As the stokvel sector continues to move towards becoming more formalised, more and more groups are making use of offerings from banks and other financial service providers, because these are seen as “safe” and a wise means of keeping their hard-earned cash secure. Those that continue to keep their cash in hand to avoid bank fee charges and have it easily accessible put themselves at greater risk of theft and loss, and make it considerably more difficult to keep track of monies received and paid out.
Fortunately, times are changing. While there will always be stokvels that exist for the primary reason of catering to their members’ basic needs, such as groceries in December, there are an increasing number of stokvels which are realising that they can benefit from researching the financial products and services available to them. These include a variety of investment options for more sophisticated stokvel groups that are keen to grow their wealth. Club savings accounts are the most common vehicle for managing stokvel money, but unfortunately these do not offer much of a return in terms of interest earned, because of increasing inflation. Let’s compare some of the standard savings accounts available from the main banks, and explore some of the best ways for your stokvel to make use of what they are offering, as well as the issue of how to go about safe lending from within your stokvel.
Beating the banking blues – where to start? What to choose?
If your stokvel group is in the habit of lending money to members, make sure you have these elements in place to help protect against loss through non-payment.
Let’s take a glance at what is on offer from the different main financial institutions, to understand the subtle differences:
· At Standard Bank, your stokvel can choose a transaction savings account specifically designed for collective savings, called the Society Scheme. Interest is earned at a rate between 1.76% and 3.56%, depending on the balance held in the account, and you’ll need a minimum of R100 to open an account. For more interest-bearing accounts that are liquid, you can opt for a Call Deposit account, which requires a minimum balance of R1 000 at any given time. Interest is earned at a rate of between 2.38% and 3.40%, depending on the balance. Other alternatives are a Money Market Call Deposit account, where your money is linked to the money market and guaranteed against loss, and interest is earned at a rate of between 5.90% and 6.43%, or a 32-day Notice Deposit account, with a minimum balance of R250 that earns interest at a rate of between 4.13% and 5.17%, depending on the balance.
· FNB provides stokvels with a specific, designated stokvel account (costing only R7 per month) that allows stokvel groups a rebate on their monthly management fee if more than R5 000 is held in the account throughout the month. Jo-Ann du Plessis, head of pricing and product, says that one of the advantages of the FNB Stokvel account is that it makes provision for up to three signatories, so not only one person is responsible for the money.
· ABSA has a Club account designed for groups of two or more that offers tiered interest rates on positive balances, calculated daily and capitalised monthly, ranging from 1.40% to 4.80% interest. This account charges no monthly management fee, and account holders can earn an additional 1% interest bonus for accounts with balances of R1 000 and above. A 32-day notice period is required for fund withdrawal. A minimum monthly investment of R50 is required for this account. It also offers free alert notifications for up to three signatories.
· The Nedbank Club account requires R100 to open an account, but has no monthly maintenance or transaction fees and offers unlimited withdrawals, provided there are sufficient funds in the account. You will need to invest at least R1 000 to earn interest, which the bank says is market related and tiered. You will also need to maintain a minimum R50 balance, and the entire balance in the account can be withdrawn once a year. This account also offers members eNote notifications.
These accounts, of course, provide the basic means for stokvels to transact and safeguard their money. But, as mentioned before, they do not offer much in the way of returns for stokvels to grow their money. We’ll take a look at some investment options for stokvel group accounts in future – in this issue, we explore safe lending in the context of stokvels.
Safe lending – what is it and how do we go about it?
There is an old saying that says: “Neither a borrower nor a lender be.” Unfortunately, if we all lived by this rule, most of modern society would crumble around us. Stokvels are commonly referred to as a type of peer-to-peer lending system. You put money in and are technically “lending” it to your fellow members, until it’s your turn to receive your lump sum payout. But it is also common practice for stokvels to lend money to individuals from time to time, at significantly high interest rates – often between 20% and 50% per month. This can pose an extreme risk because of the possibility of non-payment.
So how can safe lending within your stokvel take place?
· Trust: the first and obvious step would be to ensure that you participate in a group where you trust your fellow members. This means knowing them well enough to have a trust relationship.
· Good record-keeping: another key element to safe lending within the group includes the meticulous keeping of records. For groups that avoid using bank accounts and prefer to keep cash in hand, this is a problem, because keeping track of transactions becomes that much more challenging. Using the old method of recording all transactions in a book is tedious, time-consuming and outdated. It also presents the additional problem of what happens if the record-keeping book is lost or damaged. Fortunately, StokFella now provides a solution for this, by making electronic record-keeping for all stokvels as easy as pressing a few buttons on the keypad of your phone. No more worrying about who has been paid or who still owes money to the group, and how to stay on top of it – it is all managed and stored on the app or mobi site.
· Transparency and accountability: when all transactions are transparent for group members to see, as is the case when they’re recorded on the StokFella app, it makes the borrower a lot more accountable to his peers. This, in turn, better safeguards the group against him defaulting on his payment plan agreement.
If your stokvel group is in the habit of lending money to members, make sure you have these elements in place to help protect against loss through non-payment. The traditional stokvel system has worked well for centuries, but with the rise of modern technology, it is now possible for it to work even better – and to provide greater economic empowerment to more people who need it most.