings for the members to interact with one another and often members will consist of friends, fellow church members or people that you trust.

With banks there is however greater accountability and greater security because of the various regulations applicable and if your money is lost by the bank whether intentionally or negligently there are various avenues of redress that one can use to recover the money, whereas in stokvels the risk of theft may be high and the avenues of redress are much more limited.

It will be interesting to see where the next 20 years or so will leave the mechanism that is the stokvel. Will it eventually be more strictly regulated and officially recognised in the formal sector or will it continue to be a sector that is self-regulating? One thing is certain, stokvels play an important role in our society and this unique system is one that has seen many homes supplement their income and meet their basic needs empowerment woman and create opportunity to network and grow their business skills.