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Stokvels secure income and social capital

- Sarah Hudleston

A stokvel research project at Wits could lead to greater financial freedom, transparency, and accessibility for members.

Stockvel communities | Curiosity 17: #Democracy ©

One of the most egregious injustices of South Africa’s apartheid system was the exclusion of the majority from the country’s economy. As a result, there was much mistrust of formal financial institutions – even after the 1994 dawn of democracy. Many communities, comprising families and close-knit neighbours where there was a strong element of trust, established stokvels. 

The Wits Margo Steele School of Accountancy is busy with a research project into stokvels which is set to run for over a decade. This research will include the development of an app that will enable each member of a stokvel to have an accurate picture of their savings fund, liabilities and assets.

The project is aimed at democratising the use of what has arguably become South Africa’s most important community financial institution and instrument of wealth creation. Today, the stokvel market is worth an estimated R45 billion.

Professor Wayne van Zijl from the School says that the history of stokvels, which are sometimes referred to as rotational savings clubs, lies in the fact that they were subscribed to by very close family members resulting in an interesting co-existence and relationship between the fund’s financial and cultural aspects.

“The original main aim of a stokvel was for members to be able to save money for important events such as burials as well as other needs,” says Van Zijl. “Many of these stokvels grew exponentially, often merging with another stokvel.”

However, because stokvels are now serving larger groups of people, they have become a target for scammers who take advantage of members’ limited financial literacy. The research project aims to understand the stokvel environment and to create a free-to-use mobile application to make each stokvel’s financial data accessible to all its members.

“In doing so, it should reduce the risk of fraud and help stokvels make better financial decisions, ultimately helping them uplift themselves from their current economic status,” says Van Zijl.

Family ties

Van Zijl says that researchers were interested to discover that in some burial stokvel constitutions there are strict guidelines about the emotional support that members are expected to provide.  For example, there are penalties imposed on members for not providing support in terms of bringing food, cleaning, and helping arrange the funeral procession which tends to mitigate the financial risk for the member.

Taking on members who are not close relatives, says Van Zijl, introduces increased risks of fraud due to the dilution of cultural and emotional connections in the association.

Stokvel app for financial literacy

Faeeza Soni, a Senior Lecturer in the Wits Margo Steele School of Accountancy says that the stokvel mergers that Van Zijl mentions present challenges. “When stokvels get bigger, it gets more complicated from an accounting point of view,” says Soni, who is involved with the research project which is still in its infancy, and which is using and analysing the data of one stokvel to inform planning.

She says, “We have started by examining a single stokvel, which has revealed that its recorded transactions are not always that simple. We have found that there are some complicated transactions occurring, so we are examining them so that we can suggest possible improvements.”

Further complications include instances where the numbers do not add up, says Soni, prompting researchers to conclude that, even with close-knit family stokvels, it is important to highlight these risks.

“Raising awareness of these issues is a good starting point. Transparency in the transactional records of stokvels for their members improves the stokvels’ governance. Giving members access to these records, such as via an app, increases financial inclusion for even the least financially literate,” says Soni.

Soni suggests that the proposed app will be easy for stokvel members to download and use and will give them simplified accounting information.

“They will be able to find out what contributions there have been, or what is owing from previous months, and what is available to be paid out.”

Van Zijl adds that the app will help to educate members as to how much they should contribute and enable an understanding of what their pay-out ratio is, or how much they are paying in bank fees.

“Members would be able to see that, for example, if there are only 20 people in the stokvel, only three could receive a pay-out,” he says. “Members could also learn from the app what a reasonable amount would be to add to the stokvel each month without reducing a member’s ability to meet the current needs of their family.”


Should private companies publish sustainability reports?

In South Africa between 90% and 100% of public companies compile sustainability (or integrated) reports. Should private companies be obligated to undertake similar forms of disclosure? Not necessarily, since the contexts are vastly different.

Professor Warren Maroun in the Wits Margo Steele School of Accountancy says that he often asks students whether sustainability reports are not just marketing tools that are being used to acquiesce to the demands of public sentiment and the ‘woke culture’.

“I would say there are lots of cheaper ways of engaging in impression management. We know there are many institutional and retail investors and other stakeholders who are reading the integrated or sustainability reports and engaging with those companies on their financial and social and environmental performance,” says Maroun.

“We cannot say that these reports are completely free of impression management or ‘greenwashing’. As to whether private companies should be preparing these sustainability reports, I would say not.”

Public, listed companies provide returns to investors and have a statutory obligation to prepare financial statements according to established conventions, says Maroun, adding that they also must take social and environmental impact factors into account. “Their ethical reputation in the market and with consumers and other stakeholders is crucial,” he says.

However when it comes to private companies, the context is very different. Instead of a company potentially having many thousands of owners, the holding of these private companies is often very closed with shareholders and management sometimes being the same people, he says.

Ethics and integrated thinking

Maroun says that research in the Wits Margo Steele School of Accountancy has been examining the idea that integrated thinking should come before integrated reporting.

“So, whether companies are listed or not, whether they are state owned entities or are operating in the not-for-profit sector, and irrespective of size, the same principles relating to ethical behaviour should apply,” says Maroun.

Some of these companies may not prepare formal sustainability reports, but in terms of their customers, promoting themselves and ensuring their social licence to operate, they may be keen to demonstrate their commitment to the environment and ethical practices.

  •  Sarah Hudleston is a freelance writer.
  • This article first appeared in Curiosity, a research magazine produced byWits Communications and the Research Office
  • Read more in the 17th issue, themed: #Democracy, we turn to our academics and professional staff for their research, perspectives and commentary on both the progress and shortcomings in our democracy, and democracies elsewhere.