How to avoid Stokvel Scams

Reading the #WhatsAppStokvel scams on Twitter has been both funny and sad. I'm still shocked at why anyone would join a stokvel with people they don't know personally.

This is the reason why the National Stokvel Association of South Africa had to issue a warning today about scammers luring people victims using social media to join their so called "stokvels." According to media reports, many victimes lost hundreds of rands by joining "stokvels" with anonymous administrators.

I know that most stokvels are unregulated but that doesn't mean that stokvels are not a legit way of making money. Many of them provide a strong and stable source of financing for their members.

So what do I mean?

According to National Stokvel Association of South Africa, the pooled money in stokvels is reported to be something like R49 billion and there are over 800 000 stokvel groups in the country. That means that together, the members of stokvels could buy a number of SA's listed companies in cash because the cash flowing through these stokvels easily tops the annual cashflow of most of the biggest companies in South Africa. That's staggering!

5 Ways to identity fraudulent schemes

TimesLive reported that there have been WhatsApp messages doing the rounds encouraging people to invest in a stokvel for R200 and make R1,000 profit.

This is another dead giveaway that this is a scam! This is how most pyramid schemes work. The first few people to join receive a pay-out but sadly those who follow often lose all their money.  

As the old adage goes: if it sounds too good to be true, it probably is. I really wish people we weren't so ignorant. 

Having said that, anybody can fall prey to a financial scheme or scam. The best protection for your money is Knowledge.

Types of stokvels
Usually a stokvel is started for a specific reason. The members of the stokvel may share a common goal for saving such as December groceries or a wedding. For example, a group of people may get together and save in a stokvel for the purpose of funding their bridal parties.

How stokvel membership works
There is usually a minimum of 12 members in a stokvel because we have 12 months. However, you may choose to have a smaller number of members in your stokvel group.

Here is what a makes a stokvel a stokvel:
  • Stokvels are often governed by a constitution. The constitution includes information pertaining to contribution amounts, duties of each member, the type of stokvel, when meetings will be held, etc.
  • Members rarely default. The sense of community and shared responsibility is defining trait of this type savings scheme.
  • Knowing when you will get your pay-out makes it easier to develop and execute a financial plan.
  • As a way of encouraging savings, some banks now offer specific accounts for stokvels; the benefits of which differ from bank to bank.
Ntombi Tisani, Head of Marketing at Old Mutual Personal Finance offers this tips for turning your stokvel into an investment engine:

1. Get the right advice
When it comes to money – your own or your stokvel’s – it’s important to get the right advice to ensure you’re on track to achieve your goals. The financial knowledge and experience of your co-members may vary a lot, which could make it difficult to agree on the right savings strategy and select appropriate solutions. A qualified financial adviser can help you put a targeted plan in place that meets the needs of all the members of the stokvel.

2. Save with purpose
According to the 2017 Old Mutual Savings & Investment Monitor, 44% of stokvel contributors are saving for a rainy day, while 43% are saving to pay off debt. Understanding the underlying motivation for saving is an important factor in deciding which tools to employ to reach your target.

Remember that the cost of debt increases over time. So, for example, if you save R1 500 every month to pay off a debt of R18 000 at the end of the year, you need a savings mechanism that yields enough in interest to match the accumulated interest of the debt at repayment. Similarly, if you are saving for a rainy day, you need to be aware of inflation rates, increasing costs of living and any VAT reforms to ensure that you are saving enough.

3. Get more out
Stokvels are popular because members are obligated to contribute. But prioritising returns is as important as encouraging savings. Members need to get more out of their investments, otherwise they may as well be saving their money under a mattress with no opportunity for growth.

4. Empower members
Every stokvel member has the opportunity to play an active role in their club. Seek out a specific investment solution that offers value-added benefits that empower members through, for example, financial education. Apart from being simple, transparent, cost efficient and flexible, financial solutions also need to add value to members. A product like the Old Mutual Invest Flexible Plan offers much needed guidance in the form of ongoing educational workshops and support.

5. Benefit from tax-efficient solutions
The South African government encourages saving by offering tax benefits on certain investments. This great opportunity for growth is often missed by stokvels. When deciding which savings or investment to use for your group’s contributions, remember to consider tax-efficient solutions like tax free savings accounts.

December is just around the corner and so many scammers are hungry for your money. Before you join a stokvel, make sure that you join in with people you trust as fellow members who share common values and savings goals. 

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