Stokvels – how to invest safely

The growing stokvel industry offers a popular way of saving, with millions of South Africans taking advantage of the financial benefits it offers.

As with all other money matters, however, it’s important to choose wisely, and guard against potential pitfalls, when joining this type of savings club. We ask the experts for insights and advice.

Tip: Savings and investments are vital tools to ensure your financial wellbeing. Read more here.

What is a stokvel?

A stokvel is a voluntary association – often comprising friends, family, or community members – who regularly contribute a fixed amount to a common pool of funds. Deposits are made weekly, fortnightly, or monthly, and all members benefit equally.

There are around 800,000 such clubs countrywide, says National Stokvel Association of South Africa (NASASA) chairman Andrew Lukhele.

“The number of South Africans belonging to stokvels is estimated at more than 11.5 million, and the annual saving is valued at over R49bn,” he notes.

“Trust and peer pressure are the basic tenets of a genuine stokvel,” Lukhele emphasises.

“Stokvels appeal to South Africans because they don’t attract high bank charges, members can borrow money within their own group, and they make capital available to people who would not qualify for loans from formal financial institutions,” he notes.

Sean van Zyl, a certified financial planner at Old Mutual, explains, “Stokvels and savings clubs allow smaller investors to buy in bulk, or to negotiate better terms or rates with suppliers and service providers.”

Every stokvel has a specific purpose, such as investment, funeral support, end-of-year grocery purchases, or even saving for Black Friday spending.

Money is paid out to members – or used for purchases – according to the guidelines or rules of the particular stokvel.

Are stokvels regulated?

“Currently, no regulatory authority oversees stokvels,” says Van Zyl. “The value of the fund, and how it’s applied, will determine the necessary registrations.”

The law stipulates that a stokvel that holds more than R100,000 in member contributions must register with a self-regulatory body approved by the Registrar of Banks, such as NASASA, according to the online guide Stokvels and the National Credit Regulator, compiled by law firm Cliffe Decker Hofmeyr (CDH).

A stokvel that holds less than this amount need not register.

Any entity that lends money, and charges interest, must register with the National Credit Regulator – and this applies to any stokvel that offers interest-bearing loans to non-members, Van Zyl explains.

However, if the loan is between the stokvel and its members, and follows the rules of the stokvel, it does not need NCR registration, since this does not constitute a credit agreement in terms of the National Credit Act, the CDH guide notes.

In addition, the rules of each individual stokvel will largely determine how any mismanagement of funds is handled. Issues can be reported to NASASA, which may assist in resolving the issue.

“As the stokvel isn’t a separate legal entity like a company, the members are jointly responsible for any liability that may arise, similar to a partnership,” Van Zyl says. “Any fraud needs to be reported to the police for further investigation.”

Choose your stokvel wisely

“It’s important to conduct due diligence,” Van Zyl urges.

“Check in with participants of the stokvel you’re considering, ask them how long they’ve been part of the group, and whether they’ve had good or bad experiences,” he adds.

Transparency is vital, and the stokvel’s constitution, rules, and financial records should be available for inspection.

Consider whether the stokvel is registered with NASASA, and whether external audits are regularly performed.

“Most importantly, the constitution should include conflict resolution clauses, and ensure adequate controls to safeguard the interests of its members,” Van Zyl cautions.

Make the most of the benefits

The stokvel industry continues to grow, says Lukhele.

Stokvels are generally trustworthy, approachable, and sympathetic to their members’ needs and challenges, he adds.

“They can assist in emergencies, as they’re flexible and accommodating, and also offer social interaction and entertainment,” Lukhele states.

However, each stokvel has a specific purpose, and it’s important to check if your needs align with those of the group.

“Before getting involved with any stokvel or savings club, make sure you do the necessary checks, and speak to your financial adviser, as each person’s needs are unique,” Van Zyl concludes.

Tip: If credit obligations are making it impossible for you to save, consider taking steps to consolidate your debt.