Stokvels – The Good and the Bad

IntroductionAirbnb

Stokvels are more commonly defined as a type of credit union in which a group of people enter into an agreement to contribute a fixed amount of money to a common pool either weekly, fortnightly or monthly.

In South Africa you get various forms of Stokvels known as; Burial Societies, Investment Clubs, Umgalelo Clubs (which are of a religious nature) and Youth Stokvels.

Advantages of a Stokvel

There are a number of advantages when belonging to a Stokvel which ties in with the reason for which the Stokvel was established.

Advantages include but are not limited to the following:

  • In Burial Society Stokvels, the fellow members in the Stokvel provide the bereaved family not only with money for a proper burial, but also with moral and social support. Furthermore, members are dependent and sympathetic towards other members.
  • Meetings held by Stokvel members offer an opportunity to socialize with friends and family.
  • In cases where a formal institution (e.g. Banks) will not provide a person with a loan, a person can approach a Stokvel or a few members can be established a Stokvel.
  • A Stokvel has juristic personality although such liability is limited.
  • A Stokvel has perpetual succession.
  • There is teaching of the discipline to save.
  • The rules of Stokvel can easily be varied and can cater for members to receive money in times of need.
  • Informal procedures regarding internal matters can be agreed-upon between the members of the Stokvel.
  • A Stokvel can provide surety as a group to a financial institution when a member needs such security.
  • Stokvels consider the member’s character when such a new member applies to be part of the Stokvel rather than the member’s financial security.

Disadvantages

  • Stokvels relating to Burial Society’s may not provide enough cash for a burial and the family must pay for the funeral of a loved one out of their own pocket.
  • Fighting between members of the Stokvel may lead to problems.
  • Stokvels get criticism from people who believe in a savings-account at a financial institution and consider Stokvels as being too simplistic.
  • Stokvels have compulsory contributions and skipping contributions can cause non-payments to the members who did not make a contribution for the month.
  • Lengthy periods between payments depending on the number of members. Should you be a member to a Stokvel and the group is large you will only  receive your payout when all the other members received their payout depending on whether the Stokvel is weekly, fortnightly or monthly.
  • Payments can be insufficient to meet a member’s needs.
  • Someone can steal the money.
  • There is also no interest on contributions made by members.

Conclusion

Unlike, Companies, Close Corporations, and Partnerships, Stokvels are not part of the formal business sector.  No legal protection is offered to a Stokvel and its members.  This is regardless of the fact that the number of Stokvels in South Africa is rapidly growing.  Stokvels are also becoming an increasingly more important source of income for many people.  Some people might see Stokvels as pyramid scheme which is not the case.

Considering the above and to provide protection to Stokvels, SchoemanLaw has added a Stokvel Agreement to our SME Self-Service Desk. Visit our website for more information on Stokvel Agreements as well as other Agreements at: https://www.schoemanlaw.co.za/online-legal-services/

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