Focusing on small to dream big

While there is a significant focus in larger companies on the benefits that they offer their employees, not many benefits are available in the market for smaller companies or those with blue collar workers.

For advisers who are looking for new business in a constrained market, perhaps more focus should be paid to how this target market can be catered for.

The South African stokvel market is believed to be worth up to R45 billion per annum and represents the assets of up to 11 million members, creating huge untapped potential for investment products that could offer higher returns than bank deposits.

For any stokvel, choosing the correct investment is extremely important. Stokvels need to understand the concept of risk versus returns. They must identify the length of time they want to invest as well as what the investment needs to do for the group.

Educating the masses

The National Stokvel Association of South Africa (NASASA) is intent on improving financial literacy and understanding among the general stokvel community. They have partnered with Investment Solutions to develop specific products aimed at the traditional collective savings market. The investment management company has been attending monthly indabas in Gauteng held by NASASA to offer investment education and advice.

A comfortable niche

By investing their money smartly, stokvels, which usually save towards burial, groceries, school fees, celebratory events or, increasingly, operate as investment clubs, would potentially earn interest and capital gains versus just having their money in a bank account.

If a stokvel has money they will not need within the first year, it may not be in their best interest to leave it in a bank account being weakened by inflation.

There may be better ways to house this money, and there are various types of unit trust portfolios which could be considered. We have met with stokvels which have millions of Rands saved to advise them on how to best invest this money.

Harnessing the power

Investment Solutions, along with other types of service providers, is harnessing the collective power of stokvels.

We FICA the group bank account and the proof of residence used for this bank account. People do not default on contributions, because of the discipline and peer pressure stokvels create.

This means it is a successful alternative to formal savings. And with stokvels growing faster than the pension fund industry, this crucial market cannot continue to be ignored by the financial services sector.