A few Sunday afternoons ago, a friend shared an article written by a thought leader and known angel investor on the continent on the momentum that angel investing has been gathering on the African continent, and his hopes for the ecosystem in the near and far future. Once we’d both had time time to unpack the read, the conversation then triggered into the origin of this kind of investing and one of the major underlying themes of financial inclusion – collaboration, and in essence group economics. In Africa, the idea of group economics may be unfamiliar by English terminology, but the practice of accruing investments to enable financial inclusion is no foreign concept.
What is Group Economics?
Group Economics is a concept that explains how individuals engaging in economic and financial activities yield better value for their money at the expense of lesser resources in savings by sharing the cost. An example of this would be through carpooling or a lift club and what Somali informal shop traders in South Africa do to grow their consumer base (and more businesses) in townships by buying their stock in bulk for other shop owners in the network. In true Africa-is-not-a-country style, different African countries practice similar components of group economics but under different names and models. In Ethiopia it is known as Iqub, while in Kenya it’s denoted as Chamas and Village Savings and Loan Associations (VSLAs) in Ghana. In this article, we’re going to explore what is called Vicobas in Tanzania and Stokvels in South Africa, informal savings clubs and how they are modelling financial inclusion respectively.
Banking on Stokvels in South Africa
According to the National Stokvel Association of South Africa (NASASA) there are more than 11 million stokvel members and the market is worth close to R50 billion (US$ 3.57 million) with over 820,000 stokvels currently in the country. In a recent study conducted by Nedbank, the most popular types of stokvels are savings, grocery and burial societies, with only 5% of stokvels focused on investment savings and 41% having bank accounts. While the profile of stokvels has always been middle-aged black women from low-income earning backgrounds convening and saving to buy groceries in December, the landscape is gradually introducing younger and middle class audiences who are using the model to generate wealth through means of property, investment and travel stokvels.
It’s not only banks that are wanting a piece of this inclusion pie, but so are financial startups like Stokfella who are bringing in a data and financial management piece to the puzzle. The platform is a management tool that enables members to facilitate their payments and claims, and grow their savings through investment channels, also enabling safety and transparency with all the members of the society. With over 9000 registered users who personally registered or were registered by stokvel executives, this application is an example of how the sector is unhurriedly being optimized both in revenue and the level of sophistication in formalising it.
Venture Capital with Impact through Vicobas in Tanzania
With a much more elevated and flexible approach from stokvels, vicobas carry out the mandate of empowerment through a model of micro-financing with economic, socio-economic and environment impact at the backend of it. Coined and conceptualised in September of 2002 by major organizations Social and Economic Development Initiatives of Tanzania (SEDIT), CARE International and World Climate Research Programme (WCRP), VICOBA is an acronym for Village Community Banks.
So, how does the model work and how is it different from stokvels? And, how are the societies sustainable investment opportunities for the vicoba members and the wider communities at large?
It begins with members forming five unit groups and each of these groups and then joining each other to make a vicoba group of 30 members. Once the rules and regulations of the group have been set and amount of resources to subscribe is agreed upon, the members contribute their savings (shares) and social protection and then begin what can be a year long training and follow up cycle with financial institutions. After the financial education from a field trainer is completed, the vicoba members can start to support their own startup enterprises with each loan is then returned to the group basket account with added value.
The premise of the vicoba model is to stimulate low-income earning citizens by equipping them with the tools and finances to develop and manage income generating activities and catalyze developmental initiatives much like the Pastoral Women’s Council (PWC) through their economic empowerment programmes.
Investments Accrue when Sustainability is Optimized
Much like PWC, the heart of the group savings model was aimed at women enabling themselves to participate in the economy actively due to the systematic (and still very nimble) patriarchal society. Group economics has licensed gender and socio-economic empowerment to greater access to education and general participation from citizens otherwise not permitted because of their economic standings. And, don’t get me wrong, not all vicobas or Stokvels work out or are rosy, in fact, most of these savings groups fail at the stage of infancy due to lack of accountability, late payments, theft and lack of transparency within the members. However, the optimist and intrapreneur in me believes in these financial models of inclusion and their opportunity at optimization of exponential empowerment to accrue more investment, and to create more impact.
I truly believe that the future of financing businesses and impacting communities lies in the power of group economics, and next month, I’ll be unpacking this ideology in “Group Economics in Africa: Part 2, Impact Investing is no foreign African Concept”. Whether you’re a startup, a technology or financial expert or a citizen with money and an idea or a dream, this is definitely an idea worth betting on.
Do you belong to any savings and/or investment groups? If so, what do you and your members save up for? Let me know in the comments section, I’d love to hear from you!
What is Innovation Capital?
In a few weeks I’ll be delivering an address at one of South Africa’s universities upon the invitation of the Director of Technology, Innovation and Commercialisation on some key innovation practices in the country, this will be to the regional campus’ staff and students. Last week, I addressed an audience of over 225 women on leveraging their capital (in trusting themselves) through innovation tools. Apart from the innovation addresses in common that these two invitations carried, it’s how I was contacted and made visible to these two entities that will touch on what we’ll be unpacking in this article. Through amplifying my work and thought leadership engagement, and many other properties that I’ll get into in in the coming paragraphs, my Innovation Capital banked on these opportunities.
A concept coined by Marc Benioff who is Salesforce’s Founder and CEO, Innovation Capital is (to paraphrase) the accrued capital and impact to influence and fund an idea and the resources needed to actualise it. Have you ever wondered how Elizabeth Holmes successfully raised millions of dollars for Theranos, despite its failure? Or how Elon Musk continues to build and bankrupt ideas that are bankable, yet seem incredibly ludicrous? Innovation Capital is not only exclusive to individuals, but to brands like Apple who continue to incrementally innovate and elevate their standard to a point where their customers become their brand advocates? Or how recently listed UBER continued being funded by investors even though it was a blood-sucking investment? Some have it, and some can still raise it; so how do you ensure that you have it? You build it, and you do so patiently, because Innovation Capital cannot be wired into your account, you have to earn it. Let’s unpack this a bit.
The Characteristics of an Innovation Capitalist?
As with any capital, no matter who or what brand you are, it accrues in volume over time before it can be of value, innovation capital is no different. To be an inspired gamechanger like an Oprah Winfrey and building a school for girls in South Africa, not only do you need to be the self-made billionaire with multiple businesses and have a direct line to a Nelson Mandela who can make political calls to get your idea into a proof of concept. Are you getting my drift? The characteristics of an innovation capitalist are dependent on who you are, the strong ties that you have with the right network, the work that you’ve done and the stages and platforms that you employ to amplify your work. Now, even with all these characteristics in mind, as is the process of innovation, there is no guarantee that it’ll work out, proof of concepts aren’t always proven. This, entrepreneurs and intrapreneurs will tell you, but that’s the beauty of innovation, there’s no guarantee but through the research and development, there’s always a lesson or few to be learnt. Having worked in corporate innovation for the past two years and being at the nucleus of product management and development, I cannot tell you how many ideas were killed (in their respective stages) in as much as that we launched. But in this, the true value became not in how many times we failed, but how quickly we did so and did it so with an accrued value for my manager (with incredible visionary leadership – another key component) to continue getting these ideas funded.
How do you Build Innovation Capital?
So, whether your ideas take off or not. How do you begin to build Innovation Capital? If you’re not an Oprah, a Mandela or even a Hitler (dark, I know, but his capital funded Nazi Germany) and you’re a student, entrepreneur or working professional who wants to create or accrue their innovation capital, where do you begin? First things first, you acquire the knowledge of where you’re wanting to be an innovation capitalist in – in order to play the game, you need to know it. The skills that you’ll acquire from this will enable you to not only set yourself apart, but then have the expertise and confidence to be able to find the platform to share these ideas. These are the makings of a leader. Becoming a leader in your industry is a key component in building trust in your shared ideas, as this garners visibility, which catapults the effectiveness of a personal brand that people trust with their capital.
An amalgamation of many accrued capital, innovation capital requires human, social, intellectual and other forms of capital in order to yield momentum and/or return on investment, nothing is guaranteed. Now that you have the knowledge and the tools of the term, how will you put it to practice and ensure that it get funded? May the best idea win, and the capital odds always be in your favour!
Images Supplied: The Corporate Canvas