Not everyone qualifies for a bank loan, and loan sharks take advantage of this.They make a lot of money from desperate individuals rejected by the banks. They usually charge you above 40 per cent interest on the amount you borrow and failure to pay will result in an additional 50 per cent every month until you pay off the loan.
Loan clubs have become the backbone of communities, rescuing people from loan sharks. Stokvel members are able to secure an emergency lump sum without any paper work.
To make a quick buck, some stokvel members become loan sharks and use the stokvel money to loan to people. However, this could easily put you on the wrong side of the law.
RISKS OF RUNNING YOUR STOKVEL LIKE A LOAN SHARK: In the past, stokvel groups could freely lend each other money. They did not have to register with the National Credit Regulator (NCR) in order to borrow member’s money. Director of Stokvel Voice Media, Andile Fulane, says running your stokvel as a loan club is now illegal.
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He points out the recent National Credit Act (NCA) that requires anyone lending money to be registered as a credit provider. “Stokvels running as mashonisas are illegal. I believe the National Credit Regulator took this stance after realising that stokvels lacked self-governing.
There has been a lot of illegal activities within stokvels, and these activities have been difficult to resolve due to lack of proper contracts and paper trail,” Andile says.
He further explains that the money lending business is riskier because there’s lack of security and accountability. “For instance, the club stands to lose money if a member dies or decides not to pay back the loan because there’s no insurance and the loans are unsecured.”
DOING THINGS BY THE BOOK: It’s unlawful for any club or individual to lend out money to anyone expecting an interest fee, whether it’s family or a friend. The activity could result in a fine or worse, jail time. However, your stokvel can possibly still borrow member’s money, but just in a different way.
Andile advises that you do things by the book in order to avoid serving jail time for something that could have been avoided in the first place. He explains that your stokvel should first register with the NCR before giving out loans.
“The best way to go about it is to register as a Savings and Credit Corporative group, in that way your stokvel is regulated and has proper governance to protect everyone involved,” Andile explains.
ENJOYING THE PROFIT: Running a stokvel as a loan club is complex even when you have the law on your side. Andile advises that you continue adhering to accounting and auditing functions.
Andile explains that your stokvel can continue enjoying the profits from the interest charged, but says it needs to be in line with the law.
“The interest rate is only relevant if the institution is registered, but is also dependent on the kind of credit product extended as it is not common across the board.”