With jobs under threat and households facing uncertainties due to the economic slowdown, having money available for the rainy days is a necessity.

Also, banks are much stricter with lending out money. This means that you have to – gasp! – save up before you can make a purchase. Buying a house can now mean having to save between 20% and 30% of the price for a deposit.

But saving is hard – particularly in tough times, when your pay cheque barely seems to cover the basics.

Also, interest rates have been lowered at such a break-neck speed that the expected returns aren't very enticing.

Starting a stokvel might be one way to help your saving endeavours. Millions of South Africans can’t be wrong, after all. E

very year, billions of rands – some reckon more than R5bn – are invested in an estimated 800 000 stokvels in South Africa. According to some studies, nearly half of black South Africans belong to a stokvel.

The word stokvel apparently comes from "stock fair". In the nineteenth century, British settlers rotated the money management of regular stock auctions.

Traditionally, a group of Stokvel members will each contribute a fixed amount on a regular basis and take turns to receive the full amount.

But there are many variations. Some stokvels pool the contributions together and invest it to get bigger returns for members. Some will identify promising small businesses and commit money to the entrepreneurs. More commonly, the stokvels will lend out money to individuals at interest rates of between 20% and 50% a month. The stokvel members act as agents to get borrowers. This can be risky due to non-payment.

Burial societies have grown from the stokvel tradition. Typically, members will contribute and claim for burial costs if a family member dies.

In recent years, big companies have also woken up to the potential of stokvels, with including First National Bank, which launched an account aimed at stokvels and DaimlerChrysler, which proposed a stokvel-type scheme for potential buyers of luxury cars.

Why consider a stokvel?

  • The peer pressure will force you to save.
  • Pooled money can earn better returns, at a lower cost. Banks offer higher interest rates on bigger amounts and banking costs are lowered (or in some cases, free) if the amount is large enough. On your own, your couple of rands won’t get the same treatment.
  • Some of the added benefits are a sense of community and socialising. Stokvel members traditionally meet regularly and make an occasion of the meetings.
  • You may learn something. Some stokvels operate like investment clubs and invest in the stock exchange. Members do their homework, deliberate about which shares to invest in and make investment decisions.
  • Knowing when you will receive a windfall amount makes it easier to plan your finances.

    How do you start a stokvel?

    The first step is to get the right members. They should be people who trust each other – particularly to keep on paying their bit after they have received their payout.

    Next, everyone should agree to the rules of the stokvel. This includes how much everyone should invest, who will manage the money as well as where and how often meetings will be conducted.

    One of the most important decisions will be about where the investments will be made. Everyone must agree beforehand about how much risk can be taken on.

    Then, the members have to explore the most efficient ways to invest the money. Consider transacting online, or investing in cost-effective instruments like Satrix.

    Do you belong to a stokvel? Share your thoughts in the box below.