Stokvels under scrutiny
23 Apr 2021
A grocery stokvel has been found to be operating as a pyramid scheme, reigning in more than R42 million in membership fees within two months.
Although many South Africans have opted to participate in stokvels as a means of surviving the financial effects of the pandemic, they are advised to ensure that they are indeed participating in a valid and legal stokvel.
In the case of Up Money, the stokvel was found guilty of operating as a pyramid scheme. Members had to pay a once-off membership fee as well as recruit an additional five more members.
The National Consumer Commission, Financial Intelligence Centre and Asset Forfeiture Unit approached the High Court for a preservation order against the purported “stokvel” and the National Consumer Tribunal has since fined Up Money an amount of R1 million for running a pyramid scheme.
A pyramid scheme is defined under Section 43 of the Consumer Protection Act as any arrangement where members receive a benefit after having recruited other persons, as opposed to having sold anything. It is essentially a scheme that is largely reliant on obtaining new members without whom it cannot be sustained.
Although our country finds itself in trying times, South Africans are advised to do research into the groups or organisations that they join. Should you be wanting to join a stokvel, ensure that it does not fit the label of a pyramid scheme.
See also:(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)