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9 Dec 2014


Ever since the formal financial institutions realised the power of stokvels and money clubs in South Africa, they have been doing all they can to tap into this market. Apparently these clubs are worth over R20 billion. We can be sure of one thing, whatever the banking sector is doing to get their hands in the stokvel industry will benefit the banks more than the stokvel membership. No surprise there. Financial institutions are permanent winners. A topic for another day.

Like many people her age, my mother is a member of a stokvel. Hers is the one where each member gives a set amount of money to one of them, rotating monthly. They are six members which results in them getting their turn twice in a year. Lets now say my mom gets her turns in June and December and each of the members contributes R1000. Members 1 to 5 get their R6000 each (including their own contributions) in January to May, then my mom gets hers in June and the circle starts again with member 1. Looking at this in simple terms, the whole stokvel collected R72,000 (R1000 X 12 months X 6 members). Each member contributed R12000 and got exactly the same. 

Money Market Scenario
Let us assume that my mom and club members threw this money in the Money Market account. I will make an example with the account I use from one of the banks with the current interest rate of 5.25%.

MonthDepositsMonthly InterestBalance
January R6,000          26.25R6,026.25
December        R72,0002080.71R74,080.71

My mom's stokvel would have collected R4,080 or R680 for each member in interest in that one year. My adopted motto is that... every little bit adds up. It sure does. 

ETF (Exchange Traded Fund) Scenario
Lets take it a step further and assume this particular money club was investing this same amount (R6,000 per month) in an ETF as a collective. Lets assume that the stokvel invested the money monthly in Satrix Indi which earned 37% growth this year. 6000 would be invested every month and after the last month the club would collect R85,556.43. This gives the club R13,556 which translates to R2,259 for each member in interest. That's a decent amount given the total investment of R12,000 per member over that one year. This is the reason I don't fully understand the logic of putting R1000 per month aside for a year only to get an exact R12000. 

Who Benefits from a Stokvel
The traditional money club benefits only the first few recipients. Lets say member One was the January and July beneficiary and my mom the June and December beneficiary.

Member One:
  • gets R6000 in January;
  • invests it for 6 months in the same ETF;
  • gets about R7,199 after six months; assuming an evenly spread 37% interest annually;
  • adds her second R6,000 to that total;
  • In December she gets R15,837.15 which is a whooping R3,837 in interest on the money that is not hers.
If they were 12 members, this January member would make  R5,276 in interest over 12 months.

  • Mommy dearest on the other hand, gets her turn in June
  • invests it for 6 months to get R7199
  • adds it to the December earnings to make a total of R13,199
  • In December she would have gotten a mere R1,199.
Back to our banking fraternity. When all banks market their new amazing stokvel products, its never about the club membership. Banks don't spend money for nothing. Especially not South African banks. But we have to admit it, it helps combat some amount of risk for stokvels and money clubs.

Risk has to be the biggest issue I have with informal stokvels and money clubs. I don't see any part of this arrangement that is not risky. You have to have amazing faith levels in human kind to invest in such an informal arrangement. Number one a.k.a January member may take all the contributions and flee without ever contributing to the rest of the members. I doubt it if it happens often. Secondly, people lose jobs, die, get disasters, etc. When that happens, what does one do?

The smarter way is to have your own stokvel and automate it by having a debit order arrangement to transfer money from your account to your savings or investment account. You need to find support within you. You are not going to make it without discipline. Wise up and let your money work for you.