Stokvels show their mettle in tough economic times

In tough economic times, before and since the outbreak of the pandemic, stokvel numbers have grown, showing the resilience of members – mostly women – and their usefulness as a savings mechanism that harnesses the power of community, latest research by two major financial institutions shows. 

The latest Old Mutual Savings and Investment Monitor recorded the highest percentage of respondents (67%) saying they use an informal savings instrument – a stokvel, burial society, grocery scheme or unbanked cash. This figure has increased steadily year on year from 54% in 2015 when Old Mutual started tracking informal saving.

Although there’s an increasing trend in informal savings, Old Mutual found flux and movement between informal savings instruments. This year there was a 10% drop in the number of people who say they belong to a savings club or stokvel, compared with last year. Yet this year, many more people say they belong to a burial society or a grocery scheme than last year.

About a third of respondents in the Old Mutual survey have either borrowed from their stokvel or fallen behind on their contributions this year, and more than half (56%) said their stokvel was allowing members to decease contributions or take a break from contributions, reflecting the impact of the pandemic on members. 

Thirteen percent of respondents said they left or resigned from a stokvel or savings club this year. This is the first time Old Mutual has included this question in the survey. 

Sifiso Nkosi, the manager of stokvel growth at FNB Cash Investments, says research by FNB shows the number of new accounts opened by stokvels is growing consistently, along with the contributions made by stokvels.

Describing stokvel membership as “very robust”, he says the impact of Covid-19 on the stokvel market has been minimal. “Instead, the trends point to resilience as the contributions made by groups continue to grow despite a tough economic climate.”

Nkosi says stokvels enjoyed single-digit growth in May and June, and while this month’s growth rate was lower than the previous two months, it remained in positive territory.

Year-on-year growth for May and June was double-digit, he says.

According to Old Mutual, the average monthly contribution rates to stokvels are correlated to income, as expected.

This year the average monthly contribution is R1,138 (R893 for those earning between R5,000 and R19,999 a month and R1,639 for those earning R20,000 a month and more).

This is up from an average monthly contribution of R1,059 last year (R823 for those earning between R5,000 and R19,999 a month, but down from R1,651 for those earning R20,000 a month and more).

According to FNB, stokvels are generally female-led and concentrated in four provinces. Nkosi says 84% of stokvels are in Limpopo (which has the second-highest number of stokvels behind Gauteng and the stokvels with the highest contributions), Gauteng (the province with the most stokvels and the second-highest contributions), KwaZulu-Natal (the third-largest province in stokvel numbers and contributions) and then the Eastern Cape.

Most popular

Nkosi says the three most popular stokvel types remain burial societies, grocery stokvels and savings stokvels. “Given the important role these types of stokvels play in members’ day-to-day survival, the top three are unlikely to change anytime soon.”

For decades stokvels have proven that they are a means of survival for many households, and can deliver against the need for food, funeral cover and additional income in peak periods, such as Easter or December holidays. But the stokvels of the future will need to cater for longer-term financial needs, he says.

“How can groups save so that every member has an emergency fund equal to three months of expenses? How will stokvels evolve to invest in tax-free savings accounts (TFSA) to ensure that they benefit from not paying tax on any growth in investment? The long-term nature of a TFSA offers stokvels compounded growth that can create wealth for a healthy retirement. How can stokvels invest in other asset classes, such as unit trusts, shares, gold etc,. to create wealth that can be passed onto the next generation?”

Palesa Lengolo, the author of Stokvels: How they can make your money work for you, says that when she speaks to stokvel members they regularly vent their frustration about how they’re treated by banks. 

She says stokvels don’t enjoy the same simple benefits that individual customers enjoy, such as access to internet banking.

“Being part of a stokvel that banks with FNB should offer benefits that would make me [as an individual] want to bank with FNB. Would I get preferential interest rates when I, as a stokvel member, want to buy a home, for example?” 

She says digitalisation is key to the future of stokvels. “Banks must provide more in the way of a digital offering. There has been a significant increase in the youth using stokvels. They want digital channels.

“Our banks are advanced in their offerings to all sectors but are lagging in their offerings to stokvels. 

“There’s been a move beyond burial societies to business stokvels and property stokvels. What can home loans offer the latter? And can it be packaged into one product?”