Zinzile Ntoyiwa
The Hidden Economy of South Africa’s Traditional Saving Schemes – A national survey has shown that South Africa’s informal saving clubs, locally known as stokvels, are worth more – R44 billion (approximately €4 billion) – more than some local industries in their entirety. This has captured the imagination of retailers, FMCG companies, financial institutions and others.
Birth of the Stokvel, where it all began
“Stokvel” ultimately derives from “stock fair,” a phrase used to denote auctions run by English settlers in South Africa in the 19th century. Although primarily set up for the auctioning of cattle, stock fairs were fora for farmers and labourers to gather, socialise and sometimes pool money to purchase livestock. This – people meeting to socialise with the potential of financial gain – is still the essence of stokvels (the first known example of which dates from 1932).
Stokvels were born out of necessity, a result of the apartheid government’s policy not to allow black, coloured (mixed race) and Indian population groups access to credit. Left to their own devices, these groups came up with an ingenious plan to create a safety net against adversity based on collective saving, which provided financial security and social well-being.
How stokvels work
A Stokvel is a group of people who voluntarily agree to make a predefined contribution to a communal savings pot. This formation is based on trust, as new members are often recruited from within the family, circle of friends or colleagues of current members. Contributions are pooled and used for an agreed purpose, insuring participants against adversity such as death and funding various other functions agreed upon by the group. Groups meet at pre-agreed intervals for the purposes of pooling finances, with monthly meetings being the norm.
For entities that have been deemed ‘informal,’ stokvels tend in fact to be quite structured – 36%, for example, are governed by a constitution. The schemes often include administrative resources such as secretaries and treasurers, and all members share responsibility for hosting the group meetings (which in some cases includes preparing food and providing other forms of entertainment). Although meetings usually take place in a member’s home (74%), stokvels have been known to make use of local parks and other venues.
Why research stokvels?
Traditional saving structures have been under-studied, resulting in limited market understanding of the segment on the part of the South African industry and global entities looking to penetrate it. The main aim of our research was to unpack the demographics of stokvels, the ‘who’s, ‘what’s and ‘where’s of members and groups. The intention was then to utilise this data to uncover opportunities for various industry players looking to tap into this market, ascertain how the research fraternity can continue gaining insights from stokvels, and debunk any myths concerning what they are about.
So what is the big fuss?
The limited existing literature indicates that the number of South Africans belonging to stokvels had increased from 680,000 in 1989 to 10.5 million in 2003. Today, this number stands at over 11 million. To put this figure in perspective, the population of a city made up of all stokvel members would be larger than that of any of South Africa’s major metropolitan areas, including Johannesburg, Pretoria, Cape Town and Durban. The 11.5 million members belong to 811,000 separate stokvels, which in total are worth R44 billion (approximately € 4 billion). This sector cannot be ignored.
The current landscape of stokvel’s
Stokvels are prevalent across South Africa, but are most common in the densely-populated province of Gauteng (24%), the rural Limpopo (20%), North West (11%) and KwaZulu Natal (14%). They are for the most part concentrated in urban areas – in most provinces at least 88% of those who belong to stokvels live in metropolitan areas.
Five main types of stokvels were evident, with savings stokvels accounting for the highest percentage of membership among respondents (43%), with burial (22%) and grocery (16%) stokvels in second and third place. These have traditionally been the mainstay types of stokvels, but birthday (9%) and investment (5%) stokvels are becoming more common. When we drill down into the membership of the various types of stokvels, there are notable demographic variables. Investment stokvels, for example, skew towards men (53%), whilst grocery stokvels skew heavily towards women (86%).
Who are the stokvel members?
Looking at the composition of stokvels over the last decade, it is clear that stokvels have evolved. Initially stereotyped as organisations for lower income senior citizens, ‘grannies sitting under a tree,’ stokvels are now attracting males (42.6% of members), economically active members of society including higher income earners (20% of members fall in the top half of South Africa’s Living Standards Measure), and younger members (the majority of members are between 25 years and 49 years old).
Financial matters
On average, monthly contributions per member per stokvel range from between R83 (€8) to R439 (€42). Higher contributions are made to investment and savings stokvels, whereas grocery stokvels generally have smaller contributions. Most stokvels have evolved from the practice of not using banks and keeping the money in a ‘safe’ location to a position where 66% maintain an account with a major banking institution in the country. (The research shows interesting trends regarding the choice of banks by individual members and the stokvel as a group – there are clear variances between the two.) However, one in ten stokvels still does not make use of any banking institution.
Given the availability of formal banking, there is a clear opportunity for financial houses to strategise on how to capture this segment by not only providing them access to banking, but also potentially creating products such as funeral plans and other insurance products for particular types of stokvels.
To tweet or not to tweet – non-digital social networking
Participants tend not to belong exclusively to one single stokvel – the survey indicates that membership in up to three stokvels is not uncommon. Each stokvel has an average of 27 members, all of whom have personal and other ties with each other. Stokvels represent, that is to say, a traditional form of social networking. Whilst technology and the surge of online networks continues to grow globally, South Africa still faces challenges in this regard. Internet penetration still sits at 13.9% (compared to 84.1% in the UK, for example). As a result, online social networking platforms are under-developed. Only 1.1 million of South Africa’s total population of 50.59 million have a Twitter account, for example. This compares to 11.4 million South Africans who are stokvel members, ie, members of a face-to-face social network. This represents a powerful tool in the South African context. By reaching one stokvel member who belongs to three stokvels, each of which has 27 members who in turn have other networks, marketers have the potential to reach an enormous number of people. The stokvel network is a face-to-face vehicle which has benefits not offered by online platforms, such as allowing for product tests, brand activation with sampling, and the ability to visibly register reactions. Stokvel members comprise a group of respondents who are in their natural environment and amongst a group they are familiar with. They thus offer an alternative to focus groups and allow researchers to reach segments of South Africa’s mainstream market which are not accessible via online platforms.
It is imperative that local industries sit up, take note of these saving schemes and come up with strategies on how to tap into this market by aligning offerings and influencing purchase decisions through brand building. The financial clout of stokvels presents many opportunities for various sectors. In FMCG, to take one example, wholesalers and retailers could engage with a grocery stokvel by making bulk purchases easier, offering delivery of goods, for instance, and thereby gaining a competitive advantage. Researchers could assist manufactures in understanding brand preferences and group decision-tree regarding grocery purchases.
Stokvels are here to stay, with some soaring to the heights of registration on the Johannesburg Stock Exchange. Hence, there are further opportunities for businesses to invest in them for enterprise development as part of corporate social responsibility. Finding innovative ways to integrate brands into this market complements the entrepreneurial spirit of the millions of people who belong to stokvels, and researchers and industry alike stand to gain.
Nuts and bolts of the research
African Response conducted this quantitative study using face-to-face CAPI methodologies during August and September of 2011. Non-probability sampling was used, with the respondent inclusion criterion being membership in a stokvel. The study was national, including both rural and urban areas, involving 2000 stokvel members above the age of 16 years.
Zinzile Ntoyiwa is an account manager at African Response.
