A few years ago while I still lived in Cape Town a good friend and colleague asked if I wanted to be part of the office stokvel. The simple stokvel consisted of about eight to 10 people in the office, all contributing R1000 each per month, which was paid out (with interest) in December as a ‘13th cheque’ or additional income for what is usually a looooooong month to the next payday for millions of South Africans.

Although stokvels (through my mother) had always been one of the ways that things got done at home, it still hadn’t occurred to me to start or partake in one, which was silly considering how useful stokvels are. 

Stokvels were and continue to be a part of so many of our homes and lives.

Over 11.5 million people are estimated to be involved in one or more stokvel, according to the National Association of Stokvels.

My mother, for instance, has for the last two decades been part of at least one stokvel that pools money together. The longest stokvel she’s been in and is still a part of is a burial society which she and one her good friends joined in the mid '90s.

Read more: Why are South Africans so crap with money?

They used to have their monthly meetings at someone’s house on a rotation basis. This was always so exciting when it came to our house because it meant Sunday lunch would be an amazing spread and the house would be filled with the laughter and love of many aunties.

The other stokvel my mother was part of kind of grew out of the burial society - bulk bought household necessities which meant even when my mother fell on hard times we had the basics in the house. It was an amazing safety net.

Today, stokvels are using the money put together every month for everything from helping its members buy groceries, saving for a rainy day, to investing in JSE listed companies.

Whoever plays the role of treasurer should also be very discreet about the financial challenges of stokvel members if and when they should arise...

What is a stokvel?

According to the National Association of Stokvels of SA (NASASA.co.za), stokvels are “voluntary groups of natural persons (members) bound by a common cause who pool financial resources for the benefit of the group.”

Stokvels were born out of European colonial settlers holding rotating cattle auctions in the 1930s. These rotating auctions were called stock fairs and later became known as stokvels. 

How do stokvels work in 2017?

Stokvels have grown and adapted with society’s changing needs.

The simple rotating method (where the full collected amount is paid out to one member on a rotation system) or where the amount is saved together to get the most out of compound interest and then paid out at an agreed upon time/month remain popular.

Some stokvels also offer micro financing to their members which can also be hugely helpful but regulation of this function is still very limited. These need to be thoroughly checked as some dodgy, ponzi schemes present themselves like stokvels and then make off with the depositors’ money. Two years ago the Financial Services Board raised concerns about one such online ‘stokvel’.

How much is in the stokvel economy?

It is estimated that around R49 billion is in the hands and accounts of South African stokvels. It is a very lucrative market, so much so that banking options specially tailored for stokvels have appeared over the last few years.

An example is the FNB offering which eliminates some of the risk of cash being lost, or monies being mixed up in treasurer’s accounts.

According to Mail & Guardian, overwhelmingly, 60% of stokvels are used for investments, just over 20% for grocery and burial societies and 18% for savings.

How do I get started?

A stokvel is pretty simple to set up.

The most important factors for a successful stokvel are:

1. Common purpose: Everyone needs to be 100% clear on what the stokvel is saving for, or if your saving/investment needs are different then be very clear about for how long the money will be put away, how it will be deposited (EFT, cash or using an app) and how and when the money will be paid out. 

2. Social capital is incredibly important, along with trust. You should only get into a stokvel with people you can trust, particularly if you go for a more informal structure. 

3. Related to trust and social capital is transparency. Separate bank accounts and freely and/or regularly presented/available statements on the status of the investment go a long way in building and maintaining trust and ensuring that members’ continue making their contributions.

Whoever plays the role of treasurer should also be very discreet about the financial challenges of stokvel members if and when they should arise.

They should also ensure that members are always aware of what’s happening with their money, but also without revealing other members’ business.

Related to discretion is managing human relationships which can sometimes be tricky, it’s why it’s best to formalise as much of the stokvel structure and business as possible to avoid feelings or relationship dynamics to impact the workings of the association. 

The National Stokvel Association of South Africa is a great resource for new and existing stokvels via nasasa.co.za