Should I participate in a Stokvel?

People the world over are fascinated by any “get rich quick” scheme and South Africans are no exception. With COVID-19 taking its toll on desperate South African households, a new but essentially old stokvel scheme has been revived. What is a stokvel? A stokvel is a type of credit union (or known across the world as a rotating savings and credit association) where a group of people enter into a agreement to contribute a fixed amount of money per month into a savings pool over a certain period of time with the main purpose to save or invest together.  For example, 12 people form a stokvel whereby they each commit to contribute an amount of R100 per month for a period of 12 months. Every month one member will receive the bulk amount of money (i.e. R1200) on a rotational basis.  Although you get different types of stokvels the main aim of a stokvel is to benefit all members equally or proportionally to their contributions.

In comparison, a pyramid scheme (a money revolving scheme) is a scheme where new members fund the investments of existing members and as soon as new members stop joining, the scheme falls apart and new members lose.  For example, the new stokvel scheme will request a member to invest R200 and they will receive R1200 in return for recruiting new members.  Once there are no more new members joining, the scheme falls apart (as there are no more new members to financially contribute) and the newest members to the scheme, who although already contributed to the existing members, do not receive their payout. The aim of benefitting all members equally is therefore absent and this type of revolving scheme is a “harmful business practice”.

In South African Law, a pyramid scheme is unlawful in terms of section 43(2) of the Consumer Protection Act (68 of 2008), whereby a person may not directly promote or knowingly join, enter or participate in a multiplication scheme, a pyramid scheme or a chain letter scheme. Any person involved in the scheme either by starting or “investing” in same can be held accountable for fraud, theft, reckless trading and contravention of the Gambling Act, Companies Act and Banking Act.

In economically distressed periods it is easy for unscrupulous parties to offer desperate South Africans a “way out”.  If it sounds too good to be true, then it probably is!

By Karen Zaaiman

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)