JOHANNESBURG: Thandi Mkhabela’s money was slipping through his fingers. Today, the 34-year-old mother of four is earning interest on her monthly savings, has paid off debts and plans to expand her home in a township just outside Johannesburg, never having to deal with a bank.
The improvement in Mkhabela’s financial situation came after she formed a savings club with 16 other women in June 2020.
Each pays between R100 and R500 a month, and the club, known as stokvel, offers three-month loans to members, at a rate of 10% per month. At the end of the year, they shared the pot.
“Every month we use money for… a lot of things that are not needed,” Mkhabela said, adding that without the support of the group she found it difficult not to spend all she had.
“It helped me because now I’m going to start building my house – I want a big one.”
Mkhabela’s is one of hundreds of thousands of stokvels that make up a largely informal market worth more than $ 3 billion (roughly R 45 billion) per year, according to estimates by the National Association of African Stokvels in South Africa. South (Nasasa).
The big South African banks have for years wanted to introduce stokvels into the country’s traditional banking system.
They have stepped up their efforts as increasing competition, including from new FinTech companies, forces them to seek new ways to gain customers and exploit underserved parts of the market.
An entrenched preference for cash, mistrust of banks, and a lack of infrastructure in poorer communities have hampered efforts to formalize stokvels.
Banks hope the changes spurred by Covid-19 – a forced shift to digital financial services – can help them overcome traditional hurdles, and they have accelerated plans to take advantage of it.
The country’s four big banks potentially capture R12 billion in the R50 billion stokvels market, said Motlatsi Mkalala, head of consumption and high net worth at Standard Bank.
Standard Bank, which collects some stokvels through a more basic group savings account, is developing a new account with many stokvels-friendly features to earn more and aims to launch it in the last quarter of 2021.
Rival FirstRand’s retail division, FNB, launched a free account for stokvel customers earlier this year. Absa is also looking to improve its stokvel product, its savings and investment manager Thami Cele said.
“We see it as an opportunity: we see them growing up, starting to interact with the bank… and wanting to make long-term investments,” Cele said. “We are better equipped to respond to this.”
Food at funerals
Stokvels, a word believed to have originated from 19th-century cattle auctions or cattle fairs, are an innovation of the country’s black population, who were excluded from the financial system under apartheid.
They are used to save for everything from funerals and groceries to vacations and cast iron pots. Young savers are also coming together more and more to invest in the stock market or buy real estate.
In the Mkhabela group, members who fail to repay their debts on time are given an additional month, but risk having their property repossessed. Members who do not save lose interest earned during this period.
But stokvels depend heavily on personal relationships and the trust, responsibility and peer pressure they cultivate.
Similar informal savings and loan associations are common around the world, from “village banks” in neighboring Malawi to “cundinas” in Mexico or “hui” in China.
Standard Bank’s new account for stokvels will offer various features, depending on what the group is saving for. For grocery store stokvels, for example, the bank could provide easier ways to buy in bulk.
The bank also plans to offer discounts at retailers, funeral homes and other places where stokvels often approach with heaps of cash, in hopes of making a bulk purchase or asking for money. put money aside for the future.
Standard Bank is developing a network of partnerships with such organizations, which spans 20,000 points of sale, to promote the new account and create a stokvel loyalty program.
He wants to double the balances he holds through his collective savings product, Mkalala said, without giving a figure for them.
Absa and FNB plan to offer stokvels investment solutions, said Cele and Raj Makanjee, general manager of FNB’s retail and private banking. Absa hopes her efforts will increase her share of savings and deposit market in South Africa to 25 percent, from around 21.5 percent, within three to five years.
Standard Bank and FNB are looking to replicate stokvel’s informal lending and could roll out similar programs in other markets in Africa. Mkalala said his bank is planning such moves in places like Kenya.
The biggest game
Cashing in a stokvel offers multiple chances of making money. Targeting individual members with personal bank accounts, for example, would open up a world of sales opportunities.
“(It’s) the much bigger game from a cross-selling point of view… You can do a lot more with members,” Mkalala said.
The Stokvels also benefit, he said, including through better returns and increased security.
The Stokvels have lost huge sums in isolated thefts, media reported, while informality can increase vulnerability to fraudsters.
Some stokvels deposit money into personal bank accounts, but this can create problems accessing cash. If the account holder dies, for example, clubs must negotiate with the next of kin or the bank to access their funds, and they may fail – a scenario that some played out during the pandemic.
Anton Krone, the director of SaveAct, which helps set up savings clubs, said switching to formal banking was not necessarily a better option and could lead to increased debts and other problems.
Andrew Lukhele, who chairs the Nasasa stokvel association, said the banks have asked for documents, a constitution – not necessary for all groups – and more rigidity in how the money could be used.
The benefits of Stokkels also go beyond pure finance. They provide a sense of community or moral support in difficult times, through regular face-to-face meetings.
Bank executives said their products can cultivate the same qualities. Krone and Lukhele said they believe the elements might be lost in practice.
Some savers are also reluctant. Twitter users in Malawi criticized banks for trying to take advantage of village banks after ignoring their members for decades.
Mkhabela’s reasoning, however, is more practical: “Bank accounts have too many charges, a lot of paperwork … We prefer to do it this way.