Introduction
Stokvels and savings clubs have long been a cornerstone of South Africa’s informal economy, playing a crucial role in fostering financial resilience among communities.
As these groups increasingly integrate into the formal savings and investment system, the question arises: how can financial institutions better serve this vibrant and vital segment?
Trends in Stokvels and Savings Groups
According to African Response, over R50 billion is saved or invested annually through stokvels and savings groups, representing a significant slice of South Africa’s collective investment management industry, which boasted nearly R3.5 trillion in assets under management by the end of 2023.
In July, African Response conducted a survey among 1,481 members of its MzansiVoice online panel. The findings were telling: 71% of respondents reported saving through a stokvel or savings group, and 47% of panel members under the age of 35 indicated they are using advisory services from banks and investment insurers to guide their group’s financial decisions. This trend, which has emerged strongly over the past four years, offers promising news for the financial services market.
A Gap in the Market
Despite the growing involvement of formal financial institutions, a significant gap remains in the market. Of those saving or investing through a stokvel or savings group, 41% use a group account, while a notable 59% choose alternative methods, such as placing funds in a member’s account, investing in cryptocurrency, or even keeping cash “under the mattress.” This approach, though convenient, introduces risks, such as tax implications and potential loss of funds.
Financial institutions have a unique opportunity to address these risks by developing innovative solutions tailored to the realities and preferences of stokvel members. It’s essential to remember that stokvels historically emerged as a response to being excluded from the formal credit system. Today, they are among South Africa’s largest and safest microlenders, underpinned by strong community cohesion and trust.
Unlocking the Potential
For financial institutions, taking stokvels and savings groups seriously means recognizing the strong social connections and financial discipline that define these groups. Even if a stokvel’s collective savings amount to “just” R100,000, this figure reflects the remarkable ability of its members to plan ahead and save for diverse goals such as education, business development, and property investment.
Onboarding stokvels and savings groups into the formal savings and investment market not only serves the interests of these communities but also offers financial institutions a pathway to broaden their customer base. Encouraging savings and investment among South Africans is crucial, and by integrating stokvels, we could more accurately report on the national savings rate, which stood at a low 0.5% in 2023.
Conclusion
The inclusion of stokvels and savings clubs in South Africa’s formal financial system presents a win-win opportunity.
By tailoring products and services to meet the unique needs of these groups, financial institutions can unlock a wealth of opportunities while empowering millions of South Africans to secure their financial futures.