Big banks attack the cash of the informal savings clubs in South Africa


JOHANNESBURG, October 7 (Reuters) – Thandi Mkhabela’s money slipped through her fingers.

Now the 34-year-old mother of four earns interest on her monthly savings, has paid off debts and plans to expand her house in a township just outside Johannesburg without ever dealing with a bank.

Mkhabela’s improved financial base came after starting a savings club with 16 other women in June 2020. Each of them contributes between 100 rand ($ 6.64) and 500 rand per month, and the club, known as Stokvel, offers three month loans to its members at an interest rate of 10% per month. At the end of the year they split the pot among themselves.

“Every month we spend money on … a lot of things that are not necessary,” said Mkhabela, adding that without the group’s support, she found it difficult not to spend all she had.

“It helped me because now I’m starting to build my house – I want a big one,” she continued.

Mkhabela’s is one of hundreds of thousands of Stokvels who make up a largely informal market valued at more than $ 3 billion annually, based on estimates by the National Stokvel Association of South Africa (NASASA).

South Africa’s big banks have wanted to bring Stokvels into the country’s mainstream banking system for years.

They have stepped up their efforts as increasing competition, including from new fintech companies, is forcing them to look for new ways to attract customers and tap into underserved parts of the market.

An ingrained preference for cash, distrust of banks, and a lack of infrastructure in poorer communities have hampered efforts to formalize Stokvels in the past.

Banks hope that the changes driven by COVID-19, namely a forced shift to digital financial services, can help them overcome these traditional barriers, and they have accelerated their plans to capitalize on them.

The country’s four major banks may currently capture just R12 billion of the Stokvel market out of R50 billion ($ 3.32 billion), Motlatsi Mkalala, head of consumer and high net worth at Standard Bank, told Reuters and presented a huge growth opportunity.

Standard Bank, which is already depositing some Stokvels through a simpler group savings account, is developing a new account with lots of stokvel-friendly features to attract more from them, and plans to launch it in the final quarter of 2021.

The retail division of Rival FirstRand (FSRJ.J), FNB, launched a fee-free account for stokvel customers earlier this year. Absa (ABGJ.J) also wants to improve its Stokvel product, Thami Cele, director of savings and investments, told Reuters.

“We see it as an opportunity: we see it grow, we start interacting with banking … and we want to make long-term investments,” said Cele. “We are better equipped for that.”


Stokvels, a word believed to have come from cattle auctions or fairs in the 19th century, is an innovation of the country’s black population who were excluded from the financial system during apartheid.

They are used to save on everything from funerals and shopping to holidays and cast iron pots. Younger savers are also increasingly joining forces to invest on the stock market or to buy real estate.

In Mkhabela’s group, members who fail to repay their debts on time get an extra month, but then risk taking back goods. Members who do not save lose interest earned during this period.

However, Stokvels rely heavily on personal relationships and the trust, responsibility, and peer pressure they cultivate.

Similar informal savings and loan associations exist around the world, from “village banks” in neighboring Malawi to Mexico’s “Cundinas” or China’s “Hui”.

Standard Bank’s new Stokvels-focused account offers different features depending on what the group is saving for. For grocery stokvels, for example, the bank could offer easier ways to buy in bulk.

The bank also plans to offer discounts at retailers, funeral homes, and other places that Stokvels often reach with tons of cash in hopes of making a bulk purchase or setting the money aside for the future.

Standard Bank is building a network of partnerships with such organizations, which already includes 20,000 branches, to promote the new account and create a stokvel loyalty program.

It wants to double the credit it holds over its existing group savings product, said Mkalala, without naming a number.

Absa and FNB plan to offer Stokvels investment solutions, said Cele and Raj Makanjee, head of retail and private banking at FNB. Absa hopes his efforts can help increase its share of savings and deposits in South Africa from around 21.5% to 25% within three to five years.

Both Standard Bank and FNB are meanwhile examining how Stokvel’s informal lending can be modeled and could launch similar programs in other markets in Africa. Mkalala said his bank is already planning moves like this in countries like Kenya.


Banking a Stokvel offers several opportunities to make money. Targeting individual members with personal bank accounts would, for example, open up a world of sales opportunities.

“(That) is the much bigger game from a cross-sell point of view … you can do a lot more with the members,” said Mkalala.

Stokvels also benefit, he said, through better returns and improved security, among other things.

Stokvels have lost huge sums of money in individual robberies, local media reported, while informality can increase vulnerability to scammers.

Some Stokvels deposit money in personal bank accounts, but this can cause problems with accessing the cash. For example, if the account holder dies, clubs will have to negotiate with the next of kin or the bank to access their funds and they may be unsuccessful – a scenario that played out for some during the pandemic.

Q Anton Krone, head of SaveAct, which helps build savings associations, switching to the formal banking system is not necessarily a better option and can lead to higher debt and other problems.

Andrew Lukhele, chairman of the Stokvel Association NASASA, said banks are introducing demands for documents, a constitution – which is not necessary for all groups – and more rigidity in the use of money.

The benefits of Stokvels go beyond just financing. They provide a sense of community or moral support through regular face-to-face meetings during difficult times.

Bank managers said their products could have the same qualities. Krone and Lukhele said they believed these elements could be lost in practice.

Some savers are also hesitant. Twitter users in Malawi criticized banks for trying to profit from village banks after decades of ignoring their members.

However, Mkhabela’s reasoning is more practical:

“Bank accounts have too many fees, a lot of paperwork … we prefer to do it that way.”

($ 1 = 15.0522 rand)

Reporting by Emma Rumney Editing by Rachel Armstrong and Jane Merriman

Our Standards: The Thomson Reuters Trust Principles.


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