WhatsApp Stokvel: to join, or not to join

WhatsApp Stokvel is a scam

What is a traditional stokvel?

In her article, Investing In Your Inner Circle, Karabo Rantho helped shed some light on stokvels and defined them using the following words: “These are informal saving methods that operate on a rotation of funds between a group of individuals varying from friends and colleagues, to family members. The group pools a certain amount of money, R100 each for example, and agrees on how often the money rotates [amongst the members] as each member takes turns getting the lump sum from the collection.”

This definition of what is a stokvel is important because it will help reveal truths and lies about what can be truly be considered as a stokvel, and what can be called an outright scam; a fraudulent scheme meant to fool the unsuspecting public.

There can be variation with regards to the purpose of the stokvel. For example, instead of the lump sum going to a particular person, it can be used to buy food in bulk to share equally amongst the participants.

What is a pyramid scheme?

Before talking about what a WhatsApp Stokvel is, it’s important to first to understand what a pyramid scheme is and why it is illegal.

According to Investopedia, a pyramid scheme is “…a sketchy and unsustainable business model, where a few top-level members recruit newer members, who pay upfront costs up the chain, to those who enrolled them.” Simply put, in a pyramid scheme you start with a few individuals (the founders of the pyramid) who recruit other members (the public) with the promise of paying them for recruiting and enrolling new members.

Members who join the pyramid scheme in its initial stages get to make some money for recruiting others. But in the later stages, after a lot of members have recruited each other, recruiting becomes a lot harder and most of the members, especially the newer members, are unable to make a profit. It is at this point that the cracks in the scheme start to show. What you’ll usually see at this point of failure is newer members who join the scheme asking question like “Why am I not being paid? Where is my money?” to those that recruited them. Does any of this sound familiar?

It is for this very reason, the fact that not everyone who joins the pyramid scheme will get to make a profit, that pyramid schemes are illegal in many countries, including here in south Africa.

WhatsApp Stokvel is a Pyramid Scheme

Did you join a WhatsApp Stokvel?

As Afrika Kesho, we recently posed this question to people on our social media platforms. On Facebook and Twitter, the responses were almost identical with around 13% of people saying “yes,” they had joined a WhatsApp Stokvel, and the other 83% saying “no.” This is fortunate because it seems like only a small portion of the Afrika Kesho community fell victim to this latest trending scam called a WhatsApp Stokvel. And yes, it is a scam!

In fact, to call it a “stokvel” is to lie to people. We defined what a stokvel is earlier on, and so called “WhatsApp Stokvels” do not fit that description. Nowhere in the definition and the purpose of a stokvel does it mention anything about your lump sum being based on the number of people you recruit.

WhatsApp Stokvel Poll

What really is WhatsApp Stokvel?

The “WhatsApp” in “WhatsApp Stokvel” comes from the fact that WhatsApp is the chosen platform for this scam.

Let’s look at how a WhatsApp Stokvel typically works:

  1. A WhatsApp group chat is created with an initial number of people, let’s say 5.
  2. A “list” of the people is created, and each of them are assigned numbers from 1 to 5. This list is used to determine the order in which the people will get paid.
  3. Each of the initial 5 people now go on to recruit 5 other people by asking them to join the WhatsApp group.
  4. After joining, these 5 new recruits each must pay R200 in order to be on the list of people who get paid. Basically, the new recruits used their joining fee to pay number 1 on the list.
  5.  Each new recruit, after paying the joining fee, is allocated numbers from 6 to 10.
  6.  Now that there are 10 people in the group, the group is split in 2: The ones with even numbers go into the second group, and the ones with odd numbers stay in the original group.
  7.  For the first group, the list shifts up. So, the person who was number 1 becomes number 5, and number 3 becomes number 1, and so on.
  8.  For the second group, number 2 becomes number 1, and number 4 becomes number 2, and so on.
  9.  The two groups now repeat the process of recruiting and splitting. And so, it continues.

If you look at the above and what a pyramid scheme is, you will realize that they are the same thing. Even though the above procedure of how a WhatsApp Stokvel works seems “sophisticated” and “smart”, it truly is nothing more than a scam; a pyramid scheme that went to private school.

If you are thinking to yourself that this looks like a stokvel, unfortunately, that conclusion is wrong. Although there are similar words between a traditional stokvel and a so-called WhatsApp Stokvel – words such as getting “paid” – the difference between the two is that in a traditional stokvel all members get to benefit from being part of the stokvel, whereas in a WhatsApp Stokvel only the initial members will get to benefit and the other members will be left with a bitter taste in their mouth after losing their joining fee.

Advice: Stay away from WhatsApp Stokvels! Here is why!

Pyramid schemes of all kinds, WhatsApp Stokvels included, play on our need for quick cash and instant gratification. The first few people in the WhatsApp Stokvels will get paid, because in most instances, they are the ones who started these group chats. A couple of other members will get paid too, and this is so that they can convince others to join. Once enough people have joined, and the top-level people have made enough money, the whole thing collapses. The top-level people, after getting paid, will definitely not pay other members who are further down the list. And because people either do not want to join or have already joined other groups, new recruits dry up too – and members are left in trouble of their own making.

You might think you can cheat the WhatsApp Stokvel system, but chances are, you will lose your money. Don’t do it.

Don’t get scammed again

Here are things to do when deciding on whether to invest in something that you are uncertain of:

  • Find out whether the company or people offering you that “investment opportunity” are registered with Financial Services Conduct Authority (FSCA)
  • Looking for the company’s licence number, or FSP number or ask for their registration number.
  • Do not just rely on word of mouth, do your research and consult multiple different sources. Also look for reviews of that investment or company.

If ever you feel rushed to put your money into something, a “once in a lifetime opportunity,” then take that to be a crimson-red flag. Time pressure is a tactic used to get you to make decisions without thinking them through. Always keep the following age-old knowledge in mind, “If something sounds too good to be true, it probably isn’t.”

Your own registered bank cannot even guarantee you returns that are above 20%, so being promised 600% return by a WhatsApp Stokvel is outrageous. Mind you, your bank has billions of rands at their disposal.

Final words from us: stay safe and away from scams, no matter how dire your own financial situation might seem.

Happy investing!

This article was written by Tumelo Koko.

You can contact Tumelo Koko by clicking on the social media buttons below, or by emailing him on: tumelo@afrikakesho.co.za

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