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Thandi Mkhabela’s money used to slip through her fingers. Now the 34-year-old mother of four earns interest on monthly savings, she has paid off debts and is planning to extend her house without having to deal with a bank.
Mkhabela’s improved financial footing came after she formed a stokvel, or savings club, in June 2020 with 16 other women. Each of them contribute between R100 and R500 a month. The stokvel offers three-month loans to members at rate of 10% a month. At the end of the year they split the pot between them.
“Every month we use money for ... many things that are not necessary,” Mkhabela said, adding that without the support of the group she found it hard not to spend everything she had.
“It helped me because now I am going to start to build my house — I want a big one,” she said.
Mkhabela’s stokvel is one of hundreds of thousands that make up a largely informal market worth more than $3bn annually, based on estimates from the National Stokvel Association of SA (Nasasa)
SA’s major banks have for years wanted to bring stokvels into the country’s mainstream banking system and have stepped up efforts as increasing competition, including from new fintech firms, forces them to look for new ways to win customers and tap underserved parts of the market.
An entrenched preference for cash, mistrust of banks and a lack of infrastructure in poorer communities have hampered past efforts to formalise stokvels. But banks are hoping that a shift towards digital financial services, spurred by Covid-19, can help them to overcome these traditional barriers, and they have accelerated plans to capitalise on them.
The country’s big four banks potentially capture only R12bn rand of the R50bn stokvel market, according to Motlatsi Mkalala, head of consumer and high net worth at Standard Bank.
Standard, which already banks some stokvels via a more basic group savings account, is developing a new account with a lot of stokvel-friendly features to win over more of them and aims to launch it in the final quarter of 2021.
Rival FirstRand’s retail division, FNB, launched a fee-free account for stokvel customers earlier this year, And Absa is also looking to enhance its stokvel product, according to its head of savings and investment Thami Cele.
“We see it as an opportunity; we see them growing, starting to interact with banking ... and wanting to do long-term investments,” Cele said. “We are more equipped to cater to that.”
Stokvels, thought to be a derivative of the 19th-century cattle auctions or stock fairs, are an innovation black people devised when they were locked out of the financial system under apartheid.
They are used to save for anything from funerals and groceries to holidays and cast-iron pots. Younger savers are also increasingly clubbing together to invest in the stock market or buy property.
Members of Mkhabela’s group who don't repay debts on time are given an extra month, but then risk having goods repossessed. Members who don’t save lose out on any interest earned during that period.
Stokvels rely heavily on personal relationships and the trust, responsibility and peer pressure they cultivate. Similar informal savings and loan associations are common the world over, from “village banks” in neighbouring Malawi to Mexico’s “cundinas” or “hui” in China.
Standard Bank’s new account targeted at stokvels will offer different features depending on what the group is saving for. For grocery stokvels, for instance, the bank might provide easier ways to buy in bulk.
The bank also plans to offer discounts at retailers, funeral parlours and other places stokvels often approach with piles of cash, hoping to make a bulk purchase or to ask to set aside the money for the future.
Standard Bank is building a network of partnerships with such organisations, which already spans 20,000 outlets, to promote the new account and create a stokvel loyalty programme.
It wants to double the balances it holds via its existing group savings product, Mkalala said, without giving a figure for those.
Absa and FNB plan to offer stokvels investments, Cele and Raj Makanjee, FNB's retail and private banking CEO, said. Absa hopes its efforts can help to increase its savings and market deposit share in SA to 25% from about 21.5% within three to five years.
Standard Bank and FNB meanwhile are looking to replicate stokvels’ informal lending and could roll out similar schemes in other markets in Africa. Mkalala said his bank was already planning such moves in Kenya.
Banking a stokvel offers multiple chances to make money. Targeting individual members with personal bank accounts, for instance, would open up a world of sales opportunities.
“[That] is the much bigger play from a cross-sell point of view ... You can do much more with the members,” Mkalala said. Stokvels also benefit, he said via better returns and enhanced security.
Stokvels have lost huge sums in robberies, local media have reported, while informality can increase vulnerability to fraudsters.
Some stokvels put money in personal bank accounts, but this can create problems regarding access to the cash. If the account holder dies, for instance, clubs have to negotiate with the next of kin or the bank to access their funds, and they can be unsuccessful — a scenario that played out for some during the pandemic.
Anton Krone, head of SaveAct, which helps set up savings clubs, says shifting into the formal banking system isn’t necessarily a better option, and can lead to higher debts and other problems.
Andrew Lukhele, who chairs Nasasa, said banks bring demands for documents, a constitution — not necessary for all groups — and more rigidity in how the money can be used.
Stokvels’ benefits also go beyond pure finance; they provide a sense of community or moral support in tough times through regular in-person meetings.
Bank executives says their products could cultivate the same qualities, but Krone and Lukhele reckon these elements could be lost in practice.
Some savers are also reluctant. Twitter users in Malawi criticised banks for trying to profit from village banks after ignoring their members for decades.
Mkhabela’s reasoning, however, is more practical: “Bank accounts have too many charges, a lot of paperwork ... We prefer to do it this way.”
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.