By Emma Rumney

JOHANNESBURG, (Reuters) – Thandi’s money used slip through her fingers.

Mother of four, 34 year old, is now earning interest on her savings each month, and she has already paid off some debts.

Mkhabela, along with 16 others, formed a savings group in June 2020 to help her improve financial standing. The club is known as a “stokvel” and each member contributes between 100 rand ($6.64) to 500 rand per month. Members can also get three-month loans at a 10% rate. They split the money at the end of each year.

Mkhabela explained that money is used every month for many things which aren’t needed. She also said that, without the help of her group, it was hard to not spend all she had.

She continued, “It helped because now I am starting to build my home – I want one big.”

Mkhabela is one of many stokvels making up an informal market that exceeds $3 billion per year, according to estimates by the National Stokvel Association of South Africa.

Since the 1980s, South Africa’s top banks have fought for stokvels to be integrated into its mainstream banking system.

As they face increasing competition from fintech companies, the company has increased its efforts to find new customers and tap into underserved markets.

Past efforts to formalize stokvels have been hampered by a deep-rooted preference for cash and mistrust of banks, as well as a lack infrastructure in the poorer areas.

The Banks hope that the COVID-19-driven shift to digital services will help overcome traditional obstacles. They have already begun to capitalize on these changes.

Motlatsi Kalala, Standard Bank’s head of high-net worth consumer, said that the country’s four largest banks could capture only 12 billion rand from the $50 billion rand ($3.32billion) stokvel markets currently. This is a tremendous growth opportunity.

Standard Bank has an existing account for some Stokvels through a basic savings account. The bank is now developing another account to appeal to more people. They plan to launch this account during the fourth quarter 2021.

FNB, Rival FirstRand, has launched an account that is free of charge for customers who are stokvel. According to Thami Cele, Absa’s head of investment and savings, Absa is looking to improve its stokvel product.

Cele explained, “We see this as an opportunity. They see them growing. Starting to interact with banks… and wanting long-term investment.” Cele stated, “We have the resources to do that.”

FOOD TO FUNERALS

Stokvels is a term that comes from the 19th-century stock and cattle auctions.

These funds can be used to fund everything from groceries and funerals to cast iron pots and holidays. Younger savers are becoming more active in forming groups to buy or invest in property and the stock market.

Mkhabela’s organization gives members who fail to repay their debts on time an additional month. After that, they risk losing the goods. Members who fail to save earn no interest during this period.

Stokvels, however, are dependent heavily on the personal relationships they build and the trust, accountability and peer pressure that they create.

Similar informal savings or loan associations exist all around the world, from neighboring Malawi’s village banks to Mexico’s cundinas and China’s hui.

Standard Bank’s new account for stokvels offers different features depending upon what they are saving. In the case of grocery shopping, it might be possible to get bulk purchases made easier by Standard Bank.

Also, the bank plans to give discounts to retailers, funeral parlours, and other places. Customers often come to banks with large amounts of cash in order to buy bulk items or set aside money for the future.

Standard Bank has established a network with these organizations, already spanning 20,000 outlets. This is to help promote the account and establish a loyalty program called stokvel.

Mkalala stated that it wants to increase its balances via the existing group savings program, but did not give a number.

Cele Makanjee and Raj Makanjee (FNB’s chief executive for retail and private banking) said that Absa and FNB will offer stokvels investments solutions. Absa believes that its efforts will help increase South Africa’s savings and market share to 25 percent, from 21.5% in three to five year.

FNB and Standard Bank are currently looking into how they can replicate the informal lending of stokvel and may roll out similar programs in other African markets. Mkalala stated that his bank had already planned such moves for places like Kenya.

THE BIGGER PLAY

There are many ways to make money banking a Stokvel. A world of possibilities for selling would be opening up when you target individuals who have personal bank accounts.

Mkalala explained, “(That is) the more significant play from a Cross-sell perspective… You can accomplish much more with your members.”

Stokvels are also benefited, he stated, through higher returns and better security.

According to local media, Stokvels have suffered huge losses in single robberies. However, informality may increase the vulnerability of fraudsters.

Some people put their money into personal bank accounts. However, this could cause problems with access. For example, clubs can have difficulty negotiating with the bank or next of kin in order to get their money if the account holder passes away.

F Anton Krone (head of SaveAct), which assists in setting up savings clubs. Shifting into formal banking is not always a better choice and may lead to higher levels of debts.

Andrew Lukhele is the chair of NASASA’s stokvel organization. He said that banks demand documents and a constitution. This document may not be necessary for every group, but it will make money more clear.

Stokvels benefits go far beyond financial. Regular in-person meetings provide an opportunity to build community and moral support during tough times.

According to bank executives, their products might have the same characteristics. Krone said and Lukhele that these elements might be lost in the practice.

Some savers also have a tendency to be cautious. Tweet (NYSE:) Users in Malawi criticized banks for trying profit from their village banks after neglecting members for decades.

Mkhabela’s reasoning is, however, more practical.

Bank accounts are too expensive and require a lot more paperwork. We like to keep it that way.

$1 = 15.0522 rand