Stokvels as an Instrument and Channel to Extend Credit to Poor Households in South Africa: An Inquiry

Using informal savings organizations as instruments for financial inclusion
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This paper examines the potential of stokvels or informal savings organizations in the African community of South Africa to serve as a channel for extending credit to poor households.

Although informal networks like stokvels have a history of success in enabling financial access for the poor, they have not received sufficient recognition. Stokvels enable the poor to access a range of informal financial services that insure them against market shocks and help them handle unpredictable events such as illness and funerals. The paper rationalizes the hypothesis that stokvels can be used in their current form, without modifications, as a special purpose vehicle.

A synthesis of the findings of this study reveals long-term benefits of stokvels. They include:

  • Helping bridge uncertainties in the environment;
  • Enabling banks and the government to advance credit more effectively and efficiently to the poor through relationships with informal associations;
  • Facilitating relationship building within the community through group lending leading to financial empowerment;
  • Providing informal financial services that involve low transaction costs, hardly any documentation and no collateral;
  • Encouraging economic independence and responsible behaviour, thus contributing to social empowerment.

About this Publication

By Mashigo, P. & Schoeman, C.