Savings, stokvel style

In difficult times, with one-third of the population unemployed, dedicated members of the stokvel network rely on each other until the grave.

When four young men tried to rob a group of women shortly before the holidays, they made the mistake of their lives.

Armed with pots, pans and anything else in hand, the women fought off their assailants and left them in the street for dead.

The women of Ngqamakhwe township, in South Africa's Eastern Cape province, were members of a "stokvel", or savings club.

For many South Africans, stokvels function as a saving, bank account and credit scheme all rolled into one. Almost one-third of the population is unemployed, often with no hope of obtaining loans from formal banks.

Using whatever meagre income they have, and pooling it together with others in the same predicament, is the only savings option. A stokvel is formed when a small group of people, often from the same street or village, come together for mutual benefit.

Each month, the members will add a small contribution to the collective pot. These funds are then made available as loans or grants to members. For the women of Ngqamakhwe, their stokvel savings meant the difference between a holiday with food and hunger.

According to reports, word of the Ngqamakhwe club's disbursement leaked out and a local gang decided to rob them on December 9 last year. With knives and Dutch courage in their blood, the young toughs must have pegged the women as easy prey.

The ferocious resistance by their would-be victims illustrates just how important stokvels have become to communities that have few other means to accumulate capital. This is personal finance, Africa style.

"No arrests have been made by police," says warrant officer Namhlanhla Mdleleni.

Nor are their likely to be, despite four men losing their lives.

In a close-knit community like this, nobody is about to speak up. The origins of stokvels lie sometime in the late 19th century, when thousands of black labourers left their home villages to toil deep in the earth in the country's gold mines. It was a perilous life and many died in rockfalls and from disease in the squalid camps around the pits.

Any man who died far from home would have wanted to be buried among his family. So mine workers, usually from the same village, would contribute a small sum each month and give it to a senior clansman for safekeeping. If a miner should meet his fate, the fund would be used to send him home to rest among his ancestors.

Mutual support quickly morphed into a contribution system whereby men and women would set aside a portion of their wages to pay for funerals.

These burial societies still form the basis for many stokvels. As a result, even a poor man can expect to be laid to rest in style among his family.

The money that now lurks in the shadows of these informal savings clubs is considerable. South Africans' money holdings of unbanked cash have tripled to 33 billion rand (Dh17.7bn) in the past decade, according to a study by the London-listed financial services group, Old Mutual. At least 800,000 people belong to a club.

Members contribute as little as two rand a month. The accumulated funds are either distributed once a year or, in some clubs, each member gets a turn to take a lump sum on a rotational basis.

Others act as a lending agency, issuing small loans for members to build houses or set up their own businesses.

Not all are simply savings clubs. Many host parties, which charge for food and drink to raise money, but also serve as networking events.

Grietjie Verhoef, a historian at the University of Johannesburgwho has studied stokvels, says members are often from the same community and know each other well. Because of this, they diligently meet their obligations to their stokvel.

When times are especially hard, as they are now during the current economic downtown, stokvel members rely even more heavily on each other. "Under a downturn situation like now, these organisations actually gain credibility," Mr Verhoef adds. The close ties of stokvel members have also made them resistant to change.

Membership is almost always reserved for people from the same clan, if not same village. Banks are regarded with suspicion.

In recent years, though, the formal banking sector has begun to take note of stokvels.

First National Bank, one of the country's largest retail institutions, has set up a stokvel account to handle group funds.

It was not, however, an easy sell. The bank had to convince stokvel members that an account was a safer way to store money than in a coffee jar hidden under a bed.

The bank is having some success, especially with women, who make up the bulk of stokvel members. "We found that women, unlike their male counterparts, put something away for that rainy day," says Henry Walton, the chief executive of FNB Smart Product House.

Self-help is a long-standing African tradition.

Unlike western banks, which these days are reluctant to extend loans in any circumstances, stokvels will stand by their members from birth to death, without the high interest rates.