South Africa: Stokvel Insurance: A Potential South African Phenomenon

Last Updated: 6 February 2018
Article by Lwazi Gumede and Deon Francis

Most Popular Article in South Africa, February 2018

One can never guarantee most things in life but history has taught us that one can certainly guarantee change. The question then arises is whether or not corporate South Africa, and in particular, the insurance industry is ready for the change that commercial/investment stokvels will bring.

The Companies Act No. 71 of 2008 ("the Companies Act") does not define what a "stokvel" is.  However guidance may be ascertained from the National Credit Act No. 35 of 2005 ("NCA") which states that a stokvel is a formal or informal rotating financial scheme with entertainment, social or economic functions, which:

  1. consists of two or more persons in a voluntary association, each of whom has pledged mutual support to the others towards the attainment of specific objectives; 
  2. establishes a continuous pool of capital by raising funds by means of the subscriptions of the members;
  3. grants credit to and on behalf of members; 
  4. provides for members to share in profits from, and to nominate management of, the scheme; and
  5. relies on self-imposed regulation to protect the interest of its members.

Government Notice 404 in Gazette 35368 25 May 2012 which deals with the designation of an activity not falling within the meaning of "The Business of a Bank" (a group of persons between the members of which exists a common bond) in terms of the Banks Act No. 94 of 1990 ("Banks Act"), describes a stokvel as a saving group.  While the combined annual report of the supervisors of the Co-operatives Banks Development Agency and the South African Reserve Bank 2010/11 describes stokvels as clubs, associations or syndicates in which members contribute regularly and receive payouts in rotation.  This definition is in line with sentiments shared by entrepreneurial commentators such as Vusi Thembekwayo who have defined a stokvel as pooling of funds/things to such a way which is similar to banks. 

While the above is of much assistance in defining what a stokvel is, it remains uncertain as to whether or not a stokvel is to be considered a juristic person. While the NCA has defined what a stokvel is, same is not considered to be a juristic person if we are to rely on its definition of a "juristic person" which states that a juristic person includes a partnership, association or other body of persons, corporate or unincorporated, or a trust if the trustee is itself a juristic person.

During the period of September 2016, the stokvel industry was estimated to be worth around R44 billion,[1] and R49 Billion by the end of December 2016.[2]  Tshepo Moloi, the founder of a South African app called StokFella stated that 60% of stokvels were investment focused, 18% were savings clubs and the remaining 22% were grocery stokvels and burial societies.[3]

The Short Term Insurance Act No. 53 of 1998 ("STIA") defines "short-term policy" as to include a guarantee policy, liability policy, miscellaneous policy, motor policy, accident policy, property policy or transportation policy or a contract comprising a combination of any of those policies; and includes a contract whereby any such contract is renewed or varied.

The common denominator in the abovementioned insurance policies is that the abovementioned policies are contracts in terms of which a "person", in return for a premium, undertakes to provide policy benefits if an event, contemplated in the contracts as a risk prevails.

In this regard, the question arises if commercial/investment stokvels can be considered as "persons" which could be insured in terms of the STIA.

The STIA does not define a "person".However the common law recognises a juristic person (fictitious or artificial person) in the form of a voluntary association called an universitas.In order to qualify as an universitas the voluntary association must:

  1. enjoy perpetual succession (continue to exist notwithstanding changes in internal membership);
  2. be able to hold property in its own name; and 
  3. not be formed to carry on a business which has as its object the acquisition of gain by association or its members.

Considering that commercial/investment stokvels are most likely to be formed for the purpose of carrying on a business that has for its object the acquisition of gain by the stokvel (association) or its individual members, it appears that a commercial/investment stokvel will not be regarded as an universitas.  However, one may argue that a commercial/investment stokvel in which members share the profits and losses is in essence a partnership considering that the stokvel constitution (partnership agreement) dictates what the stokvel and its members can or cannot do or invest in.

Assuming that a commercial/investment stokvel is considered to be a partnership, at first glance it appears that it will not be able to be insured in terms of the STIA as a partnership is not considered to have a separate legal personality as it is not regarded as a juristic person.This is because partners are jointly and severally liable for the profits and losses of a partnership.

In South African law a partnership does not ordinarily enjoy the status of a juristic person; however in certain moments it is said that a partnership enjoys the personality of a "juristic ghost".This is because in litigation a partnership is permitted to be sued in the name of the partnership. Furthermore, a partnership is regarded a separate person for purposes of valued added tax ("VAT").

Again, the question arises if a member of a commercial/investment stokvel will be able to enjoy for instance directors and officers insurance ("D&O") cover where for example a seller sues a member of a commercial/investment stokvel who is transacting on behalf of the commercial/investment stokvel.

The practical solution seems to lie in the wording of a policy, as members of the commercial/investment stokvel (and indirectly the stokvel) will enjoy coverage if the policy for example states that there will be indemnification for "members of the stokvel called investment stokvel RSA from time to time".

At this stage, it seems as if there is be a gap in the market for insurers to provide fidelity and legal expenses coverage for commercial/investment stokvels.Furthermore, there seems to be an opportunity for insurers to provide a bespoke "D&O" product (or something similar) for members of a commercial/investment stokvel.

However, in order to avoid a legal and administrative nightmare, the better practical solution would be for members of a commercial/investment stokvel to incorporate a company in terms of the Companies Act, as this would remove the uncertainty in being able to be insured in terms of South African law for activities pertaining to business and investment ventures.

Footnotes 

1 http://www.enca.com/money/stokvel-indaba-unpacks-r44-billion-industry, accessed on 10 September 2017.

2 https://mg.co.za/article/2017-01-06-00-stokvels-move-with-the-times,  accessed on 10 September 2017.

3 https://mg.co.za/article/2017-01-06-00-stokvels-move-with-the-times, accessed on 10 September 2017.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions