The bank stated that if harnessed correctly, stokvel’s could be the driver that South Africa needs to significantly enhance discretionary savings levels to bolster the economy.
A stokvel is a savings group to which members regularly contribute an agreed amount. The group then decides on how that money is shared, whether it is a monthly pay-out or invested and shared at the end of the year.
According to the National Stokvel Association of South Africa, the stokvel market was worth more than some of South Africa’s largest businesses. By geographic spread, provinces where the country’s top savers reside, Gauteng was the top-ranked followed closely by Limpopo. Together with North West and KwaZulu-Natal, these four provinces accounted for 70 percent of the stokvels in the country.
Data from research conducted by Nedbank indicated that the most popular types of stokvels are savings stokvels, grocery stokvels, and burial societies. “Two-thirds of grocery stokvels make bulk purchases from various retailers and wholesalers once a year in quarter four.”
According to market research company African Response, 41 percent of the stokvels are banked and this served to bring more South Africans into the formal financial services sector by giving them access to other savings, investment and protection offerings.
Nedbank’s head of retail investments Sisandile Cikido said that only 5 percent of stokvels were focused on investment savings, which meant South Africa had the lowest savings rate among G20 countries. “Of those that do save, 40 percent have their money invested in low- or no-interest accounts. To help the country and its citizens achieve their economic goals, a smarter savings culture driven by accessible products has to be built.”
Cikido said: “We believe that by helping stokvel members to use their existing savings to grow more wealth, we can make a real contribution to changing the face of the economy and building broad-based wealth. Making the banking system truly inclusive does not only benefit individuals but also strengthens the economy as a whole.”
Asked about how tax affected stokvels Cikido told Business Report that stokvels were rarely taxed due to the tax exemption on interest earned which is R23 800 for individuals under 65 and 34 500 for individuals older than 65.
“This means each stokvel member would need to have earned interest exceeding this amount from annual contributions in order to be taxed. Nedbank doesn’t currently have a stokvel account earning this type of interest at an individual level.”
“For example, if 10 stokvel members contribute R500 each every month, the interest earned per annum will be R 2 370 by the stokvel and R237 per member, which is below the tax threshold. However to comply with tax laws, Nedbank issues a tax certificate indicating interest earned annually to the stokvel secretary,”she said.
Cikido said should a stokvel choose to invest for a longer term, with higher risk and interest potential capital gains taxed would be charged per member ranging from 18 percent to 38 percent depending on the individuals’ marginal rate.