How we established our Investment Stokvel

Mmamogodi Maleka
15 JANUARY 2021

Financial discipline is crucial for one to build sustainable wealth and attaining financial freedom. Being disciplined with finances is truly not an easy task, especially at a young age where one has so many desires. As they often say, success isn’t always about greatness, it’s about consistency. Creating sustainable wealth requires consistency over a long period of time. It requires a repetition of good financial decisions.

As we enter the New Year, many of us have financial goals and resolutions for the next 12 months. In this week’s issue, we will be touching on financial discipline and how our generation can make a good use of stokvels to create generational wealth. I will be taking you through a two year journey I have walked with four of my friends with a vision of creating generational wealth.

According to a research conducted by the University of Cape Town Business School, South Africa had an estimated 820 000 stokvels in 2018. Collectively, these stokvels raise over R40 billion each year. Majority of these stokvels are consumption stokvels, meaning the money collected during the year is spent on consumables or distributed among the members. Another popular form of stokvel is burial societies. The members make monthly contributions and if any of the members or members’ dependents passes away, the stokvel will assist with funeral expenses. If there are no deaths for a particular period, the stokvel will distribute the accumulated cash back to the members. In recent years, we have seen a rise in property stokvels. The members make monthly contributions and they will buy residential properties for the members on a rotational basis. Some of the property stokvels can purchase residential property and rent in out for to earn income.

Towards the end of 2018, we had lengthy discussions as friends regarding how our generation can approach stokvels different from the previous generation. We understood that the current stokvel model cannot help much in wealth creation. How can we use the same saving mechanism which is able to raise over R40 billion for creating generational wealth? We agreed that we should establish an investment stokvel, where the funds will not be distributed or spent on consumables but rather on income generating assets. The stokvel raises funds for a certain number of years, and once sufficient funds are raised, income generating assets such as a block of flats, an already running business or a complete new venture is acquired by the stokvel and each member of the stokvel will own a proportionate share of the business.

We established our stokvel with only three members. This is after other potential members who bought into the idea pulled out in the last minutes. Two other members joined us later on and we had five members. Initially our plan was to have at least 10 members. Having at least 10 members in the stokvel was going to help us raise a huge capital in a very short period of time. We named our stokvel “Baetapele Investment Club” as we believe we are all leaders in our own right, we are leading the idea of changing the current stokvel model within our communities.

We opened a 32 day flexi notice Stokvel account with FNB at the beginning of January 2019. When we opened the account, we had to present an ID copy for each member, proof of residence for each member and the stokvel mandate.In the first year of our stokvel, we agreed on monthly contributions of R 2 500.00. This amount was agreed with all the five members of the stokvel.When determining the appropriate monthly contributions for a stokvel, it is important to involve all the members so that the savings are not too heavy for other members of the stokvel.  By the end of August 2019, we had raised R 100 000.00 in savings for the stokvel. This was a great milestone.

We increased monthly contributions from R 2 500.00 to R 2 750.00 in 2020, and by the end of 2020 we had over R 320 000.00 in savings. The contributions were increased again to R 3000.00 per month in 2021. Currently the stokvel earns over R 800.00 per month in interest.

One of the biggest challenges in forming an investment stokvel club is drafting the stokvel constitution. The constitution should protect the interests of the stokvel and those of individual members. Baetapele Investment Club took more than 12 months before we could finally approve and adopt our stokvel constitution. Stokvel constitution should at minimum include the process to elect new leadership, roles and responsibilities of the leadership, bank signatories, monthly contributions and annual escalations, criteria for identifying investments, termination of membership (in the event of loss of income, death or failure to abide by the stokvel constitution).

A stokvel, like any other organisation comes with its own challenges. A newly established stokvel requires collective effort from all the members. Members have to ensure they attend all the meetings and participate actively in the stokvel. Otherwise there will be delays in making critical decisions. Baetapele Investment Club decided to impose penalties of R300.00 for missing a meeting without prior communication. This has helped the stokvel raise additional savings and minimised unnecessary absenteeism.  It is also important to be part of a stokvel with people who you can trust with your money, and who will respect each members’ views.

Before the end of 2021, Baetapele would have raised over R 500 000.00 in savings. The goal is to raise sufficient capital to invest in low to moderate risk types of investments which will benefit the members and their dependents.

The most important thing is to start!

Mmamogodi Maleka is a Chartered Accountant (CA) registered with South African Institute of Chartered Accountants (SAICA), a hiking enthusiast and a cyclist