What do you think of when you think of a Stokvel?
I think most of us are familiar with the traditional methods of Stokvel’s. Where we use it to save up for something we want to buy - an extra payment that boosts our disposable income for one specific month a year, where each member gets their own turn to receive a payout along the way.
I first came across a Stokvel when I was 20 years old, a colleague of mine asked me if I wanted to be the 12th person in their stokvel. Each member had to contribute R1000 a month and one bottle of Brandy - I promptly refused. But nonetheless, it was at this moment that led me to think of the possibilities and opportunities that this concept could bring to fruition.
“Imaging using Stokvel’s for investment rather than consumption, imagine all 12 of those individuals contributed monthly with no intention to consume their rewards - delayed gratification.
Year 1 Contributions = R144 000
((R1000x 12)x 60 months) = R720 000
(And that excludes the return from investing the capital)
It was at exactly this point that I knew I could buy my freedom instead of indulging in one of the world’s most guilty pleasures - intoxication. This moment changed the course of my life-forever. It was this very moment that led me to set up my own Stokvel which we later turned into a company named FundUp. Myself and a good friend co-founded the company to make investments into properties and to fund start up businesses operating in South Africa.
Now, lets take the traditional sense of a Stokvel and flip it. I’ll show you what I mean. Below, are the blue prints of what to do.
Firstly, you need to focus on who you would want to attract, then focus on what the objective of your fund would be and then what you want to achieve.
Are you doing this for:
Consumption
Investment
Holiday
Property
Stocks
Once you have figured that out, start recruiting a small group of people who share common characteristics with you, your fund, and your objectives. You don’t need many people to pull this off. Imagine 6 people with R2000 each, it’s the same concept as 12 people at R1000 each. There is magic in smaller numbers.
For example:
I targeted South African Expats abroad, and we aim to build up capital to invest into assets within the South African economy.
Instead of being 100% exposed to property, you could easily invest collectively in property and reduce your risk by having a 20% stake instead. You free up your own investable capital to do what you want with, like invest abroad. It also gives you exposure to the local market with less risk, which is probably very prudent, especially with the current social unrest we have seen.
SideNote:
Most South African’s properties aren’t investments because they generate no cashflow. If it’s taking money out your pocket then it’s reducing your affordability, and If your affordability is reduced, how do you scale? Simply put - you cannot. You reach a threshold and have multiple liabilities to cover. You are also at risk if interest rates begin rising and failing municipalities passing on costs to homeowners. I won’t get to much into where I see the property market going, but I do unpack it all in my eBook.
If you want to know more, then I’d suggest getting a copy of this eBook before you make the mistake of buying property.
Let’s move on to step 2,
Once you’ve decided who and what, then draft a Stokvel constitution so there are some guidelines all can follow. Also, you don’t need a business set up just yet.
Let me explain why?
Don’t open a business bank account yet - to save on banking fees. Rather open a 32 day investment account with one of the selected banks in South Africa -we decided to go with FNB. Members can then start monthly contributions into this account for free.
Your total contribution can be any amount that you decide, as long as it is all contracted and agreed to before hand.
In our Stokvel we contribute between R1000-R5000 a month. This depends on the individual’s affordability for that month, it also ensures that one member doesn’t contribute too much more than the lowest contributor. It also allows us to have a maximum contribution level of between R5000- R25000 a month because there is 5 of us.
At the end of every year, transfer all or a % of the monies into an EasyEquities Stokvel investment account. They allow for Collective Investment Schemes (CIS) to register and invest into the stock market.
At this point you’ll have two accounts to oversee, with hardly any monthly administration, and no monthly account fees.
32 Day Investment Account with your bank - (Requires a R5000 starting deposit + no monthly account fee)
EasyEquities Group account (FREE)
Step 3:
In order to start building rapport with a bank you need to have a credit history. By doing this, you will need a business bank account, which can be quite costly every month. It can range from R80 - R350 depending on what option you go for or what bank you opt to use. This step can be done at anytime, even before you start, but we decided to hold off from setting the company up straight away to save on bank fees.
Once you have your business bank account, you can then link all your accounts under one business umbrella, i.e. your 32 day account and Easy Equities account.
Step 4:
Empty out your 32 day account and transfer the money as a loan to your business account (members money) and then issue members share certificates to prove a % of ownership they own of the company.
Your co-funding members will get share ownership of the business. You can then open your 32 day account to recruitment again, if you wish to do so, which allows you to access cheaper financing costs. New recruits can be paid in equity or a percentage return on their money for lending their capital to your business.
For example:
Access to capital is the most challenging part for any business if they want to scale. If a bank is giving me a R500k loan at 15% interest, I could theoretically, build my own capital instead by recruiting other’s to join the business’s Stokvel. Then offer them a 10% return on the money they lend us. This allows us to access capital at a cheaper rate than borrowing from the bank. We use the recruits money to scale the business, then pay them their return.
Obviously this is easier said than done, but it is possible.
The idea here is to build up liquidity with the members money, then leverage that to buy assets that generate cash flow, then become a stand alone company (limited liability). At this point your company will be able to do business with banks as a stand alone entity with no need for any directors to sign surety. Then you look to scale by accessing cheaper capital and leveraging existing assets.
Step 5:
You can look to buy property, build, start a business, or fund start up businesses by buying equity in them. Now believe me, this isn’t make belief, because myself and a few others have been doing this for 3-4 years already.
It takes discipline and having a plan to execute. You no longer need to rely too much on banks anymore when we have each other.
Stay Safe, Everyone. See you next week.
Don’t forget to watch the video below for more details, and if you found this valuable, please don’t forget to share it with a friend too :)
Stokvel Investing