By Masvingo Mudalahothe
Stokvels have a trust-based business model, giving many people peace of mind when it comes to saving and accessing funds because they are part of an established community with known credentials. Each participant feels socially pressured to honour their commitments and remain accountable. Although most stokvels have bank accounts, they generally do not regard these as useful savings vehicles. Compared with banks, stokvels have easier terms and lower transaction costs.
South Africa continues to face severe poverty and high rates of inequality, with half of the country’s population surviving below the poverty line (Statistics South Africa, 2018). Andrew Lukhele founder of National Stokvel Association of South Africa (NASASA) states that Stokvels attempt to fill the gap created by formal financial institutions such as commercial banks by providing saving and credit.
According to Nobantu Mkwanazi who is doing her PhD in Development Finance, Banks usually have high fees, too much paperwork and very slow response times. As a result, some people find banks to be inaccessible and prefer to conduct business informally.
Nobantu further adds that a stokvel has a trust-based business model, giving many people peace of mind when it comes to saving and accessing funds because they are part of an established community with known credentials. For example, many people in lower-income clusters do not meet the minimum requirements set by the bank to secure a loan, but through stokvels, they can secure micro-loans and also benefit from the interest they will be paying to the stokvel.
Andrew says that says the banking sector can learn a lot from stokvels, especially when coming to the issue of interest rates, “in stokvels the interest rate is something agreed to amongst the group and is a rate that the group is comfortable with, whilst in the banking sector, the banks receive money from the reserve bank on a prime rate and on that basis they personalise the interest rate as per individual credit history, the higher the risk profile the higher the interest the person will be charged. It will be better if like how the banks get a fixed prime rate regardless of how the business is performing that it offers the same trust model to its customers and also offers a flat interest rate.
Another thing that stokvels do very well that the banking sector could learn is that stokvels do not charge any fees to their members for being part of the stokvel, meanwhile, the banking sector charges its customers for all the services they provide. Nobantu says even though it is understandable why bank charges fees for their services, this, however, is one of the reasons why people find the banking system to be unreliable and would rather use informal banking systems. Banks should do better to have products that cater to lower-income classes, she adds.