The Market: in stokvels and community-investment groups

Stokvels - or self-help groups - are one of the oldest forms of financial services. Small communities are able to smooth out uncertainty by clustering and aggregating their knowledge. Web 2.0 services like Facebook and MySpace have recreated these networks of known individuals in cyberspace - but we've been doing it for thousands of years.

Stokvels tend to offer members collective savings and buying services while burial societies assist with the expensive task of catering for funeral services.

The National Stokvel Association of South Africa (NASASA) estimates that there are a total of 800 000 stokvels, burial societies and rotating savings and credit associations in South Africa, with about 8.25 million members, and an estimated R 400 million a month in savings. Other estimates have put stokvel and burial society savings rates at over R 13 billion a year.

There are a wide range of models of stokvel and each depends on the individual members capacity for risk:

• Basic revolving savings units in which 12 members save and each month one member gets all the money to spend on themselves
• Shared buying schemes in which a large group aggregates their money to buy in bulk and then divide up their purchases
• Loan schemes in which the stokvels invest in individuals in their group
• Home loan schemes in which a group will help each member save up for a house

Each stokvel will have a chairperson and a treasurer who will be responsible for administering the investments; decisions are made collectively. 57% of stokvel members are female and 64% are between the ages of 25 and 50.

Mohammed Yunus of the Grameen Bank in Bangladesh has perfected the system whereby Grameen lends directly to well-established stokvels. They charge 50% interest on small loans and have a 98% repayment rate. Microfinance lending has become a multi-billion Dollar industry.

There are numerous limitations on stokvels:

• Stokvels vary in size from 12 to 150 members. Too big and the members lose the ability to know and oversee each other, and manage their trust relationships. Iinvestors must be wary of overly large groups since controlling corruption and mismanagement becomes difficult.
• Too small and their savings and purchasing power is limited.
• Overcentralisation by NGOs can undermine stokvels as well by taking away daily responsibility for operations from the members themselves.

What advantages can you see to these collective saving schemes:

• Collective banking services
• Insurance policies
• Marketing of new products and services can reach decision-makers rapidly
• Collective buying of expensive products that the poor cannot normally afford
• Direct sales channels