Daily Maverick
Dailymaverick logo

Opinionistas

This is an opinion piece. The views expressed are not that of Daily Maverick.....

Stokvels in the workplaces tread fine line between saving schemes and predatory lending

Marthinus van Staden
By Marthinus van Staden
28 Oct 2024
Facebook
1
Stokvels serve a valuable purpose in South African society, but their informal nature can make them vulnerable to abuse or mission creep. When does a community savings initiative become a predatory lending scheme?

Stokvels in South Africa are worth R45-billion. Each month, 11.5 million South Africans — nearly one in five citizens — contribute an average of R1,384 to more than 800,000 stokvel groups across the nation.

These traditional saving societies, once associated with elderly women pooling resources for funeral costs or year-end groceries, are increasingly attracting young professionals and high-income earners who see them as alternative investment vehicles.

As monthly contributions climb — having jumped from R1,213 in 2021 to R1,384 in 2022 — these informal financial networks are evolving from simple savings clubs into sophisticated investment schemes. But this evolution brings new risks, as a recent case at the South African National Biodiversity Institute starkly illustrates.

The line between Stokvels and predatory lending can be remarkably thin. Just ask Daniel Kaweng, who recently learned this lesson the hard way at the South African National Biodiversity Institute. What allegedly began as a simple office stokvel — a traditional southern African savings club — morphed into an unregistered money-lending operation that ultimately cost him his job.

Monapole Kaweng was employed at the Free State National Botanical Gardens as a specialist machine operator, and was also a shop steward. He was dismissed after having been found guilty of engaging in an unlawful money-lending scheme at work.

He took the Commission for Conciliation, Mediation and Arbitration ruling that found that his dismissal was fair on review in the Johannesburg Labour Court, which ruled against him and in favour of the commission.

Harsh


At first glance, Kaweng’s case might seem harsh. After all, stokvels are deeply woven into the fabric of South African society, serving as crucial informal financial networks that help communities save, invest and support one another. These arrangements have historically helped millions navigate financial challenges in a country in which formal banking has not always been accessible to everyone.

But dig deeper, and this case reveals the treacherous territory that emerges when workplace financial arrangements go awry.

When Kaweng and his colleagues first established their savings club, their intentions appeared innocent enough: pool money together for year-end distribution. However, according to Kaweng himself, the introduction of a new member changed everything, transforming their informal savings circle into something far more problematic — an unregistered credit operation charging interest to fellow employees.

The Labour Court correctly identified that section 8(2)(c) of the National Credit Act could not apply. The section creates an exemption from the act’s requirements for traditional stokvel arrangements.

Specifically, it exempts “a transaction between a stokvel and a member of that stokvel in accordance with the rules of that stokvel”. The key distinction in this case: the transactions were with third-party borrowers rather than between stokvel members.

Moreover, the employee’s own admission that he knew registration was required but continued to participate substantially weakened his defence.

The Labour Court’s recent ruling sends a clear message to South African workplaces: the cultural significance of stokvels cannot be used as a shield for unregulated financial operations. This message is particularly relevant as the cost of living crisis pushes more employees to seek alternative financial arrangements.

Fascinating


What makes this case particularly fascinating is Kaweng’s own testimony. He admitted knowing that the scheme required registration with the National Credit Regulator once it began lending money with interest. Yet he continued participating until the year’s end, presumably to collect his share of the profits.

His defence — that he wanted to leave but was told he could only quit in December — rings hollow when weighed against the potential exploitation of colleagues struggling with debt.

The case highlights several crucial issues that modern workplaces must grapple with.

First, there’s the question of where to draw the line between cultural financial practices and regulatory compliance. Stokvels serve a valuable purpose in South African society, but their informal nature can make them vulnerable to abuse or mission creep. When does a community savings initiative become a predatory lending scheme?

Second, there’s the matter of workplace dynamics. Money lending between colleagues introduces power imbalances that can poison professional relationships. When borrowers face interest rates as high as 50% — as mentioned in the forensic report — the workplace becomes a pressure cooker of financial stress and potential intimidation.

The court’s ruling demonstrates remarkable nuance in this regard. Even while acknowledging that dismissal might seem harsh, it recognised that allowing unregistered lending schemes to operate in the workplace falls outside the bounds of acceptable conduct.

The judgment effectively balances respect for cultural financial practices with the need to protect vulnerable employees from exploitation.

This case should serve as a wake-up call for employers and employees alike. While traditional saving circles and mutual aid networks play a vital role in many communities, their introduction into the workplace requires careful consideration and clear boundaries.

Employers might need to develop explicit policies about financial arrangements between staff members, while still respecting cultural practices that build community and financial resilience.

The lesson here isn’t that workplace stokvels should be banned outright. Rather, it’s that financial arrangements between colleagues need proper oversight and clear limitations. Perhaps companies could explore partnerships with registered financial institutions to provide ethical alternatives for employees seeking credit or looking to save collectively.

Testing the boundaries


As workplace financial pressures mount globally, we’re likely to see more cases testing the boundaries between traditional financial practices and modern regulatory requirements. The Kaweng case provides valuable guidance: cultural sensitivity cannot override the need to protect workers from potentially exploitative financial arrangements.

The key takeaway? When it comes to workplace financial schemes, good intentions aren’t enough. Clear rules, proper registration, and robust oversight are essential to prevent the exploitation of vulnerable employees.

As the cost-of-living crisis deepens, this principle becomes even more critical.

For Kaweng and others like him, the message is clear: participation in unregistered lending schemes, especially those operating during work hours and targeting colleagues, can have severe consequences.

The challenge now is to find ways to preserve the community-building aspects of traditional financial practices while ensuring they operate within legal frameworks that protect everyone involved.

As workplaces become increasingly diverse, managing the intersection of cultural practices and professional standards will only grow more complex. The Kaweng case offers a valuable roadmap for navigating these challenging waters. It reminds us that while tradition has its place, protecting vulnerable workers must always come first. DM

Categories:

Tags: