A Stokvel is a type of credit union in which a group of people enter into an agreement to contribute a fixed amount of money to a common pool weekly, fortnightly or monthly. Universally, such a system is known as a rotating savings and credit association (ROSCA), which is a group of individuals who agree to meet for a defined period in order to save together.
This financial system is not unique to South Africa, and exist worldwide. They are also known as Chama in Swahili-speaking East Africa, Tandas in South America, Kameti in Pakistan, Partnerhand in the West Indies, Cundinas in Mexico, Ayuuto in Somalia, Hui in China, Gam’eya in the Middle East, Kye in South Korea, Tanomoshiko in Japan and Pandeiros in Brazil – to name but a few examples.
Types of Stokvels
Rotational Stokvels Clubs
These are the most basic form of Stokvel, where members contribute a fixed amount of money to a common pool weekly, fortnightly or monthly. Members would receive the lump sum on a rotational basis, and they are free to use the money for any purpose. Such contributions are usually made in cash, however, several groups are beginning to deposit funds into member’s bank accounts.
This category of Stokvels members typically contribute a fixed amount of money towards the purchasing of groceries at the end of the year. The Stokvel Buying Season peaks between the beginning of November and the middle of December, and purchases are made at outlets geared towards bulk purchases. Although some retailers are geared for Stokvel purchases, most groups purchase from wholesale and Cash & Carry outlets. Some groups save these funds in a Stokvel Club Account, while others save directly with the outlets, who record these contributions and make stock available for collection during the buying period.
In this form of Stokvel, members contribute a fixed amount of money to a common pool on regular intervals, and each member receives a lump sum equal to their monthly contribution at the end of the cycle, usually annually. Typically, such finds are collected in cash, stored in a Stokvel Club Account held at a bank. At the end of the cycle, these finds are withdrawn and redistributed to members in cash. Although the handling of cash introduces a security risk, most groups operate in this manner due to the fact that existing Stokvel Club accounts lack electronic money transfer capabilities.
Burial Societies provide an informal but reliable form of insurance to help members and their families with the costs of funerals. Burial societies also provide practical support for the family during the preparation. This is known as “izandla ([helping] hands)”. As a typical Stokvel, members contribute a set amount of money at regular intervals, for a set benefit. Burial Societies typically provide policies that cover the main group member as well as family and extended family. Most groups are “self-underwritten” while an increasing number of groups are opting to partner with reputable insurance companies in order to minimise their risk.
Investment Clubs are established with the view of accessing opportunities that with grow their pooled funds. This may be in the form of interest from a bank account, buying stocks or establishing or taking part in a business venture. The period of time the money is kept in the investment varies from group to group.
These types of groups pool funds to arrange social activities. This entertainment may either take place at every meeting of the group, or the group may save regularly towards less regular social activities.
Such groups save money into a pool, and use it to loans money to members and sub-members. Borrowing Stokvels usually charge high interest rates for the sustainability and profitability of the groups operational model.
While some groups maintain the same modus operandi, others evolve to include new functions as the bond between members is strengthened. At times, Rotational Clubs will evolve to add a Savings Club function. A Savings and Rotational Club may add a loans function, and a Grocery Club may grow into a burial function for immediate members. Social Clubs typically transform into Burial Societies and Investment Clubs, while successful Burial Societies eventually invest their surplus funds.
What all Stokvel categories have in common is their social construct as well as their money collection mechanism. All pool finds for a common purpose. The nature of that common purpose, as well as the activities leading up to and including the discharging of the benefit, is where the differences exist.