Stokvels explained: how they work and how to join one safely

What is a stokvel?

The National Stokvel Association of South Africa (NASASA) describes a stokvel as a group of people who know each other and pool money for a shared goal. Members contribute regularly to a communal fund that serves a predefined purpose, so the whole group benefits. Contributions might be weekly, fortnightly or monthly, and the amount is agreed by the group.

The word covers many kinds of groups, from a handful of neighbours saving for December groceries to a large club that meets each month in a community hall. What they share is trust, a common bond between the members and a set of rules that the members make for themselves.

Stokvels and burial societies are long-standing community institutions. They deserve to be run with the same care you would give any money matter, which is the purpose of the checklist later in this guide.

What are the main types of stokvel?

NASASA lists savings, rotational, grocery, burial and investment stokvels among the main types. Groups often combine them, for example a savings stokvel with a December payout and a separate burial fund. The table summarises each one in general terms; every group sets its own detailed rules.

How does a stokvel work in practice?

Most stokvels follow the same rhythm. The members agree on a purpose, an amount, a meeting schedule and a way to pay out. A chairperson, a treasurer and a secretary are usually elected, and the group keeps a record of who has paid and what has been paid out.

In a rotational stokvel, if ten members each contribute R500 a month and the order of payouts has been agreed, one member receives R5,000 each month and every member receives it once over ten months. That example is illustrative only; each group decides its own amounts and order. In a savings stokvel, the money may stay in the bank until a payout date, such as November or December.

• Agree on the purpose, the contribution amount and the payment dates.
• Choose office bearers, such as a chairperson, treasurer and secretary.
• Write down the rules in a constitution that every member can read.
• Open a bank account in the name of the group.
• Keep a register of contributions and payouts, and report to members regularly.
• Agree on what happens when a member misses a payment, leaves, or passes away.

How are stokvels and burial societies treated in South African law?

Stokvels are largely self-governed, but a few legal instruments touch them. In 2013 the Registrar of Financial Services Providers published the Exemption of Burial Societies and Stokvels, under the Financial Advisory and Intermediary Services Act, which is now administered by the Financial Sector Conduct Authority (FSCA). The notice defines a stokvel as a group of natural persons with a common bond who form an invitation-only savings or rotating credit scheme, and a burial society as a stokvel whose members pledge mutual support towards burials only for members and their relatives.

Under that notice, burial societies and stokvels are exempt from the licensing requirement in section 7(1) of that Act when they provide financial services to their members in respect of an assistance policy. The definition also says the group's aggregate capital should not exceed R100,000 a year, that its activities must have been designated by the Registrar of Banks as not being the 'business of a bank', and that the group relies on self-imposed regulation to protect its members. The notice can be amended or withdrawn, so check the current position with the FSCA before relying on it.

NASASA describes itself as an approved self-regulatory body in respect of stokvel schemes. In the National Credit Act, a transaction between a stokvel and one of its members, made in accordance with the stokvel's rules, is not a credit agreement. If your group is large, holds significant amounts or does anything beyond simple contributions and payouts, ask NASASA or the FSCA what rules apply to you.

What are the risks, and how do you join one safely?

The biggest risks are people risks. The treasurer might misuse money, a member might stop paying, records might be poor, or a scheme might use the word 'stokvel' while behaving like something else. Most problems can be reduced with clear rules and transparency. Before you join, ask to see the rules and meet the people who handle the money.

• Join a group where you know several members, or where trusted people can vouch for it.
• Ask for the written constitution and read it, including what happens if you leave or miss payments.
• Check that money is paid into a bank account in the group's name, not into one person's personal account.
• Make sure more than one person is involved in withdrawals and that members can see bank statements.
• Ask how disputes are resolved and what the payout order or payout date is.
• Do not give your ID, bank card, PIN or online banking details to anyone in the group.

How do you tell a stokvel from a scheme that only uses the name?

A stokvel pays out what members have put in, and any benefit comes from the members' own money and shared purchases. A scheme that promises high fixed returns, or that pays earlier members with money from newer ones, is a different thing, however friendly its name. The dti and the NCR warn against offers with big promised returns and pressure to act quickly.

Be careful with groups that recruit members online or through social media, will not show you rules, ask you to pay into a personal account, or push you to decide on the spot. If you are unsure, contact NASASA or the FSCA before you pay anything. A real stokvel will be happy to answer your questions.

• Promised returns that are far above what a bank would pay.
• Payouts that rely on recruiting new members.
• No written rules or no named office bearers.
• Pressure to join immediately or to pay in cash.
• A request for your PIN, ID or banking details.

How should a stokvel keep records and handle money?

Good records protect friendships. Keep a register that shows each member's contributions by date, issue receipts or confirm each deposit in the group, and write down the decisions of each meeting in minutes. At the end of each year, share a short summary of money in, money out and the balance.

Use a bank account in the group's name where possible. The South African Reserve Bank's Corporation for Deposit Insurance lists stokvels among the qualifying depositors and savings, notice and tax-free accounts among qualifying products, with cover of up to R100,000 per depositor per bank. Cover is automatic and the rules may change, so check the current position with the bank or on the SARB website.

Keep the constitution and the records in a safe place that more than one office bearer can reach, and hand them over properly whenever the committee changes.

Can a stokvel replace short-term borrowing?

A stokvel can reduce your reliance on loans, because it builds a lump sum for known costs such as school fees, groceries and December. A rotational stokvel can also give you a payout earlier than you would reach alone. But payout dates belong to the group, so a stokvel does not always give you money on the day an emergency strikes.

For that reason, many people use both: a stokvel for planned goals and a small personal emergency fund for surprises. Our guide on building an emergency fund explains how to start. If your group lends money to members, make sure the interest, repayment terms and consequences of missing a payment are written in the rules, because a loan from your stokvel still has to be repaid from your income.

If you are thinking of borrowing from a lender instead, our budgeting guide and our guide on how much you can afford to borrow will help you work out whether the repayments fit.