Little savers are now big business

Stokvels have long realised the benefits of bulk purchases but are moving on to interest-earning ventures

Retailers are anticipating a flood of cash from stokvel groups this festive season, as members cash in on their annual contributions to stock up on bulk purchases of goods such as rice, milk and flour.

Stokvels hold up to an estimated R49-billion in savings, and the Old Mutual Savings and Investment Monitor, published in June, found that 18% of them - holding about R8.8-billion - were set up specifically to buy groceries.

One member of a grocery stokvel, Mulingo Makhubela, said each member would be getting goods to the value of R5000. "We contribute R350 per month; then we buy groceries now, [in] December," she said.

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Makhubela's group illustrates how much buying power a small group has - the 15-strong savings club will spend R75,000 at the retailer of their choice this month.

Thabiso Masudubele, founder of the Stokvel and Burial Societies Indaba, said many stokvel members tended to cash in their benefits in this way instead of investing the money.

"This time of year sees many stokvels cashing in on their annual contributions," he said. "There are also many stokvels who 'deposit' their monthly premiums with grocery wholesalers and redeem their benefits - groceries.

"The lack of access to information leads to this unfortunate situation where stokvels' money is not invested in instruments that derive interest but rather in non-monetary 'benefit'."

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Various financial services providers have come up with products designed to capture some of the stokvel market.

Alexander Forsyth-Thompson, head of stokvel investments at asset manager Investment Solutions, said it had a range of unit trusts with portfolios structured to meet different savings objectives. "For example, you could choose one that pays out in one or two years, or ... one that offers long-term growth."

Since Investment Solutions launched unit trusts aimed at stokvels, the take-up had been good, Forsyth-Thompson said, although he declined to divulge figures.

"We are seeing people who have never had that interaction with investments [before]."

Investment Solutions' stokvel brochure recommends an investment period of about one year for its most conservative portfolio, designed to provide liquidity while preserving members' contributions.

That may prove to be a sticking point for burial societies, which pay out in the event of death - often unexpected.

Masudubele said: "Different stokvels and burial societies want different things.

"The broad requirements may be similar but the nuanced detail is important - many people end up taking as many as three funeral policies because each one has one element they want. The question becomes why these benefits cannot be consolidated and better options made available and known."

Masudubele's interactions with stokvels through his indabas across South Africa had shown him more and more that groups wanted to see products tailored for them, rather than "the more convenient 'one size fits all' approach."

Fund manager Stanlib claims its stokvel solution, Chuma, can pay out within two days if the cash is needed urgently, although it is more beneficial to invest over the long term.

Forsyth-Thompson said his team had improved its products based on feedback from stokvels, and could make cash available in three to four days.

He stressed that stokvel groups wielded a lot of power with the billions they had.

"We think many groups are ready to make the shift from savers to investors," he said.

But Masudubele said the shift would be a long process. "This is largely ... to do with affecting long-standing financial behaviour and expenditure patterns," he said. "It [has] also somehow been woven into a 'cultural' practice."

People like Mothupi Kgopa, who founded a stokvel with 14 other people, are making the shift.

Kgopa said the group had steadily accumulated a six-figure lump sum from monthly contributions of R1,000.

This is kept in a stokvel bank account ahead of the launch of a property company targeting R1.8-million in start-up capital.

"Maybe [we'll consider an investment portfolio] in the long term," he said. "We are in it for business as opposed to traditional investments. We have to keep liquid in the short term because we are going to buy properties and sell them; buy land and build properties."

maakem@bdfm.co.za