Sylvia Nyathia is a school principal of a home-based Montessori school in a township southwest ofJohannesburg. She has 22 students and a teacher under her care.

After repaying people who helped her establish her school and buying supplies, she said there was little left to sustain her own family. But Nyathia has managed to pay for her four children’s education, buy chairs and tables for the school and sustain her family. She said all of this was made possible through joining stokvels, the rotating membership-based credit unions unique toSouth Africa. 

Financial & moral support

Stokvel is defined by Andrew Lukhele, founder and President of the National Stokvels Association of South Africa (NASASA) as “a type of credit union, or communal buying group, in which a group of people enter into an agreement to contribute a fixed amount of money to a common pool weekly, fortnightly or monthly, to be drawn in rotation according to the rules of the particular stokvel.” The name stokvel originates from the 19th century South African stock fairs, where farmers and laborers and their families met.

Today’s stokvels typically operate with 12 or more members and have blossomed to become an important part of South African culture.

The tradition of stokvels, which have existed for more than 80 years, remains especially popular among majority black communities living inSouth Africatoday. It is an important form of saving in the country and a way of life for many people.

“If you have got children to register for college, or you want to buy furniture, or need food to sustain your family, but you don’t have enough money - what will you do? You go to a stokvel support group and get help from others who have the same problem,” Nyathia said.

In the outlying city townships and rural areas, both unemployed who have no money and employed who don’t have enough money to sustain their families join stokvels in order to “create more money” through a collective finance platform to help them cope.

There are various types of stokvel. In a tuition/education stokvel, for instance, each member contributes an equal amount of money each month. In each successive month, one member will receive a lump sum, being the total monthly monies collected from all members. This process continues until each member has received one lump payout.

In a saving stokvel, members put money together, and then can borrow money from within the stokvel. The debtor will return the loan with a certain amount of interest to the creditor.

A food or grocery stokvel has members - usually women - who contribute a fixed amount of money to a common pool regularly at the beginning of the year. At the end of the year, they will go to a wholesale supermarket to buy in bulk: non-perishable food and daily necessities that will last for a year. Buying in bulk means the benefit of bargain prices and reward vouchers.

For funeral stokvels, as many as 20 women may come together giving money and food to help families bury their dead and reduce the heavy financial burden. In many black cultures inSouth Africa, it is a tradition to provide people coming to pay their last respects with food and tea for five or six days.

InChina, people have similar practices at weddings and funerals, where money is often collected to aid the financially burdened. The difference, however, is that there is no membership organization and constitution, and the amount of money offered is based on the closeness of relationships and local customs. The same is true when a child is enrolled in a college.

This trend of group pricing hasn’t stopped in Africa orChina. In recent years, Internet platforms in locations all over the world have popped up to help people group together to buy meals, cars and even houses on the Internet. Unlike stokvels, these groups dissolve as soon as the purchase is completed. 

Tradition lives on

As stokvels were formed during a time when access to formal financial services was difficult for people in poorer black communities, is there still a place for them in modernSouth Africa, when people can now turn to banks for financial assistance?

“It is not easy to ask for a loan from a bank,” Nyathia said. “[Today] when people need [financial] help they will still turn to the stokvel group.”

Busi Skenjana, CEO of Brand Support Keys (BSK) Marketing and a stokvel expert, agrees with Nyathia’s view. He said that instead of diminishing in importance, stokvels inSouth Africawill continue to grow as people’s financing needs grow more complex.

“I don’t see stokvels dying because of banks,” Skenjana said. “Instead they are actually growing every year.”

Skenjana said that stokvels have over the years become an integral part of most South African black woman’s (and some men’s) life support system – be it financial, emotional, spiritual or just socializing. Most people who use Stokvels don’t like banks, Skenjana said. In her view, banks still don’t take stokvels seriously and they are not user friendly. In some areas, stokvels actually want to operate their own bank.  

This doesn’t mean stokvel members don’t use banks. Some do use online banking services for cellphone charges and other fees and there are also stokvels that keep their members’ money in banks, but will withdraw it at the year end to buy groceries, cars and household appliances. 

Business opportunities

InSouth Africa, stokvels are recognized as legal, self-governing entities, operating outside the regulations covering banks. They are allowed to take deposits from their members only, and contributions must not exceed $968,500 per year.

According toSkenjana,South Africahas approximately 11.4 million stokvel members with an annual estimated total savings value of $4.3 billion. They have the potential to become powerful investment tools and are used by 65 percent of black households.

South African banks have become increasingly interested in having a share of this market and all the major banks offer savings products to stokvels.

Seeing opportunities in the market, some organizations in the retail sector offer large discounts on bulk buying for stokvel parties and special events such as Christmas shopping. In some cases, stores offer to stokvel clubs free delivery and no deposit, no interest deals on large items such as motor vehicles. 

Skenjana started BSK 10 years ago “to create a platform where the government, different companies and stokvels in the main black market inSouth Africacould meet and communicate.”

She said that BSK has a commercial section to help multinational companies market their products to the stokvels, and a stokvel development section to educate members in finance, health and legal matters.

According to Skenjana, BSK will launch a stokvel academy, the first of its kind inSouth Africa, in February 2014, inSoweto. The academy will offer stokvel members free programs on financial and legal matters and she said that with such a large potential stokvel market, she hoped Chinese companies would be keen to invest.