The stokvel opportunity
In Peru they’re called ‘juntas’ and South Koreans call them ‘kyae’. Savings clubs are found in just about every country on earth - but nowhere are they quite as popular as stokvels in South Africa. Every month millions of South Africans pour billions of rands into informal savings clubs and credit unions, yet very few products have managed to captivate the stokvel faithful.
Getting accurate numbers on just how large the stokvel market in South Africa is can be challenging, but everyone agrees that it’s large - and currently underserved by traditional financial services providers.
African Response did research in 2014 suggesting that R25 billion is put into stokvels annually, with about 421 thousand clubs in South Africa.
Andile Mazwai, CEO of the The National Stokvel Association of South Africa, puts the number much higher - at between R40 and R50 billion, that is held in over 800 000 stokvel clubs.
Mazwai says that most stokvels are run informally. The club might have a bank account, but very few use products developed specifically for stokvels.
Banks have provided joint savings accounts labelled as ‘stokvel accounts’ - but these don’t offer much more than a standard savings account with joint signing powers. It’s also unclear how well these have been received.
One of the problems with the bank accounts on offer, says Mazwai, is high fees. Stokvel members actually see their money going down instead of up in a bank account. Or they receive tiny amounts of annualised interest. In short, many South Africans don’t trust the products or don’t see the point in using them.
“Trust is not the brand, it’s the experience,” said Mazwai.
On the other hand, pyramid schemes have targeted the stokvel market, offering much higher returns than banks.
In late 2015 a number of savings schemes had their bank accounts frozen as part of investigations into the legality of their operations. This included MMM South Africa, KIPI, World Ventures, Make Believe, NMT Investments, Instant Wealth Club, DIPESA, Sikhese, and Wealth Creation Club.
Some of these are global schemes promising massive rewards for customers who save their money collectively, while others directly target the stokvel market in South Africa. To be clear: legal proceedings are pending in most of these cases, so we can’t call them illegitimate yet - but a quick look at their websites doesn’t inspire much confidence.
Mazwai says that these schemes are becoming ubiquitous.
“We’re out in communities every month and I’m yet to see one where these schemes aren’t operating,” he said.
On the other hand, new stokvel products are hoping to meet the needs of savers in South Africa more decisively than the industry has thus far. Mazwai said that The National Stokvel Association of South Africa has been working on its own solutions too.
One of these is a move to provide credit ratings for groups as opposed to individuals. Mazwai explains that many South Africans make use of prepaid cellular services, for example, because they can not prove a credit rating required for post-paid, or contract, services. In many cases this is because someone cannot prove a place of residence in an informal or rural dwelling, or is self employed, as many taxi drivers and shop owners are in South Africa, and does not have a payslip.
As a group, however, it is possible to vet credit worthiness and broker deals with providers. So a stokvel could apply to have cellular contracts provided to the group, who effectively vouch for each other.
The other product Mazwai and his team have been working with allows for stokvels to invest in traditional unit trusts, by facilitating the application by a group instead of individuals. This is not something unit trust providers have allowed for in the past.
Mazwai agrees that any products targeting stokvels has to appreciate the solidarity of members in savings clubs and how they collectively take decisions. One also has to appreciate that these clubs have a lot in common with investment clubs and other informal financial undertakings by groups.
“Many of the tools we’ve seen developed so far have been unimaginative,” said Mazwai.
“I always ask the developers if it is something they would use themselves … often tools have been developed for what they think stokvels want, as opposed to what they really do need.”
With up to R50 billion flowing into stokvels annually, the opportunity can’t be overlooked - and the market is still wide open for businesses that take time to understand the realities of saving and investing in Africa.