The dangers of WhatsApp stokvels

Published on 17th December, 2019 at 10:58 am

While this digital phenomenon promises money when you need it, you need think twice before you join a WhatsApp stokvel – even if you know the person inviting you well. Here’s why.

What is a WhatsApp stokvel?

Yet another ‘quick buck’ digital scheme has hit South Africa. This time, it’s WhatsApp stokvels. How do these work? People are recruited to join a WhatsApp stokvel group (using a WhatsApp chat group) by paying a joining fee. So, in order to be added to the group, you have to pay up. The average joining fee is R200, with the promise of around R1 000 return if you recruit two people into the group.

When WhatsApp stokvels go wrong…

“My aunt recruited me for a WhatsApp Stokvel,” says Mbali, a student at the University of Johannesburg. “I didn’t trust it at first until I was contacted by the group admin. She sent me voice notes talking me through the process.

“I paid the joining fee of R200 and had to recruit two people – which I did – in order to receive the R1 000. But I never received my money. I kept silent about not receiving my R1 000 payment because screenshots of proof of payments were being shared in the WhatsApp group. I hoped I would still receive mine.

“Weeks went by and I still hadn’t received my payment. At that time, my aunt hadn’t received any more payments that were promised to her either. I decided to message people from the group privately, and that’s when people started to leave the group. My aunt was left as group admin, and the only people left in the group were the people my aunt and I had recruited. Embarrassed and ashamed of what we had recruited people into, my aunt tried contacting the initial group admin, only to find that now the number didn’t exist. We also discovered that the payments we made to join were done using untraceable methods so that they didn’t link to the receiver.”

WhatsApp stokvels: a new look for age-old pyramid schemes

WhatsApp stokvels aren’t like traditional stokvels – in fact, they work like a pyramid scheme, where participants earn money by finding new participants. Another name for a pyramid scheme is a Ponzi scheme. Pyramid or Ponzi schemes work by recruiting investors, who in turn get promised payment or returns if they recruit more people. The reality is that the person at the top of the scheme collects all the money, and those being recruited further down rarely see all, if any, of what was promised to them. The first few people to join or invest reap the rewards and the rest, typically, lose money. In South Africa, these types of schemes are illegal and you should avoid them, as your money is not secure with them.

How traditional stokvels are different

A traditional stokvel is a savings club started by members of a community, often made up of 12 or more members. Stokvels started in South Africa to allow everyday people, who may have been denied access to banks or savings schemes, a way to save within their communities. Within a traditional stokvel, every member contributes money to a central pot. Then, a fixed amount of money is rationed among the members according to the month. For example, let’s say each member contributes R200 a month; then, each month, one member receives everyone’s contributions (R200 x 12) paid in full, so that they have money to pay for a big expense.

Stokvels are commonplace in South Africa. Jacqui Rickson, Chief Executive: Group Benefits at Sanlam Developing Markets, says, “there are more than 800 000 stokvels across the country; that totals an estimated R50-billion annually.” Stokvels have been operating in good faith for many years; faith that each member will honour their word by making the monthly payment, and faith that when it’s your turn as member to be paid out a larger amount, you are.

Stokvels have built communities for generations, and as a result many regulated financial providers – like Sanlam – now offer stokvel products. For example, Sanlam and the National Stokvel Association of South Africa (NASASA) have launched a brokerage that serves the South African stokvel market. For burial stokvels, Sanlam has designed a full product covering up to nine family members, says Rickson.

How to stay safe

Rickson suggests that before you enter any financial agreement – be it a stokvel or anything else – get as much information about the product as possible in writing. You should feel comfortable with the agreement. A few questions you should ask yourself:

1. 1. Do I know or trust the person or institution I am dealing with? It’s always recommended that you save or invest your money with a regulated, trusted financial institution.
   2. Can I verify anything before I sign up? For example, ask the person who they work for and ask them how they found the service or product offering. Financial planners should be registered (ask for their FSP number and call the Financial Planning Institute on 086 1000 374 to verify them). Financial institutions should also be registered and can be checked with the Financial Sector Conduct Authority on 0800 20 37 22.
   3. Is it backed by a reputable company and can it be verified?
   4. Are there clear guidelines around:
      • the amount of money that will be invested/paid by each member;
      • who will manage the money – is there a chairperson and/or treasurer;
      • records of where the money is being invested;
      • how it will be managed, how often payouts will be made and when?

   Sadly, there is no such thing as a ‘quick buck’. Things take time – and savings and investments are no different. Make sure that you are comfortable and know exactly what you are buying into. Ensure you have an agreement or terms and conditions in writing.

   Your safest bet? Speak to a financial planner about your specific financial needs and goals, as they will be able to assist you with safe, trusted financial solutions to help get you there.