By Ntando Nkambule

Stokvels have become an integral part of Africans’ lives and culture. These informal self-help savings groups stem from the communal values of Africans, which have not been fully incorporated into western discourse that informs much of the development agenda in the global South.

Stokvels are informal self-help financial groups comprising between 10 and 18 individuals, though some might have more or fewer members, depending on their nature and purpose. Like many informal activities, stokvels operate in the shadow economy and therefore, they are not formally registered with any institution within the government system.

Nevertheless, despite being largely informal, the role of stokvels is increasingly generating a lot of interest in the financial sector, particularly when it comes to issues of accelerating financial inclusion for all in Eswatini.

In South Africa, for instance, a recent assessment by Rudzani Malaudzi finds that stokvels form part of the biggest buyers in that country’s economy, with an estimated R44 billion circulating among 820 000 groups consisting of over 11 million members. The recognition of stokvels as a social and economic tool or survival instrument for a majority of people who depend on them (especially low-income earners and the rural poor) is receiving more attention from financial institutions and policymakers.

In a pilot survey that assesses the features and financial inclusion capability of informal savings groups, Dr Phindile Dlamini from the University of Eswatini finds that in just 64 savings groups with 1 746 members, total savings contributed amount to well over E3 million. Considering the fact that the number of stokvel groups in Eswatini could easily be in the thousands, there is a lot of financial and economic potential brewing in informal savings groups. However, the total monetary value of stokvels in Eswatini – and how policymakers can leverage these savings groups to deepen financial inclusion – still needs assessment.

Literature states that the contribution of stokvels on financial and economic empowerment of low-income groups is far-reaching. Stokvels are an important grassroots initiative to smooth-out household consumption and to meet livelihood contingencies. Many people use stokvels to pool their financial resources to cater for their livelihood needs such as school fees, food, building homes, to start small businesses, amongst other gainful activities. In times of financial shocks, some people use stokvels as the first line of defence to mitigate and adjust to unexpected/unplanned life events.

To foster sustainable financial mobility for low-income earners, there is an ongoing debate around the formalisation or institutionalisation of stokvels as an option to provide financial services to the financially excluded. Despite the interest to introduce stokvel-like services into formal financial markets, the 2019 Oslo Financial Inclusion Summit emphasised that informal credit markets (which includes stokvels) are inefficient and tend to exacerbate fraud and enable individuals to evade taxes. Although this may be true, one aspect that should not be overlooked is the capacity and extent to which stokvels serve a greater purpose to support livelihoods, especially in rural communities where formal financial services are usually non-existent.

So, what can be done to enhance stokvels so that they are efficient enough to complement conventional financial institutions? Instead of vilifying everything informal, the role of policy is to create a conducive environment to enhance these traditional initiatives without taking away their indigenous or fundamental function to meet people’s livelihood needs.

Good financial inclusion policy should not ignore the grassroots initiatives and innovations that people engage in to overcome poverty and improve their lives. Rather, it should enhance what already works to improve access to financial services as well as ensure diversity of the financial products to serve all levels of livelihoods and lifestyles. In essence, stokvels offer an alternative mechanism to relieve the financially excluded from their economic burdens and carve an alternative path to economic independence.

The National Financial Inclusion Strategy 2017-2022 states that 27% of adults in Eswatini are still financially excluded. This means 324 000 of the adult population have to turn to alternative informal options for their financial needs. By definition, financial inclusion encompasses four main products: savings, transaction, credit, and insurance – which can be accessed either through formal or informal channels. Note that poor people are not hopeless nor ignorant of their financial struggles. They too engage in economic activities when they gain access to money.

Stokvels are a testament that low-income earners know their problems, acknowledge their financial needs, and are experienced in the dynamics of their financial struggles. Hence, stokvels – among other savings and borrowing instruments – help them to mobilise savings and mitigate their financial issues. It is a misconception that only poor people partake in informal savings groups, people with bank accounts and reliable sources of income also participate in stokvels. By giving it the attention it deserves, the country would be en-route to improving many people’s lives.

The wide provision of financial services by banks or other formal financial institutions has simply become the gold standard for financial inclusion. For sub-Saharan Africa, this view on financial inclusion is narrow as the economic realities are nothing compared to those of developed countries. What good is it to push everyone to have a bank account that will have a zero or negative balance most of the time?

In the context of our social and economic realities, financial inclusion needs to be a greater pursuit than just making people subscribe to formal financial systems without supporting their ability to engage in productive activities to generate the necessary incomes to achieve financial freedom. Financial services need to be connected to the social systems in which people operate, it needs to be accessible and made available at an affordable cost to all individuals and their business pursuits.

In order to bring stokvel savings groups into the realm of financial inclusion discourse, it is worth developing a deeper understanding on how these groups help Emaswati save, borrow, make payments, and manage risks. Also, it should be noted that not all rural folks make use of stokvels, some use banks, some livestock, and discouraging as it may be, some do not save at all. Eswatini needs to broaden the scope of financial inclusion, especially now that we know that the country has a large informal economy (equivalent to 37.4% of the formal economy), which government must tap into to develop people’s lives.

Fortunately, the Eswatini National Financial Inclusion Strategy (NFIS) lays out a plausible vision for the enhancement of financial inclusion in the country. To contribute to the formulation of a coordinated rural national financial inclusion policy and a strategy for financial inclusion, the Eswatini Economic Policy Analysis and Research Centre (ESEPARC) is conducting a study on stokvels to determine the key features that can be enhanced to improve access as well as the depth of financial products to the financially excluded populace.