In South Africa, a stokvel is an invitation-only club of twelve or more people serving as a rotating credit union or saving scheme. Members contribute fixed sums of money to a central fund on a weekly, fortnightly or monthly basis. The name stokvel originates from the concept of "stock fairs", as the rotating cattle auctions of English settlers in the Eastern Cape during the early 19th century were known. [1] [2] [3]
Stokvels generally have a constitution which dictates the size of the contributions, when the accumulated money is to be paid out and the roles and responsibilities of the members. Each month a different member receives the money in the fund, which was collected during that period. Defaults on contribution are quite rare as other members will know if one has not paid their contribution, and also because the regular meetings serve as reminders. Depending on the type of stokvels, the members can use the collected fund for their own use, for payment or investment purposes.
It is estimated that half of adult South Africans are member of at least one of 800,000 stokvels. South Africans invest approximately R50 billion in stokvels a year.
Stokvels are regulated by the National Stokvel Association of South Africa (NASASA), a self-regulatory organisation approved by the Prudential Authority. NASASA is also a registered Financial Co-operative. The organisation was established in 1988 by founder and still-chairman, Andrew Lukhele.
In South Africa, a stokvel is a community-based savings and investment club where a group of people enter into a voluntary agreement to contribute a fixed amount of money to a common pool on a regular basis (e.g., weekly, fortnightly, or monthly). This practice is deeply rooted in African culture and is built on a foundation of trust and mutual benefit.
Stokvels are a form of a Rotating Savings and Credit Association (ROSCA) and have become a significant part of the South African economy, with millions of people participating and generating billions of Rands in collective savings annually. The name "stokvel" is believed to have originated from "stock fairs" – the rotating cattle auctions of English settlers in the Eastern Cape during the 19th century, where people would gather to socialize and pool money to buy livestock. Today, the purpose of stokvels has evolved significantly, leading to a variety of different types.
Here are the various types of stokvels:
Rotational Stokvels (Basic Stokvels):
This is the most common and simplest form of a stokvel. Members contribute a set amount of money at each meeting. The entire lump sum is then paid out to one member on a rotational basis until every member has received a payout. The recipient is free to use the money for any purpose, such as paying off debt, making a large purchase, or covering a financial need. The key element is the rotation of the payout.
Savings Clubs:
Unlike rotational stokvels, the purpose of a savings club is to save money for a specific goal or event. Members contribute a fixed amount over a set period, and the entire fund, including any interest earned, is distributed among all members at the end of the cycle, usually at the end of the year, to be used for things like holiday spending or school fees.
Grocery Stokvels:
This type of stokvel is specifically for the bulk purchase of groceries. Throughout the year, members contribute money into a common pool. At the end of the year, usually in November or December, the pooled funds are used to buy groceries in bulk at a discounted rate from wholesalers. The groceries are then divided among the members, ensuring that everyone has food supplies for the festive season.
Burial Societies:
These stokvels function as an informal insurance scheme to cover funeral expenses. Members contribute a regular amount, and in the event of a member or their specified family member's death, the society provides financial and often practical support for the funeral arrangements. This is a crucial social safety net for many South Africans who may not have access to formal funeral policies.
Investment Clubs:
The primary goal of an investment club is to grow the collective wealth of its members. The pooled funds are not for a simple payout but are invested in various assets, such as formal bank accounts with competitive interest rates, stocks, property, or business ventures. The returns on these investments are then shared among the members, often with a portion kept back for future reinvestment.
Social Clubs (Party Stokvels):
These groups pool funds for social and entertainment purposes. The money may be used to organize street parties, jazz festivals, or other events. They may charge an entrance fee or sell food and drinks, with the profits then being shared among the members. These stokvels are often a way to combine saving with social networking and community building.
Borrowing Stokvels:
In this model, the pooled funds are used to provide loans to members. Members in need of a loan can apply for one from the stokvel's fund, often at an interest rate that is more favorable than what they might get from a commercial bank. The interest earned on these loans contributes to the overall growth of the fund.
Housing Stokvels:
This type of stokvel is specifically designed to help members achieve the significant goal of homeownership. In this model, members pool their resources to either purchase land, build houses, or buy existing properties. The process can work in several ways:
1. Direct Property Purchase: The pooled funds are used to buy a house, which is then paid off by the collective. Once the house is fully paid for, it is transferred into the name of one of the members. The process then repeats, with the next property being bought for another member. This rotation continues until every member in the group owns a home. This is often a long-term commitment, potentially lasting for several years or even decades.
2. Property Development: The group may collectively purchase a plot of land and use their combined funds to build a home on it. Once the house is built and paid for, it is transferred to a member, and the process is repeated.
3. Deposit and Loan Facilitation: Some housing stokvels function as a way to raise a down payment for a bank loan. Members contribute to a common pool until they have enough for a deposit. This lump sum is then paid out to one member, who uses it to secure a bond from a bank. The stokvel may also continue to contribute to the loan repayment. This provides members with a collective financial boost to overcome the initial hurdle of a large down payment.
Regulation of stokvels in South Africa is primarily managed through a self-regulatory model, with the National Stokvel Association of South Africa (NASASA) serving as the sole self-regulatory organisation (SRO). This approach recognizes the unique, community-based nature of stokvels and aims to formalize them without imposing the stringent regulations typically applied to formal financial institutions.
NASASA as a Self-Regulatory Organisation (SRO):
As the designated SRO, NASASA is an association of stokvels that oversees and regulates the sector on behalf of the South African Reserve Bank (SARB) and the Prudential Authority (PA). Instead of direct government oversight, the responsibility for compliance and governance is delegated to NASASA, which creates and enforces its own set of rules and a code of conduct for its member stokvels. This allows for a more flexible and contextually-aware regulatory environment that respects the cultural and social aspects of the stokvel movement.
NASASA's core role is to protect, promote, and develop the stokvel sector. It provides a framework for its members to operate legally, securely, and with integrity. This includes:
* Registration and Vetting: NASASA registers stokvels and ensures they have a proper constitution. * Compliance Monitoring: It monitors members' adherence to the rules and provides a channel for reporting fraudulent activities or misconduct. * Education and Training: NASASA offers financial literacy training and guidance to help stokvel members manage their finances effectively. * Financial Inclusion: It provides a bridge between the informal stokvel sector and the formal financial system, allowing stokvels to access regulated banking, insurance, and investment products.
NASASA, the Banks Act, and Government Gazette Notices:
The legal foundation for stokvel self-regulation stems from exemptions granted under the Banks Act 94 of 1990. In a series of Government Gazette Notices, the Minister of Finance, on the recommendation of the Registrar of Banks, has designated certain activities as not constituting "the business of a bank."
This is a critical legal exemption that prevents stokvels from having to comply with the heavy regulatory burden of a registered bank.
The exemption, however, comes with a key condition: any stokvel that at any time holds aggregate contributions from its members exceeding R100,000 must register with a self-regulatory body approved by the Registrar of Banks. NASASA is the only organization officially approved for this purpose. This tiered approach to regulation ensures that smaller stokvels remain largely informal, while larger, more financially significant groups are brought into a regulated environment to protect their members' funds.
Timeline of Government Gazette Notices The regulation of stokvels through government gazettes has developed over time:
* Government Notice 404 in Gazette 35368 (25 May 2012): This notice formally approved the exemption of stokvels from the Banks Act, provided they adhere to certain conditions. It named NASASA as an approved self-regulatory body for stokvels with funds exceeding R100,000. * Government Notice 620 in Gazette 37903 (15 August 2014): This notice affirmed and provided further clarity on the conditions for the exemption. It specified that stokvels must be members of a self-regulatory body approved by the Registrar of Banks.
These gazette notices provide the legal authority for NASASA to act as the SRO and are the cornerstone of the formal relationship between the state and the stokvel sector.
In 2022, after receiving several complaints from the public, South Africa's Financial Sector Conduct Authority released an official warning to the public regarding "The Prosperity Grid", saying that although it resembled a traditional stokvel, they considered its structure to be a pyramid scheme in the style of the 1980s US "airplane game". [4]