FINANCE-SOUTH AFRICA: Rare Insights Into Poor People’s Bank

By IPS Correspondents Reprint | | Print |

Christina Scott

CAPE TOWN, May 25 2005 (IPS) - Xolile Mjobo is a highly respected undertaker, which provides a good business in the midst of one of the world’s most severe AIDS epidemics.

Although he can afford to belong to a bank, he has joined a very prestigious savings club in Langa, the oldest and most central black township in Cape Town, South Africa’s oldest city, wedged between mountains and coastline at the bottom of the continent.

Although Mjobo has a hectic schedule running funerals in both urban and rural areas, the businessman never misses his monthly meeting of the savings club, known as a stokvel. The dedication of this polite, serious older man, a recent widower who supports five children, is not unusual.

A caretaker for a block of flats in a nearby affluent suburb says he had rather starve than miss a payment. There are 40 members in all – far bigger than the average, which is usually only a casual handful of people banding together.

Both men say the stokvel is how they save, a homegrown solution to the fact that banks are expensive, complicated and remote. Stokvels grew out of the fact that under the discriminatory policies of apartheid, there were no banks in the few, overcrowded blacks-only residential areas reluctantly allowed in the cities.

In fact, almost no legal commerce was permitted in the townships. Commerce made money, and was often reserved for the complex mosaic of the country’s minorities – mostly whites but also Indians shipped over the ocean to cut sugarcane, and the so-called coloureds, often the descendants of Muslim princes from southeast Asian islands who had been exiled and enslaved for their opposition to Dutch invasion.

Ten years after the demise of apartheid, banks continue to ignore the needs of South Africa’s poor majority, and stokvels thrive. Their roots are deep in the history of the country. University of Cape Town post-graduate economics student Margaret Irving has just published a paper with the Centre for Social Science Research on informal savings groups in which she traces the word stockvel hundreds of years back to stock fairs at which poor farmers pooled their savings to purchase cattle and other livestock.

Mjobo’s stokvel is extraordinarily long-lasting. It has been running continuously since 1973, a year when the Watergate scandal took down the American presidency, The Exorcist was released on the big screen and the bantustans of Gazankulu and Venda were granted ”self-rule” by the apartheid government.

There are different types of stokvel. Some members donate money every month, which is shared out at the end of the year. Mjobo’s stokvel is a rotating savings scheme, where everyone contributes and members take turns in receiving the money each month.

The stokvel atmosphere one Sunday afternoon was a combination of auction, church revival meeting, lottery payout – and suspicion, too. Non-members were invited in very cautiously and only after being cleared by Mjobo, whose turn it was to get the pot of money. With large amounts of money being handled ”you just can’t be too careful,” says the Xhosa-speaking man guarding the door. Gangsters see stokvels as a tempting target.

Men and women sit separately, with the most prestigious men up close to the person being given the money. Mjobo, who always wears a suit and tie, sat stoic in the chair of honour. One by one, each person stood and spoke to Mjobo about his character and his place in the community. Each person had already made their big deposit into Mjobo’s bank account and had already put the deposit slips with the stokvel secretary. In between speeches, the entire crowd joined together in rousing song.

In the second round of donations, people give between 10 and 20 South African rands (around two to four dollars) and make another short speech about Mjobo. In the third round of fund-raising, you go up and shake his hand and add a little something – 25 cents, 60 cents – to the pile. After the third round, the committee takes stock of how much Mjobo has been given.

The chairman chastises the audience. The entire sum is only 13,992 dollars. He thinks they should be able to give Mjobo a nice round figure – say, 100,000 rands (15,385 dollars). He says that Mjobo always make sure they are taken care of and that they should take good care of him. The peer pressure is intense. More singing begins and people stand up and take out their wallets, giving more money and having it meticulously recorded in the books. Now the sum has gone up, but only by around 62 dollars.

Still the chairman beseeches ”it’s not enough”. It inches up by another 31 dollars. The members contribute more, trying to see who will top them. One last heroic woman stands up and reaches into her wallet for the cash to make the grand total of 14,154 dollars. All the while Mjobo sits impassively on his chair of honour – although he did answer his cellphone a few times.

Now it is time for awards. There are eight statues of varying sizes sitting on the committee’s table in front. The individuals that have contributed the most get an award. The person who receives the smallest of those trophies has given 624 dollars today. The one who receives the largest has given 2,000 dollars.

The last order of business is to confirm the date for next month and let everyone know who will have the next turn. The committee is very organised. They have carefully copied the amounts that the upcoming recipient gave to each of the members when their turn came. The members are expected to give her at least as much as she gave them. It becomes clear why everyone was trying to find as much money as possible to give to Mjobo – when it is their turn, he will be forced to give them as much or even more than they gave him today.

The meeting ends on a high note with a lamb potjie, a South African stew with vegetables, ladled on top of rice, and followed by dessert. This is the second full meal served at this event. Mjobo hosted a sheep braai – a barbecue – the night before outside the meeting room.

The value each of these members puts in the stokvel is apparent. For Mjobo, with a successful legitimate business employing eight people, meeting the financial requirements of membership is unusually easy. In the last two months, he has made two contributions of about 462 dollars each.

”Keep in mind that he is a long time member and tends to give others big gifts, so in return he receives a sizeable lump sum of cash on this day,” warns Daryl Collins, an American-born economist now researching the finances of the poor in her non-profit Financial Diaries project, online at www.FinancialDiaries.com.

Others, however, do not find it as easy to make the payments – some are unemployed, others live off a pension. Peer support is critical. The committee recently retired three older men by allowing them to take their turn earlier and then stop participating in the stokvel. Mjobo said each elderly man received about 4,616 dollars.

Mjobo says he will use the money to buy furniture for his new house far away from the city, back where his ancestors are buried in the rural Eastern Cape province. But while this meeting ended happily, stokvels are not going to magically solve everybody’s money problems.

The groundbreaking Financial Diaries study run by the Southern Africa Labour and Development Research Unit at the University of Cape Town shows for the first time that poor households are already using an impressively varied portfolio of both formal and informal financial instruments to cope with expected problems.

”But poor households remain terribly vulnerable to unforeseen financial crises,” says Collins, a former Wall Street economist turned academic who released the first wave of results from her data this week.

Her fieldworkers met every two weeks for over a year with 166 households in Johannesburg, Cape Town and the Eastern Cape, slowly earning their trust and gathering really detailed insights into the little-known financial lives of the poor.

Their research, funded by the British FinMark Trust, the American Ford Foundation and South Africa’s Micro Finance Regulatory Council, shows that financial products desperately need to be developed with poor households in mind if South Africa is going to bridge the gap between rich and poor.

Collins argues against a one-size-fits-all solution: ”It is not enough to simply extend the same type of financial instruments from the better-off to the poor. Financial products for the poor need to be safe, flexible in both payment and use, and have an effective collection mechanism – like stokvels, only better.”

But stokvels can be a mixed blessing. One of her respondents, a hardworking cleaning lady named Sylvia in ramshackle Diepsloot, a dusty mix of tiny concrete township homes and tin shacks next to a massive sewage pipe in northern Johannesburg, really suffered when thieves attacked the committee members en route to the payout meeting.

”A more fundamental limit is that most stokvels save for obvious upcoming events and needs, maybe the Christmas trip back home from the city, erecting a tombstone for their late mother or renewing the house’s supplies of washing powder,” Collins says.

”What stokvels fail to do is help people cope with the events they don’t expect, like when a cluster of relatives come begging for donations for funerals because someone’s died,” she says. ”As a result, conscientious savers can be sideswiped by unforseen developments.”

These homegrown banks fill a big gap in people’s lives. ”There’s something about stokvels that often works, maybe the community support or the peer pressure,” Collins says. ”But it’s just not enough for when disaster strikes – which is always just one step away in poor communities.”