CAPE TOWN – The National Stokvels Association of South Africa (NASASA) estimates that there are currently more than 800 000 stokvel groups in the country. In total there are more than 11.4 million individual members who collectively put between R45 billion to R50 billion into these organisations every year.
Those numbers illustrate pretty clearly how important stokvels have become as savings vehicles. Given their historical significance, they play a huge role in South Africa’s informal economy.
“The reason why stokvels became so prevalent among black South Africans is because historically they were excluded from the mainstream financial system,” explains CEO of NASASA, Andile Mazwai. “They had to look for other ways to save or to get credit.”
Most stokvels will only save for a calendar year, often to have money to buy groceries at the end of it, while others, like burial societies, might hold cash for longer. However, many of them develop further as members become more appreciative of the benefits of saving.
“It’s a natural evolution,” Mazwai says. “You run a stokvel this year, you all saved your money, you enjoyed having a lump sum to buy groceries for Christmas, but at the start of the next year you’re broke. So then you say to each other, let’s not use all of the money, but keep some of it aside.
“That way groups that might start out as grocery groups start to leave a portion for school fees, or uniforms or just for an emergency,” he explains. “But once you start keeping the excess, the question then becomes how do you invest it.”
It is not that unusual for a stokvel to have R1 million in its coffers, and in some cases they may have even more than that. Some may keep their funds in a bank account, but very few make use of investment products like unit trusts.
There are a few reasons for this, such as stokvels needing liquidity or being very sensitive to fees, but stokvels have also largely not been catered for by financial services companies because, as Mazwai puts it, they are ‘a compliance officer’s nightmare’.
“Unfortunately the system is not set up to accommodate stokvels,” he says. “What is the legal entity? It’s not a company or partnership. The group is also fluid. How do you account for a member who joins late, or how do you deal with the balance for a member who decides to leave?”
Given that stokvels present an appealing new market, some financial services companies have tried to find ways to attract them. However, this has almost inevitably been premised on either forcing the stokvel itself into a different form, or trying to deal with individual members.
“What the industry has done is to say if you make yourself a company then we can cater for you, or if you come as individuals we can offer tailor-made wealth management solutions,” says Mazwai. “But this breaks down the structure of the group. It’s very difficult for the established industry to come to terms with the idea that people are comfortable in the fluid stokvel space, that they are happy to be unstructured, and that they want to be dealt with on this informal basis.”
Given these complexities, it is noteworthy when a financial services company breaks out of its own accepted way of doing things to provide solutions specific to stokvels. It is an acknowledgement firstly that this is a sophisticated market that knows what it wants, and secondly that if companies are to become more relevant to more people they need to stop thinking in terms of products and start offering solutions.
This is essentially the premise behind a new offering from Investment Solutions, which recently launched three unit trust products aimed at stokvels. The project leader of the initiative, Alex Forsyth-Thompson, says that they realised that the imperative is not to change what stokvels do, but rather help them do it more effectively.
“We have agreed to recognise the stokvel itself as an entity,” Forsyth-Thompson explains. “That means that stokvels will have their own application form with us and their own way of being Fica-registered. We deal only with the stokvel itself, not the members. We don’t want to interfere with the essence of what a stokvel is.”
Investment Solutions has three products in its offering. They represent different risk profiles, but to make them relevant to stokvels they are put forward as solutions to be used for different time frames.
“If a stokvel has money it will not need within the first year, it may not be in its best interest to leave it a bank account being weakened by inflation,” Forsyth-Thompson explains. “There may be better ways to utilise this money, which is why we are marketing three unit trust portfolios: a conservative income-type portfolio with bonds and cash; a moderate portfolio with a three-year investment horizon; and a moderately aggressive portfolio with a three- to five-year horizon.”
Mazwai says that the important thing is moving away from focusing on what the products are, to how they support what a stokvel is trying to do.
“In terms of the investments themselves, it’s nothing different to what Investment Solutions already offers,” explains Mazwai. “There’s a low-risk product, medium risk and high risk. But that’s not the language we use because if we are a grocery stokvel we don’t think of risk, we think of duration. So it’s a case of understanding the language that people use – understanding the way they talk about their money.”
Investment Solutions and NASASA are currently in the process of meeting with stokvels and educating members about these offerings.
“We are spending a lot of time going to stokvel indabas, stokvel meetings, speaking to members and discussing when they need the money they are saving and what they need it for,” Forsyth-Thompson says. “What we are increasingly finding out is that some stokvels are evolving into very ambitious investment clubs.”
The huge potential that exists in this space means that these investment clubs may become more and more prevalent. And that makes it likely that more asset managers will follow suit in taking them more seriously.