How does a stokvel work, and how to join one safely

A stokvel is a group of people who save money together. It can help you get a lump sum when you need it, such as for school fees, a funeral or groceries for December. It can also go wrong when the group has no clear rules or when someone uses the name "stokvel" to take your money. This post explains how a stokvel works and how to check one before you join.

How does a stokvel work?

Members agree to pay a fixed amount on a fixed date, for example R 200 every month. The money is kept together. Then it is paid out in one of a few ways:

• Rotating payout: each member gets the whole pot in turn. If 10 members each pay R 200 a month, the person whose turn it is receives R 2 000 that month.
• Year-end payout: the group keeps the money until the end of the year and then shares it. This is common for groceries and festive season costs.
• Burial or emergency fund: the group pays out to a member when there is a death or another agreed need.

In a real stokvel, you know the other members, and everyone agrees on the amounts and dates before the first payment.

What should the group agree on before you pay?

Ask for the rules in writing. A written set of rules is called a constitution. The law does not say every stokvel must have one, but a bank usually asks for one when the group wants an account in the group's name. It should say:

1. How much each member pays, and on which date.
2. Who holds the money, and where it is kept.
3. In what order members are paid, or when the money is shared.
4. What happens if a member pays late or stops paying.
5. What happens if a member leaves or the group closes.
6. How members can see the records.

If a group will not write these things down, think carefully before you pay.

Is a stokvel regulated?

The Financial Sector Conduct Authority (FSCA) says in its consumer material that stokvels are not regulated by the FSCA. The National Stokvel Association of South Africa (NASASA) is the body that stokvels can register with. The FSCA advises people to check that a group is registered with NASASA and to ask for the registration number. You can contact NASASA to confirm that number.

Registration does not guarantee that you will get your money back. It is one check among several.

How do you spot a fake stokvel?

Some schemes use the word "stokvel" but work differently. The FSCA has warned the public about such schemes, and a court has found at least one so-called grocery stokvel to be a pyramid scheme. Be careful when you see these signs:

• High returns. The group promises that your money will grow by a large amount in a short time.
• Vague investments. They say your money goes into "property" or "business" but cannot say where, or show proof.
• Strangers online. You are asked to join through social media, and you do not know the members.
• Pay to recruit. You are paid for bringing in new members, and the payouts depend on new people joining.
• Pressure. You are told to pay today or lose your place.

A real stokvel pays out only what members put in. It does not promise more than that. For more on how to spot fake schemes, read Red flags of a fake earning app.

How can you protect your money?

• Join a group with people you know and trust, and meet them in person.
• Pay into a group bank account where possible, and not into one person's private account or by cash with no record.
• Ask for proof of every payment, and keep it. A photo of a deposit slip or a saved message is enough.
• Choose an amount you can pay every month, even in a hard month. Missing payments can cost you your place.
• If money is stolen or a leader runs away, you can report it to the South African Police Service as fraud or theft. Keep your proof.

Where can small earnings help?

If you earn small rewards from surveys and offers on Mocash, you may choose to set some aside for a stokvel contribution. Earning from an app is small, slow and not guaranteed, and it is not a replacement for income. Only commit to a stokvel amount you are sure you can pay. To plan your first payout, see What you need before your first withdrawal.

This post is general information. It is not advice to join or start any particular group.