© Reuters. On September 11, 2021, during a party in Vanderbilt Park, south of Johannesburg, South Africa, members of the Save Act (an informal savings club called stokvels) put money on the table after donating money. REUTERS/Siphi
By Emma Ramney
Johannesburg (Reuters)-Thandi Mkhabela’s money used to slip through her fingers.
Now, the 34-year-old mother of four earns interest through monthly savings, pays off her debts, and plans to expand her house in a small town outside of Johannesburg without having to deal with a bank.
After Mkhabela established a savings club with 16 other women in June 2020, his financial situation has improved. Each of them donates 100 rand (6.64 US dollars) to 500 rand a month. The club called stokvel provides members with a three-month loan at a monthly interest rate of 10%. At the end of the year, they split the pot equally between them.
“Every month we spend money on… many unnecessary things,” Mkabella said, adding that without the support of the organization, it would be difficult for her not to spend everything she has.
“It helped me because now I am going to start building my house-I want a big one,” she continued.
According to the South African National Stockville Association (NASASA), Mhabera is one of hundreds of thousands of stokvels in the major informal market worth more than US$3 billion annually
For many years, major banks in South Africa have been hoping to introduce stokvels into the country’s mainstream banking system.
With increasingly fierce competition including from new financial technology companies, they have stepped up their efforts, forcing them to find new ways to win customers and tap underserved parts of the market.
A deep-rooted preference for cash, distrust of banks, and a lack of infrastructure in poorer communities have hindered past efforts to formalize stokvels.
Banks hope that the changes triggered by COVID-19, the forced shift to digital financial services, can help them overcome these traditional barriers and accelerate plans to take advantage of these barriers.
Standard Bank Consumers and High Net Worth Head Motlatsi Mkalala told Reuters that the country’s four largest banks may currently only occupy 12 billion rand in the 50 billion rand ($3.32 billion) stokvel market, which means a huge growth opportunity .
Standard Bank has deposited some stokvel into the bank through a more basic group savings account, and is developing a new account with many stokvel-friendly features to win more people, and plans to launch it in the last quarter of 2021.
FNB, the retail arm of competitor FirstRand, launched a free account for stokvel customers earlier this year. Absa is also looking to enhance its stokvel product, Thami Cele, its head of savings and investment, told Reuters.
“We see this as an opportunity: we see them growing and start to interact with the banking industry… and want to make long-term investments,” Saylor said. “We are better able to cater to this.”
The term Stokvels is believed to come from cattle auctions or stock exchanges in the 19th century. It is an innovation of the country’s black population, who were excluded from the financial system under the apartheid system.
They are used to preserve everything from funerals and groceries to holidays and cast iron pots. Young savers are also increasingly gathering together to invest in the stock market or buy real estate.
In Mkhabela’s group, members who fail to repay their debts on time will be given an extra month, but the goods may then be recovered. Members who do not save will lose any interest earned during this period.
But stokvels rely heavily on personal relationships and the trust, responsibility, and peer pressure they cultivate.
Similar informal savings and loan associations are common all over the world, from the “Country Bank” in neighboring Malawi to the “cundinas” in Mexico or the “hui” in China.
Standard Bank’s new account for stokvels will provide different functions according to the group’s savings purpose. For example, for a grocery store, the bank may provide a simpler way to buy in bulk.
The bank also plans to offer discounts at retailers, funeral homes, and other places that are often close with piles of cash, hoping to buy in large quantities or ask to set aside money for future use.
Standard Bank is building a network of partnerships with such organizations, which already covers 20,000 outlets to promote new accounts and create stokvel loyalty programs.
Mkalala said it hopes to double the balance it holds through existing group savings products, but did not give a specific figure.
Cele and Raj Makanjee, CEO of FNB retail and private banking, said that Absa and FNB plan to provide stokvels investment solutions. Absa hopes that its efforts will help increase its share of savings and market deposits in South Africa from around 21.5% to 25% within three to five years.
At the same time, Standard Bank and FNB are studying how to replicate stokvel’s informal loans and may launch similar programs in other markets in Africa. Mcarara said his bank is already planning to take such actions in Kenya and other places.
Bank deposits provide a variety of opportunities to make money. For example, an individual member targeting a personal bank account will open up a world of sales opportunities.
“From a cross-selling perspective, (that) is a bigger game…you can do more with members,” Mkalala said.
He said that Stokvels has also benefited, including through better returns and enhanced security.
According to local media reports, Stokvels lost a huge amount of money in a robbery, and informality increases the vulnerability of fraudsters.
Some stokvels deposit money in personal bank accounts, but this may result in the inability to obtain cash. For example, if the account holder dies, the club must negotiate with close relatives or the bank to use their funds, and they may fail—this has happened during a pandemic.
F Anton Krone, the head of SaveAct who helped set up the savings club, switching to a formal banking system is not necessarily a better option, and may lead to higher debt and other problems.
Andrew Lukhele, chairman of the Stokvel Association NASASA, stated that banks require documents, a constitution — not all groups need — and stricter rules on how funds are used.
The benefits of Stokvels are not just pure finance. They provide a sense of community or moral support during difficult times through regular face-to-face meetings.
Bank executives said that their products can cultivate the same quality. Krone and Lukhele said they believe these elements may be lost in practice.
Some depositors are unwilling. Twitter (NYSE:) users in Malawi criticized the bank for trying to profit from rural banks after decades of ignoring its members.
However, Mkhabela’s reasoning is more practical:
“The bank account charges too much, too much paperwork…we prefer to do this.”
(1 USD = 15.0522 Rand)