Customary saving schemes seldom resort to the law

05 May 2020 | Story Andrew Hutchison. Photo Charles Thompson, Pixabay. Read time 10 min.
About 11.6 million South Africans participate in stokvels, a type of informal saving scheme.
About 11.6 million South Africans participate in stokvels, a type of informal saving scheme.

The South African stokvel sector is massive and controls vast financial resources. It holds an estimated ZAR49.5 billion in member savings and has some 11.6 million participants. A stokvel is a type of informal credit union in which members agree to contribute a fixed amount of money to a common pool weekly, fortnightly or monthly.

Similar informal financial associations are found in many different cultures around the world. It is not known, however, whether this practice arose spontaneously in each country or through borrowing. Folklore has it that stokvels in South Africa date back to gatherings of African farm workers at 19th century agricultural “stock fairs” in the Eastern Cape.

But, with a sector this size, why do so few stokvels or their members appear before South African courts? We set out to try to understand why. We conducted a study to test how stokvels are ordered.

Our findings suggest that the answer may lie in the fact that stokvel members prefer to manage their own affairs through non-state means. This is what economists would call “private ordering”. In stokvels this process begins with contracting.

A case that tells a story

One of very few cases dealing with a stokvel in the South African Law Reports arose more than two decades ago. Since cases which reach at least high court level and lead to a development of the law tend to be reported, this scarcity is revealing.


This case illustrates how stokvel practices may not always be lawful and that it can be difficult to address this effectively through the courts.

The story behind the case offers some suggestions on why this may be so.

In January 1998, Ms Malgas borrowed R6 000 from her friend Ms Mndi. The source of the capital lent was Ms Mndi’s stokvel, the Masikhule Club. The capital was advanced by the club to Ms Mndi at a rate of 30% per month. Ms Mndi in turn lent the money, on the same terms, to Ms Malgas. It took Ms Malgas some time to repay this loan. Eventually in December 1998, she repaid R34 692.60 to Ms Mndi, who then transferred this sum to her stokvel.

Ms Malgas clearly felt aggrieved at having to repay such a large amount, since she later instituted a claim against Ms Mndi in the magistrate’s court for return of the money paid. Indeed, the sum paid was above what was at the time lawfully chargeable as a fee for the use of money. She won her case, but due to the intricacies of the law of unjustified enrichment, she received only R4 435.40 back from Ms Mndi. This amount represented Ms Mndi’s personal share of the profits on the loan according to her stokvel’s rules.

This case illustrates how stokvel practices may not always be lawful and that it can be difficult to address this effectively through the courts.

If many stokvels operate outside the law, then how do they remain functional?

We spoke to 20 individual stokvel members in Khayelitsha, Cape Town, and held two focus groups. Our participants were all members of stokvels which had the object of saving money and providing loans to members.

Participants spoke of using stokvels to build and improve homes in Khayelitsha and in the Eastern Cape; to finance the purchase of cars and household appliances; to provide for children; and to finance cultural processes (such as the initiation of a child, customary marriage payments and funerals).

Members also spoke of a desire to uplift friends, family and neighbours through teaching financial discipline. The stories we heard were a positive antidote to the gloom of the consumer debt news one often reads.

Despite this, the interest rate charged by Ms Mndi and her stokvel was typical in our sample. This case could just as likely have arisen in Khayelitsha among our participants.

Governance structures

Most stokvels will have a constitution. If a stokvel applies for a bank account, a written version of this constitution will be required.

The constitution provides the blueprint for how meetings are run and how office bearers are elected, as well as determining the rules of the stokvel and debt collection procedures. In our view, the constitution forms a contract between a member and the group. There are elaborate procedures for obtaining consent to a constitution. This is sometimes done through oral ceremonies or even through formalising written consent through an affidavit at the local police station.

Importantly, the processes in the constitution are seen as binding on members. As with any contract, an obligation is created by agreement which then binds the parties. Stokvels involve loans. If a loan was not repaid, most of our participants would resolve the situation themselves through negotiation, or use group pressure through club members. This confirms other reports in the literature.


Members prefer their own devices for managing conflict and enforcing debts.

If this failed, members would approach a street committee, or even the local taxi-men for dispute resolution assistance. As a last resort, the debtor’s property might be attached and sold by the group without resorting to the courts. Only one participant had ever approached a magistrate’s court. This may account for why Mndi v Malgas, discussed above, is such a legal rarity.

A privately ordered system

What does this tell us about stokvel ordering processes?

First, stokvels are part of the informal economy and as such are largely beyond the reach of the law. Members prefer their own devices for managing conflict and enforcing debts.

Secondly, contracts are the basis of this private system, and contracts must be upheld. Thirdly, despite some of the harshness which was reported to us in enforcing stokvel debts, most participants said that default was rare in their stokvel. The system works. The reason for this was reported to be the careful selection of members. By working with trustworthy individuals, the risk of default was reduced.

South African law is not part of the stokvel contract enforcement process, and indeed some practices reported to us would be illegal under formal sector law. Rather, a working system has been devised to govern communities where money is short, access to justice is unaffordable, and debts must be repaid for the good of all.

Andrew Hutchison, Associate Professor of Commercial Law, University of Cape Town.

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