In a macroeconomic context, the more a nation saves the more it is able to invest, while in a microeconomic sense, individuals deep in debt are not only unable to save, but are constrained in their ability to spend, says Anton de Wet, managing executive: Client Engagement at Nedbank.
This means they are unable to contribute to overall economic growth. South Africa’s savings remain disturbingly low relative to other developing countries such as Korea, India and Zambia.
As of 2013, South Africa’s national gross savings rate, as a percentage of GDP, stood at 13,5%, an unfortunate decline from 14,2% in 2012. Households contributed a meagre 1,7% to the gross savings rate, although the number has remained stable in the recent years, which is a positive sign.
Many people in South Africa and the rest of the world, have adopted alternative informal means of savings – referred to as a stokvel in South Africa.
According to StokvelEx 2014, the concept of stokvels was initiated as a means of survival in hard times, especially among disadvantaged black communities. However, this has evolved beyond just the realm of providing support and comfort for bereaved families. The reality is there is a robust market, not only successfully adopting this method of saving, but also predominantly operating outside of the formal savings and banking sector.
A 2014 survey by African Response, has revealed that 23,4% of the South African adult population belong to a stokvel, equating to over 8.5 million members, whose collective savings are estimated at R25 billion. This is a hidden economy that has been around since 1932.
A key benefit of stokvels is that they are an effective way of encouraging savers to put away a bit of money each month while enabling social cohesion and providing a community network where members are also nurtured besides saving money.
We believe there is an opportunity for South African banks and savings institutions to explore mutually benefitting ways of engaging with stokvels both at a community level and in instilling a savings culture that meets the diverse needs of the South African population – thereby providing value for all stakeholders.
Investing in stokvels is not without risk however. There are no credit checks amongst stokvel members and the security of the money which circulates in a stokvel is based on trust and the rules and regulations of a specific stokvel. There are obvious risks associated with the trust and self-regulation elements, as such fraud in stokvels is not an uncommon occurrence.
There are also questions around the investment returns the underlying funds are earning as the longer term return on cash just does not measure up to what can be earned on other asset classes. Not to mention the fact that more sophisticated concepts such as liability driven investing, does not factor into the stokvels’ thinking.
It is also important to remember that stokvels are not homogenous, with different stokvels having different visions, whether it is saving, education, funeral cover, monthly groceries etc.
South Africa’s banks have a significant role to play in exploring collaborative ways with stokvels to leverage the ‘hidden economy’ – as described by many thought leaders. By gaining a deeper understanding of the nuances of stokvels, banks have the opportunity to empower members with all important governance tools and measures, expert investment advice and most importantly – education.
Education is the banking sector’s entry point into this market and it should be the cornerstone of the value proposition it offers to a stokvel and its members. It is not only a question of providing insights when a stokvel opens an account, but being there each step of the way as these organisations grow and evolve.
Innovative solutions, which are underpinned by our social and cultural nuances will go a long way in enabling South African banks to address some of the challenges faces by stokvels such as the preservation of stokvel members’ savings whilst providing them with flexibility in accessing and utilising their funds based on their needs. Educating people on the power of compound interest and attractive incentivisation can be a catalyst in incentivising stokvel members to adopt a longer term and sustainable investment horizon.
Critically the stokvel market needs end to end solutions, from transactional banking to investment management services, and integrated financial institutions have the opportunity not only to safeguard and grow current stokvel members’ savings, but also assist in enabling the potential transfer of wealth to the next generations – and stimulating financial inclusion of these organisations in the formal sector.
Nedbank’s efforts to foster financial inclusion and social cohesion are enhanced through the Imbizo initiative launched in the Eastern Cape, in partnership with Old Mutual, Mutual and Federal, and Wiphold, the group’s strategic black business partner. Imbizo seeks to understand the needs of various rural communities in South Africa and explore new ways of doing business with these communities through innovative offerings such as the Zakheleni savings scheme.
Zakheleni enables communities to save as groups, making it easy for them to access finance to start their own businesses. For example, one of the beneficiaries saved R500 per month with friends over a period in order to qualify for a Zakheleni loan. With the loan, she started her own micro-enterprise selling soft drinks and poultry in her village, and has now entered into contracts with ABI and SAB to distribute their products across several villages. Drawing from these learnings, the Imbizo roll out has been extended to Mpumalanga, Gauteng and Limpopo.