Informal finance for the middle and high income individuals in South Africa : a case study of high budget "stokvels" in Pretoria

Abstract

This study was undertaken to investigate the major reasons behind the use of informal financial services by middle and high-income individuals in South Africa with specific reference to rotational savings and credit associations, locally known as stokvels. The ultimate aim was to recommend ways in which banks and other formal financial institutions could aptly address the financial needs of these individuals. The study was conducted in Pretoria, which is situated in the Gauteng province of South Africa. The data for this research was mainly gathered through two focus group discussion techniques, namely: the discussion guide and product attribute raking (PRA). Two mini questionnaires were also used to collect personal information from the participants. The research revealed three major categories of high-budget stokvels namely: the generic,targeted saving and investment stokvels. The main users of these stokvels are black males and females with a monthly income of R11 500 or more. They are typically individuals of 31 to 49 years of age. They are highly educated individuals holders of qualifications equivalent to a university degree or higher. Further analysis of the participants in this sample revealed a tendency for the stokvels to be formed along gender, workplace/colleague and kinship lines. The study shows that in addition to social fulfilment, the major financial need satisfied by these stokvels is saving to accumulate a lump sum for a birthday party, holiday or consumer goods and to take advantage of investment opportunities. The study identified the following specific reasons behind the participation in highbudget stokvels; to take advantage of collective/forced saving, avoid financial charges, low returns on small amounts of individual savings in banks and social fulfilment. The findings highlight the formal financial institutions¡¦ lack of awareness for the need to profile, design appropriate products and delivery systems for the black middle and highincome clients in South Africa. The study also shows that banks do not really understand this clientele. The study findings necessitate profile targeting, achievable through ongoing and comprehensive research in the product and service requirements of this clientele. The suggested research will enable formal financial institutions to improve service provision, as well as to identify and design products for this clientele. The study calls for the following changes in formal financial institutions: <ul> <li>Increased investment in self-service banking</li> <li>Bank staff should be trained to sensitise them to the financial, social needs and expectations of this clientele</li> <li>In addition, banks should strive to accelerate the employment of staff fluent in several indigenous languages and increase use of indigenous languages in formal financial institutions</li> <li>Banks and formal financial institutions in general, should endeavour to design products and product delivery systems that address the social needs of clients.</li> <li>Increased investment in social responsibility and visibility of formal financial institutions in black townships.</li> </ul> Finally, the study recommends that if formal financial providers are to participate in this lucrative market, it is imperative that they emulate the principles on which informal financial institutions such as high-budget stokvels operate.