Stokvels are invitation-only clubs of twelve or more people serving as rotating credit unions or saving schemes in South Africa where members contribute fixed sums of money to a central fund on a weekly, fortnightly or monthly basis. The name “stokvel” originated from the term “stock fairs”, as the rotating cattle auctions of English settlers in the Eastern Cape during the early 19th century were known. Stokvels generally have a constitution which dictates the size of the contributions, when the accumulated money is to be paid out and the roles and responsibilities of the members. Each month a different member receives the money in the fund, which was collected during that period. Defaults on contribution are quite rare as other members will know if you haven't paid your contribution, and also because the regular meetings are a reminder of what you will gain when it is your turn. Depending on the type of stokvels, the members can use the collected fund for their own use, for payment or investment purposes. It is estimated that one in every two adult South Africans is a member of at least one of 800 000 stokvels. South Africans invest approximately R50 billion in stokvels a year.
A burial society provides “informal insurance” to help families with the costs of a funeral in the event of a death. Burial societies also provide practical support for the family during the preparations; for example, by helping to prepare food. This is similar to a stokvel, in that monthly fees are collected. However, the main difference is that periodical payouts are not made and new member can only benefit after a three-month waiting period. Burial societies are invariably intended for poorer and less educated people. Burial societies can be seen as the product of urban living and appear to have evolved in order to aid migrants from the rural areas who find themselves facing problems in a strange and hostile environment. In South Africa, the disadvantaged, and the poorer and less educated classes, have historically been black and coloured people. The burial societies help alleviate the expenses incurred when burying a loved one. It therefore comes as no surprise to find that burial societies tend to be more popular in these communities.
Pooled money can earn better returns, at a lower cost. Banks offer higher interest rates on bigger amounts and banking costs are lowered if the amount is large enough.
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 or companies. Members do their homework, deliberate about which shares or companies to invest in and make investment decisions.
Knowing when you will receive a windfall amount makes it easier to plan your finances.
Reduces chances of savings being stolen if the money is moving rather than saving the money at home.
