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Getting under the Skin of Stokvels and Savings Groups in South Africa

Participation in savings groups and stokvels has far reaching social consequences that extend beyond economic benefits for members.

Research by FinMark Trust and SaveAct on the long-term impact of participation in informal savings groups and stokvels in rural areas found improvements in how savings group members take financial decisions and use their money, as well as in their financial stability and household socio-economic situation.

Slow economic growth and increasing unemployment means South Africans are increasingly relying on informal mechanisms to create wealth and access to credit.

"When considering financial inclusion, we are too focused on the formal sector, and don't look at the broader informal offerings," Professor Gerhard Coetzee from CGAP at the World Bank told a Gordon Institute of Business Science (GIBS) forum.

Change is needed in the approach of formal financial institutions if the two sectors are to align and scale the offerings for the sake of financial inclusion.

Savings Groups and Stokvels

Nolufefe Nonjeke-Dlanjwa of SaveAct has 10 years of experience in savings group programme development and has played a key role in pioneering savings work in South Africa.

"Regardless of how poor you are, how vulnerable you are, you still have a dream," she told the forum. "Part of the dream is making your life better and the lives of your children. We have very determined, ordinary people in South Africa who are very determined to improve their lives. I can reassure you, people can save. Once they know what they want to save for, they are not afraid to pool resources if they are convinced the system is working for them."

A savings group is a group of 10 to 20 ordinary people who know and trust each other and share similar financial goals. The members purchase shares in the group for a period of a year, and are able to access short term loans with a repayment term of three month at a 10% interest rate for short term liquidity. This interest is then paid back into the savings group. SaveAct plays an intermediary role in the community by introducing the savings model, providing financial literacy training and assisting the group to run its affairs and ultimately develop a constitution, which is a binding document.

"It is about money, but it is also beyond that, it is about rebuilding your life," Nonjeke-Dlanjwa said. "It is very exciting to see how people begin to influence financial decision making in their households, which changes the story for them."

Silvia Storchi, a PhD candidate in International Development at the University of Bath who conducted the research for FinMark Trust and SaveAct added that while growing their savings is the primary goal of group members, there is an emphasis on using the resources to develop the community together.

The research found that savings group members tend to use their share-out payments for tangible purchases: housing improvements and construction, school fees and expenses, or as seed capital to start a small business.

"The end goal of saving is quality of life, which is related to wellbeing, not just a functional service," Storchi explained.

As a result of their participation in the savings group, people are able to save, budget and plan for their expenses. "Financial education is a big achievement," Storchi said. This in turn has a social impact on the community and she noticed a new sort of cooperation within the community. Women especially had an increased sense of independence and control over their money. "There is improved collaboration within households as men and women were able to plan together for the family."

Informal and formal financial inclusion offerings  

Storchi said the research found that while most saving groups members have bank accounts, they don't regard the bank as a place to save their money.

Informal financial services are based on values of reciprocity, mutual support and generosity, while the formal financial sector is rather based on what Storchi called a transactional repertoire of private ownership, profitability, growth and scale.

"These are two very different sets of values. People want to develop a two-way relationship with their financial services providers. The most successful financial inclusion initiatives might happen in a way that overlap these two sets of values," she said.

Professor Coetzee said in order for savings products to have functional as well as experiential value for customers, they need to be empowered by being a part of something, and use their knowledge to take a position in the household and in society. "The key is that members stop seeing SaveAct loans as products, but as tools that they can use in their lives," he said.

CEO of FinMark Trust, Brendan Pearce said it was necessary to ask how financial inclusion improves people's lives: "We consider formal financial inclusion as the answer to all financial needs for all population groups across the board and in the process have neglected the informal sector."

"The formal financial services sector in South Africa should be very scared, and the thing it should be scared of most is itself. The informal sector represents a desperately needed challenge." Professor Adrian Saville of GIBS and chief executive at Cannon Asset Managers concluded.

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