• December 2nd, 2020

Bank of Namibia still investigating Stokvel – cautions public to be vigilant

A trending WhatsApp stokvel is on Bank of Namibia’s (BoN) radar and while the central bank is still determining whether the scheme is permissible under the relevant provisions of the Banking Institutions Act, it has cautioned the public to be careful in promoting or participating in such schemes. A stokvel originates from Afrikaans, defined as “a savings or investment society to which members regularly contribute an agreed amount and from which they receive a lump sum payment”.

“While the investigations are ongoing, the Bank cautions members of the public, once again, to be vigilant that any financial scheme that is primarily based on soliciting or advertising for deposits or the recruitment of members, and/or the payment of joining fees may lend itself to an illegal financial scheme structured to deceive the public to part with their money,” said BoN spokesperson Kazembire Zemburuka in response to questions by New Era. 

Zemburuka explained that co-operatives and other similar saving schemes are not considered to be conducting illegal banking business or taking deposits illegally from the public, provided their membership does not exceed 20 persons or the amount collected from members does not exceed N$500 000 on aggregate, and such persons do not solicit or advertise for deposits. 

However, the BoN’s preliminary observations are that some members of the public may be contravening the banking law by creating groups with membership of up to 20 persons or with amounts of up to N$500 000 and thereafter continue to create new groups. 
Said Zemburuka: “The Bank has commenced with the assessment into the legality of the financial scheme in question, and therefore, no determination has been made to that effect. However, one needs to distinguish between cooperative saving schemes (Stokvels) which are not illegal, and an illegal financial scheme such as a Get Rich Quick scheme, which are defined as pyramid schemes by the BoN”. 
According to the central bank, traditional stokvels are typically more like clubs, where a group of friends or a group of people come together with a common objective and decide informally to pool their money to the benefit for all members of the said club. 

According to Zemburuka traditional stokvel members would often go to a bank and open up a banking account, if they are able to, or use the money to buy groceries, or just collect it, and each month they would take out the money. 

“In order to qualify as a legitimate stokvel, co-operative, credit union or employee savings scheme, it requires that a common bond exists between the members of a group or scheme that purports to be a stokvel, co-operative, credit unions or employee savings scheme. In such a “common-bond” credit scheme, a group of people enter into an agreement to contribute a fixed amount of money to a common pool periodically. This money, or a portion thereof, may be drawn by members either in rotation or in a time of need. Although mutual financial assistance is the main purpose of stokvels, they also have valuable social and entertainment functions,” said Zemburuka. 

On the flip side, under the operations of get rich quick schemes, persons invest fixed amounts with a scheme for a limited period and then qualify for payouts or exorbitant returns on their investments. 
Said Zemburuka: “Get Rich Quick schemes depend, to a great extent, upon the recruitment of new members. Such schemes can, therefore, maintain a continuous pool of capital only by the continuous introduction of new members and the utilisation of such members’ membership fees and investments until they collapse”.

Once the BoN determines that a financial scheme is illegal, perpetrators of the scheme would be liable to a fine not exceeding N$1 million or imprisonment for a period not exceeding ten years or to both such fine and imprisonment if found guilty.

Edgar Brandt
2020-05-18 09:23:01 | 6 months ago

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