Modern-day stokvels are a vehicle for building wealth, writes Mapalo Makhu.
The face of stokvels is changing rapidly. What was once used to meet short-term needs, such as buying groceries at the end of the year or buying school supplies, is becoming more and more a vehicle used predominantly by the younger generation to build wealth.
With an estimated value of more than R40 billion, stokvels are forever evolving to meet the needs of black communities. In recent years, the rise of innovative stokvels has seen home ownership stokvels, property stokvels and building materials stokvels come to fruition.
“What started as an alternative savings mechanism outside of formal financial systems is today a significant force. And there’s no reason to believe that property finance is immune to millions of individuals pooling their resources for the benefit of stokvel members,” says Lynette Nicholson, head of research at Old Mutual.
The annual Old Mutual Savings and Investment Monitor tracks shifts in the financial attitudes and behaviour of South Africa’s working metropolitan population. The research into property stokvels was included for the first time in this year’s survey, and it polled 15 founders and 105 members of these schemes.
Their responses reflect an increasing sense of self-empowerment as well as dissatisfaction with traditional lenders. This discontent ranges from barriers to finance and lengthy mortgage periods, to punitive measures such as repossession for payment arrears.
Stokvels are not only familiar structures in black communities, they also help to retain ownership and money within these communities. Applying this outlook to property ownership creates an avenue to building generational wealth and the dignity associated with owning a home.
“The true power of these schemes is reflected in the numbers of both membership and their combined contributions,” Nicholson says.
“The largest group that was surveyed, of more than 550 members, accumulates a staggering R24 million a year from monthly contributions that range from R3 500 to R15 000.
“While that group may be an outlier in terms of size and volume of contributions, it’s not uncommon for members to contribute around R2 500 a month. A group with 100 members can therefore easily reach an annual investment of R3 million and a group of 30 can accumulate R900 000 a year off relatively modest monthly contributions.”
The more ambitious property stokvels are building investment property portfolios that are used to create generational wealth, while many assist members to buy or build a family home. Others are focused on helping members to buy materials needed to complete a project.
Of the property stokvels that focus on home ownership and building homes for its members, the study reveals that members are predominantly female (89%), with 52% aged between 35 and 49. The younger members, below 35, make up 16% of membership and those over 50 constitute 31%.
One striking characteristic of these schemes is their unflinching focus on property finance, refraining from personal loans for other purposes.
They also have sophisticated governance in the form of a scheme constitution, using application forms as the contract between members and the scheme.
“It is clear from the responses to the survey that members see greater value and experience a greater sense of community from these schemes. The ability for lower income earners to realise a dream of owning their own home is also extremely powerful,” Nicholson says.
These findings from the savings and investment monitor reflect what I have also seen on the ground. Just last week in a coaching session, a client informed me that she lives off 45% of her income and has been saving the rest in a rotating stokvel to build her house; a true testament to alternative saving.
The benefits of saving through a stokvel are many and they normally foster the culture and habit of saving, but what pitfalls should you look out for before joining one?
According to Andile Fulane, managing director of Stokvel Voice Media, the following is key:
. A stokvel whose members have different values and goals is not sustainable. It’s important for all the members to buy into a joint vision, otherwise the stokvel will quickly lose momentum.
. Unlike a business, stokvels have a flat hierarchical structure; they have no boss or junior staff and the success of the stokvel is purely dependent on the efforts of the collective. If some members do not pull their weight by making the agreed financial contributions and doing the tasks that need to be done then there is a higher risk that the stokvel will collapse.
. Good leadership, accountability and administration are key areas, so do not compromise on these. This is why stokvels should appoint capable people in critical roles such as treasurer and chairperson.