Stokvels (defined as “informal” group savings clubs) are a smart way for almost anyone to get into the habit of saving. For many first-time savers, having the discipline to set aside a portion of their disposable income without “dipping their fingers into the piggy bank” can be quite challenging. When one joins a stokvel, you make a commitment not only to yourself, but also to the other members who make up the stokvel to save towards a common goal.
Studies have shown that the psychology of the group dynamic amongst stokvels holds members accountable to the agreed upon terms and defaults among members are generally low. Based on the constitution of the stokvel which lays out the purpose/goal of the funds saved by the members, payouts to members generally only occur when the funds have matured i.e. reached the intended savings goal.
When a member, however, encounters an unexpected emergency, they can submit a claim to the stokvel and based on the consideration of the members, make a withdrawal from the fund. Sometimes this withdrawal comes at a cost of interest due to the stokvel itself.
Stokvel Benefits & Due Diligence
“If you want to go fast, go alone. If you want to go far, go together.” This African proverb gives great insight into the tenets that make stokvels appealing for many (South) Africans. As the practice has evolved over centuries, stokvels are now more sophisticated in their approach to saving, with increasing numbers of stokvel groups exhibiting an appetite for investment opportunities.
Investment stokvels are ideal for those individuals looking for a low risk vehicle to start their investment portfolios. More importantly, with little effort, your return on investment is usually significantly higher due to the larger collective capital sum invested and held by the group.
As with any vehicle related to savings and investments, one should perform the necessary due diligence on a stokvel before looking to join. A new member keen to join a stokvel must request a copy of the constitution from the stokvel chairman and, in my personal opinion, should also ask to see a history of the stokvels bank statements so the new member can see the pattern of when contributions are made and how frequently claims are paid out.
One must also ensure that the stokvel they are interested in joining shares a similar culture and value system before they commit to becoming a part of the group. These ultimately form the cornerstones of a successful stokvel: Culture, value system and most of all, trust.
The last thing you need is to join a group unstable or lacking in member commitment. This can derail the stokvel as its focus will be wasted on addressing misconduct instead of on generating wealth.
Starting a stokvel
Starting your own new stokvel gives you the benefit of beginning with a “clean slate”. You can set up a constitution aligned with the vision of all parties involved and hand-select the members of the group according to specific skills that they might bring to the stokvel.
Within the new constitution you can focus on the mandate of the group, disciplinary processes, exit requirements and beneficiary rules, in case a member becomes deceased.
An even more critical factor, stokvels must consider their business continuation processes in the case of a withdrawal or death of a stokvel member.
Such incidents can bring the entire Stokvel to a complete halt and it is important these details are laid out early on in the formulation of the constitution.
When building wealth, the ultimate goal is for it to be passed down from one generation to the next. Using stokvels as a tool to do that could be the key to building wealth for the majority. A scenario where each new generation is forced to begin wealth-building efforts from scratch each time is not ideal. We believe that if done well and correctly managed, stokvels can be used to create wealth and an economic mindset and culture, that truly can be passed on from generation to generation.