Taking out a personal loan was not always a readily available option for many South Africans. Instead, people used the benefits of combining their resources; when they needed money for a rainy day, they turned to stokvels.

These days, the stokvel economy is estimated to be worth around R49 billion in South Africa, so it’s clear it’s playing a massive role in the country’s savings habits.

What Is a Stokvel?

Stokvels are a uniquely South African savings mechanism, illustrating the country’s community-driven and resourceful culture.

How Does It Work?

Members of a stokvel will contribute money to a central savings fund, usually monthly, to pool their financial resources for the benefit of one another. For a stokvel to work, every member needs to understand and agree to exactly what function the stokvel will serve.

Stokvels have changed tremendously in the last century, having much more advanced savings mechanisms these days, like investments and bank accounts.

What Kinds of Stokvels Are There?

Stokvels originally worked like burial societies, where money was paid from a collective fund, either when a member or one of their beneficiaries passed away.

These days, stokvels come in many forms. Some are used for bulk buying groceries and necessities, others for savings, and some even invest in public companies on the stock exchange.

What Are the Risks?

Many of the pitfalls have been minimised since stokvels have become more formalised, but many still face risks, like:

• Members not contributing regularly
• Mismanagement of funds
• Being susceptible to scammers running pyramid schemes
• Unclear rules about how the money will be saved and spent

If you’re thinking of joining a stokvel, do so with people you can trust.

Sources: NASASA; News24

Prices quoted are correct at the time of publishing this article. The information in this article is provided for informational purposes only and should not be construed as financial, legal or medical advice.