What are stokvels and how safe are they?

A stokvel is a communal savings scheme run by a relatively small group of people who know each other. Being part of a group disciplines members to contribute regularly to a savings pool, receiving agreed benefits in return.

This type of scheme, which had its origins in poorer communities, is not unique to South Africa. Examples elsewhere are “chamas” in East Africa, “cundinas” in Mexico, “hui” in China and “pandeiros” in Brazil.

Originally stokvels were entirely informal with savings made and held in cash and arrangements were by the mutual agreement of members. However, since the early 1990s, stokvels have become increasingly recognised in the financial system and more formalised, although there is minimal regulation compared with other financial services.

Minimal regulation

Stokvels are specifically provided for in the Banks Act, but they are exempted from having to comply with the conditions under which banks operate. However, they are expected to register with the National Stokvel Association of South Africa (Nasasa) if they hold more than R100 000 in pooled savings.

Stokvels are also exempt from provisions of the National Credit Act that require credit providers to register with the National Credit Regulator. A lending transaction between a stokvel and a member is not regarded as a credit agreement if it is done according to the rules of the stokvel.

Instead of dealing in cash, many stokvels now hold their funds in bank accounts that banks have designed especially for communal savings schemes.

Stokvels registered with Nasasa must have a written constitution setting out the conditions and rights of membership.

What kinds of stokvels are there?

Stokvels are used for a variety of purposes. Nasasa lists the following types, although many stokvels are multi-functional:

• Rotational stokvels: Members contribute a fixed amount weekly, fortnightly or monthly. They then receive the accumulated lump sum on a rotational basis, which they can use for any purpose.
  
  
• Grocery stokvels: Members contribute throughout the year towards buying groceries in bulk and at a discount in November to mid-December. These groceries are then distributed among members.
  
  
• Burial societies: These stokvels help members with the costs of funerals. Members typically contribute regularly towards a set benefit that may cover the main member as well as family and extended family. The benefit traditionally came from pooled savings, but many groups now take out policies underwritten by insurance companies.
  
  
• Savings clubs: Members contribute fixed amounts at regular intervals, with each member receiving a lump sum equal to their total contribution at the end of a cycle, usually annually.
  
  
• Investment clubs: Unlike savings clubs, these are designed to grow members’ savings over a longer term through investment returns. Members may contribute to a bank account or collective investment scheme, or invest in shares, private business ventures, or property.
  
  
• Social clubs: Savings are pooled to fund the social activities of the group.
  
  
• Borrowing stokvels: These groups use pooled savings to lend money to members. They may need to charge high interest rates on the loans to be sustainable.
  
  

What are the risks of belonging to a stokvel?

In traditional stokvels, the risk of members losing money is very low, as all members are from the same community and there is a high level of trust among them. However, as the stokvel concept has become more commercialised and many stokvels have moved into the digital era, fraudsters have started to exploit the “trust” factor that characterised traditional schemes to entice people to invest in scams masquerading as stokvels.

This was highlighted in the collapse of the social-media-based United African Stokvel in July 2023, in which thousands of investors lost many millions of rands. The scheme was not a registered financial services provider with the Financial Sector Conduct Authority, nor was it a registered stokvel with Nasasa.

The differences between a stokvel and a scam – typically an illegal pyramid or Ponzi scheme – are:

• Stokvels: The scheme is owned by its members, who typically know and trust each other. You can invite others to join, but it is not a requirement that you recruit other members. There are either no fees to join or the fees are low. Each member's obligations and benefits are well defined in terms of the purpose of the stokvel, the amounts to be contributed and distributed.
  
  Depending on the type of scheme, there may not be an expectation of a return or interest. In an investment stokvel, the expected return should be a realistic market-related return. Being registered with Nasasa provides further certainty that the stokvel is genuine.   
  
  
• Ponzi and pyramid schemes: Members don't know each other and they belong to an organisation that may be shaded in secrecy. There is likely to be a joining or administration fee. In a pyramid scheme, you may be required to recruit other members.
  
  In a Ponzi scheme, payouts are made using the incoming funds of members who join later. People are enticed into investing their money through promises of unrealistically high returns. Read more: How can I avoid investing in a scam?

The dangers of carrying cash

Stokvel members face a high risk of being robbed when withdrawing or carrying large amounts of cash. The banks suggest keeping transactions electronic wherever possible, from bank account to bank account; breaking up large withdrawals into a series of smaller amounts; and avoiding withdrawals on high-risk days such as at month end, especially after hours, at congested places or at ATMs. If you need to withdraw a large amount in cash, ensure that you are accompanied by another stokvel member.