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Unlocking the potential of stokvels as pathway to build generational wealth

Unlocking the potential of stokvels as pathway to build generational wealth
19-06-24 / Tau kaVodloza

Unlocking the potential of stokvels as pathway to build generational wealth

Johannesburg  - Stokvels are a way of life for many South Africans, and an integral part of the country’s economic landscape. These collective schemes are a phenomenon with immense potential that is yet to be fully unlocked.

With millions of participating members and contribution and saving pools amounting to billions of rands, stokvels have the capability to transform the financial wellbeing of countless individuals and communities – but to do that, a mindset shift is needed.

Himal Parbhoo, CEO Retail Cash Investments says, “Stokvels have always been seen as mainly a collective savings vehicle. They are groups where ordinary people pool their money and store it for when they need it one day. We believe that stokvels can, and should, be much more than just money storage schemes; they need to evolve into powerful platforms for wealth creation.”

The unique structure of stokvels, with multiple members who trust each other to pool their resources with a view to meet shared financial goals, creates an environment that is highly conducive to long-term, substantial capital accumulation.

“Recognising this inherent potential, we are working together with these groups to harness this benefit of all stokvel members. Just like financial advisers assist individual investors, we are setting up partnerships with stokvel groups to help them construct investment strategies that align with their members’ short, medium, and long-term needs,” adds Parbhoo.

Through comprehensive financial analysis and tailored portfolio advice, each stokvel can explore a range of investment options that extend beyond the typical low-interest savings accounts to include longer-term savings plans, unit trusts, and even property and business ownership and direct share investments.

“As stokvels become more sophisticated, and gradually shift from being basic savings vehicles to bona fide investment platforms, they will obviously become much more complex, and this raises the need for better structuring and governance, as well as appropriate financial and estate planning, all with a view to achieving meaningful wealth creation that transcends generations.

It is important that Stokvels take a few planned steps when it comes to making any simple or complex financial decisions. Making smart financial moves will benefit the group significantly as they navigate through financial freedom and wealth creation,” says Ester Ochse, Product Head, FNB Integrated Advice.

Parbhoo says, “one challenge to the achievement of stokvels’ wealth creation potential is the fact that many of these schemes still hold the assets that they invested in their personal capacity. This means that, on the death of a member, their stokvel savings become part of their deceased estate. Apart from the long lead times required to tie up the estate, the situation often arises where these stokvel assets end up being liquidated to settle other financial obligations.”

One of the key requirements for successfully transforming stokvels into wealth creation entities is effective fee management. As any investor will attest, minimising fees is critical to maximising the growth of any investment. This is especially true for stokvels, given that they typically involve numerous transactions over the course of each year. Fees levied on each transaction can quickly eat away at the money invested, diminishing the growth potential.

“Our digital stokvel solution revolutionises this aspect by minimising the costs of deposits and allowing for 100% digital and free-of-charge EFT withdrawals. This digital shift has resulted in fee savings of over R140 million, which is money that remains invested and can continue to grow for the benefit of all members. Moreover, members have also benefited from the high interest rate environment, amounting to over R42 million in interest earned over the last 12 months,” adds Parbhoo.

Stokvels have come a long way, but their journey toward realising their full and immense potential for wealth creation has just begun. Partnerships with financial institutions who understand this potential, and are committed to unlocking it, can catalyse this transformation, helping stokvels evolve from traditional savings pools into diversified investment portfolios that empower members, enrich communities and create wealth for generations to come.

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