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Scams masquerading as stokvels

by | Aug 31, 2023

Several scams have claimed to be stokvels in an attempt to gain legitimacy.

Scams masquerading as stokvelsThe word stokvel tends to be used very loosely by people who are trying to legitimise a scam. At no point did United African Stokvel (UAS) ever operate as a stokvel. It was an investment fund promising unrealistically high returns and appears to have been working as a pyramid scheme.

Other scams that have claimed to be stokvels include Money Up which promoted itself as a grocery stokvel and which was found to be guilty of running a pyramid scheme in 2021.

The Tshwaranang Community Stokvel in the Free State swindled people out of R8 million between 2017 and 2019 by claiming to provide a return of 30% to 50% within 30 days.

As Busi Skenjana of Stokvel Academy explains, a stokvel is a community of people who come together with the intention of saving money collectively. From there they identify their objectives and select the appropriate investment vehicle.

A stokvel that aims to pay out at regular intervals may select an interest-bearing bank account. A stokvel where the members want long-term growth may consider investments such as property or shares.

“In essence a stokvel is a community. There is always a clear starting point where they have met and who the founding members are. There is a constitution and a clear set of rules,” says Skenjana.

“While there may be a referral system, it is through the existing members who bring friends or family. It is a closely knit community.”

In a traditional stokvel, members identify potential investments. Someone is nominated to investigate the investment opportunity and the stokvel members discuss the pros and cons. The treasurer is then given the mandate to invest.

UAS never operated in this way. Investors did not know each other, there was no constitution or set of rules, and the nature of the investments was never disclosed.

The founder, Darren Langbein, simply used the word “stokvel” to bypass financial regulation and appear to be legitimate. For it to operate as an investment fund it would have had to be registered with the Financial Sector Conduct Authority.

Palesa Lengolo, author of Stokvels: How they can make your money work for you, says that while anybody can start a stokvel, the question should be whether it really is a stokvel or if it is being disguised as one.

“But people don’t ask the questions. They just want quick money and only come forward when the money dries up, which doesn’t help the authorities much,” says Lengolo.

Stokvels cannot be anonymous

“In my opinion a stokvel cannot run on an anonymous basis because stokvels should embody transparency. Verifying whether the stokvel operates within the framework of financial sector laws is important before one hands over one’s money.”

Skenjana says there are many types of investments that a stokvel may get involved in. These can include buying shares directly, investing in managed funds and property, and even investing in a member’s business.

An example she uses is a stokvel that clubbed together to invest in a member’s delivery motorbike. They then shared in the profits. Because the members know each other, and there is a constitution and a set of rules, they are in a stokvel.

If you invest using a platform such as Fedgroup or SV Capital to buy motorbikes, cattle or vegetables, those are the investments, not a stokvel.

A digital platform like StokFella provides stokvels with investment opportunities, but it is not a stokvel. It is a platform used by stokvels. Once again stokvel members would discuss the investment opportunities and decide whether they wished to invest. They make the decision as a collective and understand the risks they are taking.

Apart from the fact UAS did not operate as a stokvel, there were many warning signs. “There was all of a sudden a lot of hype around UAS. They came from nowhere and made claims of very high returns,” says Skenjana who adds that a common feature of all these scams is their ability to package themselves to look attractive.

It is important to note that stokvels are unregulated. Although there is the National Stokvel Association of South Africa (NASASA), it is simply an association, not a regulator. A stokvel does not have to be a member to be legitimate and being a member of NASASA does not provide members of stokvels with any protection.

When a stokvel makes an investment decision, it is important for members to understand the risks. Not all investments work out, but there is a difference between a legitimate investment that carries risk versus one that is a scam.

“If you do not have the skill to analyse the authenticity of the alleged investment company, you should contact the  Financial Sector Conduct Authority,” says Skenjana.

Don’t get caught out by the abuse of the word stokvel. You need to know the community, have a good understanding of how the returns are generated, and always know that if it sounds too good to be true, it is a scam.

How to identify a legitimate stokvel

Lengolo says before joining a stokvel make sure it ticks these boxes:

  • Transparent operations
  • Constitution or formal agreement
  • Meetings
  • Accountability
  • No promises of unexplainable high returns
  • No recruiting requirement
  • Affiliation with regulators/registered authorities

This article first appeared in City Press.


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Maya Fisher-French author of Money Questions Answered

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