By: Alexander Forsyth-Thompson l Head: Stokvel Investments at Investment Solutions
Depending on the statistics you read, there are between 8 and 11 million South Africans that save between R25 and R50 billion into Stokvels every year. Regardless of the numbers, it is a powerful and popular form of savings that has largely replaced the need for formal financial services for many, many years. It has been the saving grace of many South Africans’ livelihoods.
People use Stokvels to cater for many needs: burial or funeral, groceries, short-term savings, rotational payments and even short-term lending. However, this clearly short-term focus has severely limited the ability of Stokvels to take the next step into wealth building vehicles. Stokvels are fantastic tools for ‘savers’, but in the past, they have not made the logical next step of becoming ‘investors’.
According to the 2014 African Response survey, one of the most recent comprehensive surveys done on Stokvels, ‘investment’ Stokvels make up only 4% of the market. It must also be understood that this 4% does not necessarily invest into formal financial products, but mostly into more informal business arrangements.
Stokvels that accumulate money in cash or in their bank account, have a real opportunity to put this money to better use. Investment and burial Stokvels are accumulating large sums of money (hundreds of thousands, even millions) which is severely deteriorated by inflation (the rising cost of living every year) when left in cash or the bank. Ironically, despite the mentioned ‘short-term’ focus of Stokvels, much of this cash has been sitting around for years, if not decades! If groups such as these made the decision to place this money into the right investment, the members of the Stokvel may have seen their money double, triple or quadruple over longer periods of time.
The group simply needs to make the decision to be patient – too many Stokvels (and Stokvel members) are after ‘get-rich-quick’ schemes and have lost-money-very-quickly as a result. They often give their money to unlicensed/unregistered groups who claim to be ‘Stokvels’, but really are just pyramid schemes. This short-term mentality makes Stokvel members very easy targets, but at the end of the day, it simply comes down to education and understanding of financial products.
Investment Solutions’ strategic partnership with the National Stokvel Association of South Africa (NASASA) is intended to bridge this link between the short-term ‘savings’ focus of Stokvels to a longer term, ‘investment’ focus that can truly build wealth. We have made available 3 Unit Trust portfolios – Stokvels can get free advice as to which portfolio is the right one for them. Key to this, is that we accept the Stokvel as the investor and don’t go after the individual members.
The Investment Solutions Stokvel team attends the NASASA Stokvel Indaba every month (each in a different township/location) and spends every weekend at Stokvel meetings too, engaging with and advising Stokvel groups. As soon as we have taken the time to explain basic investment concepts, as well as the basic way our Unit Trust products work, the response and demand for investments that accepts Stokvels as a group becomes very evident.
Stokvels do not need to change behaviour to become legitimate investors. The way they save, collect and record their contributions has worked for decades and will continue to work going forward. The next step is to make the decision to store their excess cash in an investment that is going to work for them. Today, such investments do exist.