Many age-old practices can be found in newer innovations. One of the best examples of this is stokvels. Stokvels are the backbone of many communities and provide their members with a safe and easy way of saving money. One thing that many people use stokvels for is to fund their businesses.
Stokvels are a type of club in which the members come together to save money. In some instances, the stokvel is used as an investment scheme or rotating credit union. Stokvels are built on trust between community members and friends.
If you’re looking to start a business and need funding, stokvels are perfect. They guarantee that you will get your funds, and it gives you time to refine your business idea and model while you wait for your funds.
In this article, we look at how you can use stokvel profits to fund your business.
Types of Stokvels in South Africa
There are many types of different stokvels. Some of the types include:
Rotational Stokvel
This is the most widely used and known type of stokvel. In a rotational stokvel, members each contribute a fixed amount of money to a common pool. This is done either weekly, fortnightly or monthly (most common). Members receive a lump sum on a rotational basis and are free to use the money for anything.
Typically, the money deposited into the common pool would be cash. However, nowadays the cash is deposited into a neutral bank account before being sent to the member whose turn it is to receive.
Grocery Stokvel
A grocery stokvel typically works in a way that members contribute a fixed amount of money towards the purchasing of groceries. The groceries are purchased at the end of the year and usually in bulk. Although most stokvels purchase the groceries all at once, others save directly with the wholesaler who then records the contributions and makes stock available for collection.
Savings Club Stokvel
In a savings stokvel, the members contribute a fixed amount to a common pool. Each member receives a lump sum which is equal to their monthly contribution at the end of the year. The funds are usually collected in cash and held in a bank account.
Burial Society Stokvel
Burial society stokvels help members by providing a form of insurance to help them with the costs of funerals. Typically, members contribute a certain amount at set/regular intervals for a set benefit. A burial society will provide a policy that covers the main group member as well as family and extended family.
In addition to providing capital for funerals, burial societies also provide practical support for the grieving family during family preparations.
Investment Stokvel
Investment stokvels have one purpose only and that is to grow the pooled funds of the stokvel. Stokvels have many ways of growing the investment. They either do it in the form of interest from a bank account, buy stocks or take part in a business venture. The amount of time the money is kept in the investment varies from stokvel to stokvel.
Social Club Stokvel
This type of stokvel pools together funds to arrange social activities and gatherings. The gatherings and activities take place at every meeting, or the members would save regularly and have fewer social activities.
Borrowing Stokvel
Borrowing stokvels pool together money and use it to provide loans to members and sub-members. These loans come with high interest rates for the sustainability and profitability of the group’s operational model.
Multi-purpose Stokvel
These are stokvels that function at multiple levels. They can be a rotational stokvel that also adds a savings function or a grocery stokvel that may also include a burial society function for its members.
The difference between these stokvels is not as noticeable as such but it’s there. All stokvels have a common function which is to collect money and serve their members.
Stokvels to Help Fund a Business
Now that you know the different types of stokvels, you can decide which one works best for getting funding for your business. Alternatively, there are organisations that use a stokvel model to provide funding for businesses.
Some organisations to consider include:
The People’s Stokvel
The organisation collects R 100 per month from members to help fund purchase orders.
Spoon Money
Spoon Money follows the same principles as stokvels and provides working capital loans to its members.
Lerato Women’s Club
The Lerato Women’s Club is a burial society stokvel that also provides loans to its members. Loans can be used for anything like business funding.
These are just some of the stokvels mentioned by the National Stokvel Association of South Africa. The organisation represents the interests of the stokvel sector and is an approved registrar of banks in terms of the Banks Act of 1990.
You can contact the organisation, and they can point you in the direction of the right stokvel for you. Once you have found the one for you, you can begin to invest money into it and prepare to get the right funding for your business.
