Unlocking the Power of Stokvels for Financial Inclusion: An Actuarial Perspective

By: Kuzivakwashe (Kuzi) Kurehwa

Financial Patterns and the Role of Actuarial Innovation

My curiosity has always been drawn to patterns, particularly in financial behaviour. Observing how individuals in low- to middle-income communities in Zimbabwe and South Africa manage their finances revealed a consistent trend: informal financial systems often thrive where traditional institutions struggle to serve.

As an actuarial professional, I have been trained to identify and quantify risks, design financial solutions, and monitor their effectiveness (the actuarial control cycle). This, coupled with a passion for fintech – the intersection of technology and finance – has led me to explore how we can better serve those excluded or underserved from formal finance.

Fintech leverages digital innovation to create more accessible, cost-effective, and scalable financial services. It has opened doors to banking, credit, and insurance for many in developing economies. A particularly resilient and often underestimated model is the Rotating Savings and Credit Association (ROSCA), commonly known as stokvels in South Africa. These community-driven systems, based on trust, structured savings, and mutual accountability, have proven their staying power.

ROSCAs exist globally, adapting to local contexts while retaining core principles of shared financial goals and collective responsibility. The key challenge lies in innovating around these models without disrupting their inherent strengths.

The Prevalence and Strength of ROSCAs

The South African stokvel sector alone is estimated by Ipsos (March 2024) to be worth R50 billion, involving over 800,000 groups and 11 million participants. Globally, ROSCA participation is estimated to be over 400 million. Notably, over 80% of ROSCA members are women, highlighting their role in providing financial security, often in the absence of formal banking access. ROSCAs also demonstrate high member retention and exceptionally low delinquency rates, attributed to strong social accountability mechanisms. These characteristics underscore the power and resilience of ROSCAs. In this regard, innovation efforts should focus on enhancing existing structures rather than replacing them.

Enhancing ROSCAs Through Digital Tools

Traditional ROSCAs face challenges such as manual record-keeping, potential for fraud and mismanagement, and limited opportunities for savings growth due to cash-based operations. Fintech offers solutions by digitizing ROSCA administration. Mobile platforms can facilitate contribution tracking, payout management, and increased transparency. Digital tools can also enable investment in income-generating assets and enhance security through escrow-like mechanisms. Successful innovations in this space have thus mainly focused on strengthening existing practices, improving efficiency and security while preserving trust and social accountability.

Expanding Opportunities: Insurance and Retail Partnerships

ROSCAs present significant potential for new financial products and partnerships.

• Insurance Tailored for Savings Groups: Ipsos (March 2024) highlights the untapped potential for stokvel insurance. Burial societies, a common ROSCA type, are often underserved by existing funeral insurance. This presents an opportunity for actuaries and insurers to design tailored group-based insurance products.

• Actuarial Applications: Actuaries can utilize their expertise in risk assessment and product design to create bespoke insurance products. This could involve developing specific rating factors based on group demographics, savings patterns, and historical claims data (if available). Actuaries can also design flexible premium structures aligned with ROSCA cycles, perhaps even using a portion of the regular ROSCA contribution as the premium. Furthermore, they can model the impact of different payout mechanisms on the long-term sustainability of both the ROSCA and the insurance product. Consideration should be given to the role of community trust in claims processing, potentially streamlining the process while mitigating moral hazard.

• Retail Partnerships: Retailers can partner with specialized ROSCAs focused on specific savings goals (e.g., property, groceries). Tailored bulk-purchase promotions, structured payment plans aligned with ROSCA cycles, and exclusive reward programs can create mutually beneficial partnerships.

Continue reading this article in the SA Actuary Magazine here.