Sun, Oct 10, 2021 page12

• Banks target informal saving clubs’ cash

  • By Emma Rumney / Reuters, JOHANNESBURG
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  Thandi Mkhabela’s money used to slip through her fingers.

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

  Mkhabela’s improved financial footing came after she formed a savings club in June last year with 16 other women. Each of them contribute 100 to 500 rand (US$6.68 to US$33.42) a month, and the club, known as a stokvel, offers three-month loans to members at rate of 10 percent per month. At the end of the year they split the pot between them.

  

  A member an informal savings club known as a stokvel counts South African bank notes before making her contribution at a gathering in Johannesburg on Sept.11.

  Photo: Reuters

  “Every month we use money for ... many things that are not necessary,” Mkhabela said, adding that without the support of the group she found it hard not to spend everything she had.

  “It helped me because now I am going to start to build my house — I want a big one,” she said.

  Mkhabela’s is one of hundreds of thousands of stokvels that make up a largely informal market worth more than US$3 billion annually, based on estimates from the National Stokvel Association of South Africa (NASASA)

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

  They have ramped up efforts as increasing competition, including from new fintech firms, forces them to look for new ways to win customers and tap underserved parts of the market.

  An entrenched preference for cash, mistrust of banks and a lack of infrastructure in poorer communities have hampered past efforts to formalize stokvels.

  Banks are hoping changes spurred by COVID-19, namely a forced shift toward digital financial services, will help them to overcome these traditional barriers, and they have accelerated plans to capitalize on them.

  The country’s big four banks potentially only capture 12 billion rand of the 50 billion rand stokvel market, said Motlatsi Mkalala, head of consumer and high net worth at Standard Bank, adding that it presents a huge growth opportunity.

  Standard Bank, which already banks some stokvels via a more basic group savings account, is developing a new account with a lot of stokvel-friendly features to win over more of them, and aims to launch it in the final quarter of this year.

  Rival FirstRand Ltd’s retail division, First National Bank (FNB), launched a fee-free account for stokvel customers earlier this year.

  Absa Group Ltd is also looking to enhance its stokvel product, Absa head of savings and investment Thami Cele said.

  “We see it as an opportunity: we see them growing, starting to interact with banking ... and wanting to do long-term investments,” Cele said. “We are more equipped to cater to that.”

  FOOD TO FUNERALS

  Stokvels, a word believed to come from 19th-century cattle auctions or stock fairs, are an innovation of the country’s black population, which was locked out of the financial system under apartheid.

  They are used to save for anything from funerals and groceries to holidays and cast-iron pots. Younger savers are also increasingly clubbing together to invest in the stock market or buy property.

  In Mkhabela’s group, members who do not repay debts on time are given an extra month, but then risk having goods repossessed. Members who do not save lose out on any interest earned during that period.

  Yet stokvels rely heavily on personal relationships and the trust, responsibility and peer pressure they cultivate.

  Similar informal savings and loan associations are common the world over, from “village banks” in neighboring Malawi to Mexico’s cundinas or China’s hui.

  Standard Bank’s new account targeted at stokvels is to offer different features depending on what the group is saving for. For grocery stokvels, for instance, the bank might provide easier ways to buy in bulk.

  The bank also plans to offer discounts at retailers, funeral parlous and other places stokvels often approach with piles of cash, hoping to make a bulk purchase or to ask to set aside the money for the future.

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

  It wants to double the balances it holds via its existing group savings product, Mkalala said, without giving a figure.

  Absa and FNB plan to offer stokvels investment solutions, Cele and FNB retail and private banking chief executive Raj Makanje said.

  Absa hopes its efforts can help to increase its savings and market deposit share in South Africa to 25 percent from about 21.5 percent within three to five years.

  Meanwhile, Standard Bank and FNB are looking at how to replicate stokvels’ informal lending and could roll out similar schemes in other markets in Africa.

  THE BIGGER PLAY

  Banking a stokvel offers multiple chances to make money. Targeting individual members with personal bank accounts, for instance, would open up a world of sales opportunities.

  “[That] is the much bigger play from a cross-sell point of view... You can do much more with the members,” Mkalala said.

  Stokvels benefit, too, including via better returns and enhanced security, he said.

  Stokvels have lost huge sums in single robberies, local media have reported, while informality can increase vulnerability to fraudsters.

  Some stokvels put money in personal bank accounts, but this can create problems over access to the cash. If the account holder dies, for instance, clubs have to negotiate with the next of kin or the bank to access their funds, and they can be unsuccessful.

  For Anton Krone, founder of SaveAct, which helps set up savings clubs, shifting into the formal banking system is not necessarily a better option, and can lead to higher debts and other problems.

  NASASA chairman Andrew Lukhele said banks bring demands for documents, a constitution — not necessary for all groups — and more rigidity in how the money can be used.

  Stokvels’ benefits also go beyond pure finance. They provide a sense of community or moral support in tough times through regular in-person meetings.

  Some savers are also reluctant.

  People in Malawi have criticized banks on Twitter for trying to profit from village banks after ignoring their members for decades.

  However, Mkhabela’s reasoning is more practical:

  “Bank accounts have too many charges, a lot of paperwork... We prefer to do it this way,” she said.

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