Setting up a stokvel

The first in a regular series by guest columnist Tshepo Moloi

With the financial pressure that we all seem to be experiencing lately, you may have heard a number of friends and family say it is “impossible” to save if you’re living on a low income. Does this sound familiar? Perhaps you’ve felt the same way?
When budgets are tight to the point of not meeting even basic needs, is it still possible to put money away or is there a “minimum earning requirement” for saving?

Stokvels in South Africa have been a savings mechanism for generations of families looking to improve their economic status. The word “stokvel” originated from the term “stock fairs”, which described the rotating cattle auctions of English settlers in the Eastern Cape during the 1900s when locals first began pooling their resources so as to be able to trade livestock. This practise of pooling resources has continued to this day, although for different reasons — these days we see stokvel members saving for burials, for investment purposes, and for medium-large purchases that they otherwise could not afford.

Economic empowerment for the poor

With the financial pressure that we all seem to be experiencing lately, you may have heard a number of friends and family say it is “impossible” to save if you’re living on a low income. Sounds familiar?

Research shows that stokvels have helped poverty-stricken families to improve their quality of life even in the case of unemployment. This is where a stokvel member will make his or her contributions using income from the support of his or her partner, who is employed. What this shows us is that even if you have no income of your own and are living below the bread-line, it is still possible to still make a plan to put money away in one form or another, so as to help improve your future economic situation.

Debt-busting power

One of the problems South Africans are experiencing with their finances at the moment is the increasing pressure from being in debt. Belonging to a stokvel can, in fact, act as a means to help you avoid debt (for example in the case of making larger purchases for items such as vehicles or furniture that you might otherwise be tempted to pay for on credit). By exercising some patience and discipline, these purchases can be made using your pay out from a stokvel, thereby saving you additional money on the interest you would have paid. Stokvels can also act as a mechanism to help you pay off debt. You can use your pay out to settle with outstanding creditors and take off some of the financial pressure.

5 simple steps for setting up a stokvel

  1. Identify members who will be a good fit for your stokvel – most important is that they are people you trust, this is key.
  2. Agree on the rule of your stokvel. This forms the basis of your stokvel constitution and covers aspects such as: How much each member will invest and how often (usually monthly). Who will manage the money (the Treasurer) – we believe the Treasurer should be a role that is rotated regularly and should be someone who is accountable, capable and above all, trustworthy. How often meetings will be held and where? Where/how the money will be invested ?
  3. Open a club savings account with the financial institution of your choice.
  4. If your stokvel is going to operate as an investment club, choose the kind of investment vehicle you will use and how much risk you are prepared to take.
  5. Hold your founding meeting (where we recommend you use the StokFella app rather than the old-fashioned method of a book) to record members attendance, contributions in and out, the venue and much more.

Common stokvel problems

One of the most typical headaches that stokvel administrators usually struggle with is keeping track of the information needed to manage the business of the stokvel. In the past, it was common practise for stokvel administrators to write down all the necessary information in a book. Besides being time-consuming, this presented other problems such as books going missing, getting wet or damaged and consequently all stokvel records getting lost.

New technology now makes it possible to store all of this information securely online and to make it available to the stokvel administrators and members for each private group as and when they need it. This of course also leads to greater transparency and trust which only serves to strengthen the relationships in place that keep a successful stokvel going. When trust breaks down, it will often lead to the stokvel’s demise. From time to time, stokvel group members will call a meeting to investigate the whereabouts of group funds when one or more members with signing power are suspect. Sometimes this leads to legal battles and either the police or third-party mediators may be called upon to help intervene. By being able to see who has made their contribution, who has not, who has received their payout and who is still owed a payout, trust within the stokvel group is kept intact. This is critical for ongoing successful group saving.

Tshepo Moloi, founder, StokFella

At StokFella, we believe in the power of group saving because it is a system that has worked successfully for generations in South Africa and we aim to promote its positive effects as much as possible whilst helping to minimize administrative headaches through our app. Let’s work the stokvel journey of financial freedom together!