Characteristics of Credit Instruments Issued by Stokvels in South Africa

Lindiwe Ngcobo,Joseph Chisasa

doi:10.22610/jebs.v10i6.2614

Abstract

Access to formal credit and other financial instruments remains a challenge for the majority of households in South Africa. The objective of this study was, therefore, to determine the characteristics of credit instruments issued by stokvels to households in South Africa. Prior studies have generally focused on mobilization of savings through stokvels while none has paid particular attention to the credit supply function of stokvels. This study attempts to fill this gap by using a self-administered research questionnaire on a sample of 386 respondents. Members of stokvels were surveyed from the cities of Pretoria and Johannesburg in the Gauteng province of South Africa. Data was analysed using descriptive statistics, exploratory factor and correlation analyses. Results show that stokvels issue short-term loans from less than 3 to 6 months. Interest rates are high ranging from 25% to 35% and are charged monthly. Loan sizes are small with approximately two-thirds of the respondents receiving loans above R500 while the remaining third received less than R500. Finally, all loans are secured by the borrower’s identification document or bank card and personal identification number. The results of this study have policy implications for financial institutions in South Africa.

Highlights

South Africa still remains one of the countries in the world with the highest income inequality (World Bank Report, 2006)
Since stokvels attempt to fill the gap created by formal financial institutions such as commercial banks by providing credit, the objective of this study was to examine the characteristics of credit instruments issued by stokvels to households in South Africa
Low travelling costs of collecting data are incurred because the researcher resides in the Gauteng province and lastly because the Gauteng province is the economic hub of South Africa where the credit instruments issued by stokvels are most pronounced

Summary

Introduction

South Africa still remains one of the countries in the world with the highest income inequality (World Bank Report, 2006). Black South Africans were excluded from utilising most aspects of the formal financial and banking sector. The state severely restricted Africans’ access to formal credit. The restriction on private ownership of council-owned homes, low wages and few opportunities for formal entrepreneurship added to the severe restriction of formal credit. The state erected numerous barriers to black home ownership, to accessing finance and to operating licensed business. The 2011 census reported that South Africa has about 56 million people consisting of Africans (76,4%), Whites (9,1%), Coloured (8,9%), Asian (2,5%) and Other (0,5%). The economy of South Africa is the second largest in Africa after Nigeria. What is evident from these summary statistics is that innovative solutions are required to avert a further deterioration of the economy, stimulate saving and investment at all levels of society

Objectives

Methods

Conclusion