Why so many South Africans make saving a ‘social pact’

From the moment she arrived in South Africa in January 2017, Charity Chuma’s paychecks seemed to slip through her fingers like water.

Each month, nearly as soon as she had the money in her hands, there was a hand outstretched to take it. Her uncle back home in Zimbabwe needed help with rent. Her grandma needed money for medicine. Her mother was struggling to buy groceries.

“When people ask,” she says, “it is hard not to give.”

So when a colleague at the college dorm where she worked as a housekeeper in Johannesburg suggested Ms. Chuma join a saving and lending club – known locally as a stokvel – she jumped at the chance.

The premise was simple. Each month, one of the six women received 1,000 rand (about $70) from each of the other five, so that each member got a payout of 5,000 rand (about $330) twice a year. For Ms. Chuma, it was the first time in her life she’d been able to save a sum anywhere near that large. Within three years, she’d built a new house her family in Zimbabwe.

Around the world, savings clubs like these – known to economists as “rotating savings and credit associations” – have long bridged gaps between the world’s poor and formal banks. There are Mexico’s cundinas and Somalia’s ayuuto, China’s hui and Ethiopia’s ekub. In South Africa, stokvels were an innovation of Black South Africans – most often Black women – whom banks refused as clients in the apartheid era and beyond.

And in the past year, as the coronavirus pandemic has ripped through South Africa’s economy, stokvels have played a particularly important role, acting as a kind of informal social welfare system for many of the country’s poorest people.

“People were determined to keep saving so that they would have something if things got even worse,” says Busi Skenjana, a marketing strategist and founder of the Stokvel Academy, a nonprofit that trains stokvel members in financial literacy. “They were trying to look past this pandemic to the future that came after it.”

Indeed, an analysis by First National Bank, one of South Africa’s major financial institutions, found stokvel savings actually grew during the first few months of the pandemic.

There are many reasons for that, Ms. Skenjana says, but one is the social element of savings clubs. In a traditional stokvel, members know each other personally and hold regular, in-person meetings.

“That makes saving a social pact that’s hard to break,” she says. 

Banking for themselves

Modern stokvels first became popular in the mid-20th century, when groups of migrant laborers in the country’s gold and diamond mines began pooling money to help with funeral expenses when a mine worker died on the job.

Those “burial societies” were soon copied in the towns and villages those same laborers had left behind. Groups of women would pool their money to save for their children’s school fees, household purchases like furniture, or bulk orders of grocery staples like maize meal and rice.

“Historically, as Blacks in South Africa we did not really have access into the formal banking system, and credit was a predatory system even if you could access it,” Ms. Skenjana says. “Stokvels were a way to avoid that.”

In 2004, just 46% of South Africans had a bank account. Today, it’s up to 80%. But for many Black South Africans, the effects of “credit apartheid” have persisted in the form of bank charges, high-interest loans, and other barriers to access, says Palesa Lengolo, author of “Stokvels: How They Can Make Your Money Work For You.”

Like many South African millennials, Ms. Lengolo grew up watching the women in her life use stokvels to insulate themselves and their families against poverty. Her mother, a teacher and single mother of five, was part of a stokvel whose funds community members could borrow and repay at 30% interest. The money she earned sent her children to school, Ms. Lengolo says.

Women like her “found a way around a system that excluded them,” she says. 

Christmas to Le Creuset

About 1 in 5 South Africans are members of a stokvel, across a wide range of social classes.

And these clubs serve a wide range of purposes. Many, like the one joined by Ms. Chuma, the housekeeper in Johannesburg, give rotating cash payouts. Others are used to save money for particular events like funerals or Christmas. Many pool money for bulk grocery orders made once or twice a year. Some stokvels, like the one Ms. Lengolo’s mother was a member of, are themselves microlenders, making money by giving small loans to community members at high interest rates.

Others serve less conventional purposes. “If you can imagine it, there’s a stokvel for it,” says Ms. Lengolo. She’s a member, for instance, of a stokvel that she and a group of friends use to save for one international vacation each year. There are several stokvels whose members save money to buy Le Creuset cookware.

In recent years, stokvels are increasingly being used to invest in bigger ticket items like property. Because wealth was concentrated for centuries in the hands of white South Africans, many young Black professionals still pay what’s known colloquially as a “Black tax,” sending funds home to support family members. This often makes it harder for them to buy property or start businesses on their own, compared to their white peers, Ms. Lengolo says.

“Alone, you have all these barriers, but when you pool your money, they begin to fall down,” she says. She herself, for instance, is in a stokvel whose members recently purchased a fast-food restaurant. “Most of us couldn’t have done that on our own,” she notes.

For other young South Africans, the community aspect of stokvels simply provides encouragement and accountability that a bank savings account does not.

“With my bank account, I can decide I’m saving 500 rand this month, 1,000 rand next month. What’s different with a stokvel is you’re committing to an amount and making a promise to a group of people that you’ll pay it,” says Refilwe Kgosiemang, a copy writer in Pretoria who has been a member of several stokvels. “If I break my commitment, I don’t just lose my money, I lose socially as well.”