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Applications of the Stokvel Model for Social Service Enterprises in Urban

Townships

Research Report

presented to

The Graduate School of Business

University of Cape Town

In partial fulfilment of the requirements for the

Masters of Business Administration Degree

by

Nokwethu Khojane December 2014

Supervised by

Dr. Warren Nilsson

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Abstract

Informal, survivalist businesses operating in South African urban townships struggle

to subsist amidst a number of challenges, including poor access to finance. These

challenges are compounded for businesses servicing the poor. This research examines

the existing mechanisms for financial inclusion and capacity building available to

early childhood development centre (ECD) enterprises as an example of such

businesses. Qualitative research was conducted with ECD owners and operators, and

three others working in the field of study. We find that these businesses are a hybrid

model, termed Social Service Enterprises (SSEs), due to their focus on social good

over profits. However, in order to ensure that this focus is met, enterprises require

access to financial resources. We find further that though existing methods available

have their drawbacks in providing SSE owners with access to affordable credit, all

were familiar with stokvels, an informal savings mechanism that has been used in

South Africa for more than a hundred years. The study investigates whether the

stokvel model of pooling resources can be transferred from the individual to the

business level. We find that this model is suited to businesses that have a social

orientation, though strict criteria need to be in place for the optimal functioning of the

group.

Keywords: Stokvel, ECD, Social Service Enterprise, financial mechanisms

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Plagiarism Declaration

I know that plagiarism is wrong. Plagiarism is to use another’s work and pretend that

it is one’s own.

I have used a recognised convention for citation and referencing. Each significant

contribution and quotation from the works of other people has been attributed, cited

and referenced.

I certify that this submission is all my own work.

I have not allowed and will not allow anyone to copy this Research Report with the

intention of passing it off as his or her own work.

_______________________________

Nokwethu Khojane

TMBNOK002

8 December 2014

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Table of Contents

Abstract .................................................................................................................................. ii

Plagiarism Declaration ................................................................................................... iii

Table of Contents ............................................................................................................... iv

Acknowledgements ........................................................................................................... vi

List of Abbreviations ...................................................................................................... vii

List of Tables ..................................................................................................................... vii

List of Figures .................................................................................................................... vii

Section 1: Introduction ..................................................................................................... 8 1.1 Purpose of the study ........................................................................................................ 8 1.2 Significance of the study ................................................................................................. 8 1.3 Context of the study ......................................................................................................... 9

1.3.1 The environment ..................................................................................................................... 9 1.3.2 Traditional financing and collaboration models ..................................................... 12

1.3 Research problem ..........................................................................................................13 1.4 Delimitations of the study ...........................................................................................14 1.5 Assumptions .....................................................................................................................15

Section 2: Literature Review .................................................................................... 16 2.1 Introduction .....................................................................................................................16

2.1.1 Informal enterprise ............................................................................................................. 16 2.1.2 ECD Centres ............................................................................................................................ 18

2.2 Financing and collaboration models .......................................................................19 2.2.1 Microfinance .......................................................................................................................... 19 2.2.2 Cooperatives .......................................................................................................................... 21 2.2.3 Stokvels .................................................................................................................................... 23

2.3 Benefits of cooperation ................................................................................................25 2.4 Conclusion .........................................................................................................................26

Section 3: Research Methodology ........................................................................... 29 3.1 Research approach and strategy ...............................................................................29 3.2 Research design ..............................................................................................................30 3.3 Population and sample ................................................................................................31

Population .............................................................................................................................................. 31 Sample ..................................................................................................................................................... 31

3.4 The research instrument ............................................................................................32 3.5 Data collection ................................................................................................................33 3.6 Data analysis ...................................................................................................................33 3.7 Limitations .......................................................................................................................34 3.8 Validity and reliability .................................................................................................34 3.9 Informed consent and research ethics...................................................................35

Section 4: Findings ....................................................................................................... 36 4.1 The nature of crèches as organisations ..................................................................37

4.1.1 Owners/principals set the tone for the crèche ........................................................ 37 4.1.2 Strong social capital ............................................................................................................ 38 4.1.3 Crèches not viewed as commercial enterprises ...................................................... 40

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4.1.4 Crèches as a source of pride for owners .................................................................... 41 4.1.5 Low levels of education and training ........................................................................... 42 4.1.6 Lack of infrastructure......................................................................................................... 43 4.1.7 Onerous legislative requirements ................................................................................. 43

4.2 Findings relating to HOW a stokvel might work .................................................44 4.2.1 Groups must have autonomy .......................................................................................... 45 4.2.2 Group members must agree on the purpose of the stokvel ............................... 45 4.2.3 Financial benefit for members ....................................................................................... 46 4.2.4 Stringent oversight .............................................................................................................. 46 4.2.5 Must be about more than just money .......................................................................... 47 4.2.6 High levels of trust amongst members ....................................................................... 48 4.2.7 Must be easy to administer .............................................................................................. 49

Section 5: Discussion ................................................................................................... 51

Section 6: Conclusions ................................................................................................ 62

Section 7: References .................................................................................................. 64

Section 8: Appendices ................................................................................................. 70 Appendix 1 Schedule of interviews and observations .............................................70 Appendix 2 Semi-structured interview questions .....................................................71 Appendix 3 Focus group discussion questions ...........................................................72

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Acknowledgements

It’s hard to believe that I have arrived at the end of my MBA journey. It has been a

year of immense challenges, debilitating lows and exhilarating highs.

I can’t see how I could have hoped to make it through without the unwavering support

of my life partner, Thabo, and our children Luyanda and Khahliso. They have given

me the space to follow my passion, even though it has meant missed dinners,

bedtimes and even birthday presents that arrived well past their intended dates.

I would not have been able to be away from my family had it not been for Kate and

Nopi, who kept the home and school fires burning. Thanks to their diligence, I was

able to focus on my studies knowing that my kids were in capable and caring hands.

I will forever be amazed by and grateful for my sister Ayanda’s selflessness when she

came down to Cape Town during her maternity leave to hold things together in my

home when the wheels really fell off.

I am indebted to Diana and Lauren, my MBA sisters, who laughed along with me (or

helped me to find the humour) when I thought I was losing my mind. They listened to

every complaint, shared every triumph, read every draft and acted as permanent

sounding boards. I am forever grateful that our paths crossed.

This report would not have been possible had Thobeka and Zanele not opened their

hearts, businesses and networks to me. I’m thankful to them for allowing me to stand

alongside them and learn from the heroic work that they are doing.

Lastly, to my supervisor Warren, whose gentle guidance and genuine openness to the

world shifted my perspective so many times and made this journey more enriching

and rewarding than I’d ever hoped – thank you.

It really does take a village.

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List of Abbreviations

DSD Department of Social Development

ECD Early Childhood Development

LSM Living Standards Measure

MDG Millennium Development Goal

NGO Non-Governmental Organisation

ROSCA Rotating Savings and Credit Association

SA South Africa

SSE Social Service Enterprise

UN United Nations

List of Tables

Table 1: Employment rates by sector in informal businesses ...................................... 17

Table 2: Summary of critical success and failure factors of financing models ........... 27

Table 3: List of study organisations ............................................................................. 32

Table 4: Details of study participants .......................................................................... 36

Table 5: Summary of the characteristics of the crèche organisation ........................... 44

Table 6: Comparing the characteristics of a crèche to those of financing models ...... 59

List of Figures

Figure 1: Map of study area ......................................................................................................... 15

Figure 2: The transference of knowledge and energy in crèches ...................................... 38

Figure 3: Critical components of a crèche stokvel ................................................................ 50

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Section 1: Introduction

1.1 Purpose of the study

The study investigates how the stokvel model might be applied to Social Service

Enterprises (SSEs), a term coined by the researcher to refer to a type of informal,

survivalist business operating in low-income areas in South Africa. These businesses

are differentiated from similar entities in that they provide social services to the

communities they serve. The study examines existing ways that SSEs access finance

and provide social services, and looks at how the stokvel model can be leveraged to

pool resources and build capacity amongst several such organisations in urban

townships.

1.2 Significance of the study

Individuals in low-income communities have, for generations, used group savings and

credit extension schemes to pool resources, mitigate risks and provide social safety

nets. In South Africa, these group savings schemes are commonly referred to as

‘stokvels’. According to the latest research by African Response Research (see Slade,

2014), there are 421,000 stokvel groups with an estimated 8.6 million members in

South Africa.

Informal, survivalist businesses that operate in townships often struggle to eke out

incomes in difficult environments, which are characterised by poor access to finance,

poor infrastructure, little institutional support and lack of skills. These exigencies are

significantly compounded for enterprises that view themselves as providing a service

to their communities. This is particularly evident in the Early Childhood Development

(ECD) industry, where crèche owners face the additional struggle of having

‘customers’ who often are too poor to pay for the services that they receive, even

though they access them.

Yet, operating within the same adverse environment and faced with the same

challenges, stokvels have flourished, providing support and access to finance for their

members. This study aims to investigate whether extending the stokvel model of

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pooling resources, both financial and social, from individuals to informal, survivalist

businesses might help negate the difficulties these SSEs experience, and indeed,

whether the model is transferrable at all.

The outcomes of this research may be of particular interest to owners of informal,

survivalist businesses wanting to stabilise and/or grow their operations; to

government agencies tasked with formulating effective policies and regulatory

frameworks to strengthen the capacity of informal businesses, particularly those in the

ECD field, and to organisations that supply or wish to supply goods and services to

informal businesses.

1.3 Context of the study

1.3.1 The environment

Stokvels

Stokvels are a group savings and credit extension vehicle used by individuals in low-

income communities to access financing and credit which formal institutions do not

provide them with (Mashigo & Schoeman, 2012). This form of group savings scheme

is prevalent in predominately poor and emerging economies around the world where

they are commonly referred to as ROSCAs – rotating savings and credit associations

(Verhoef, 2001a).

Stokvels have proven to be an effective savings and credit mechanism for individuals

in low-income communities who have low participation rates in the formal financial

sector.

According to research carried out by Old Mutual in 2014, stokvels have a current

market value of approximately R45.1 billion (Old Mutual, 2014). Members of a

stokvel are typically individuals from black communities who fall within the Living

Standards Measure (LSM) 5 to 8 grouping and who primarily utilise the funds for

burials, savings and groceries (Slade, 2014). In recent years, there has been a steadily

growing number of investment stokvels, where members pool their resources to invest

in start-up businesses, unit trusts and the stock market (Verhoef, 2001b). Investment

stokvels are more prevalent within affluent groups of individuals who fall within

LSM 8-10.

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Despite stokvels charging high interest rates, subjecting their members to onerous

rules of conduct and imposing heavy fines for non-compliance, they have

exceptionally high adherence rates as well as negligible rates of defaults on payments

(Naong, 2009).

There is an abundance of literature that looks at the reasons for the effectiveness of

stokvels as a savings mechanism for poor individuals. Many owners and operators of

informal, survivalist businesses are themselves likely to be part of a stokvel and

familiar with the way they work.

Informal, survivalist business

Informal, survivalist businesses form a significant part of the South African economy,

generating up to 20% of GDP (Ligthelm, 2005) and providing employment to 45% of

workers (Muller & Posel, 2004). This is particularly significant given the country’s

high rate of unemployment.

These businesses operate in fragmented environments, characterised by limited access

to financing, little to no institutional support, and a dearth of skills. They are

unregulated and generate varying levels of income that in many instances barely

cover the survival needs of the owners and their families. Examples of such informal

businesses include crèches, informal traders, spaza shops, traditional healers,

hairdressing salons and street vendors.

Due to the hostility of the environment and the lack of coordination and support, these

businesses often have high operational costs and low margins, making survival

difficult. The pooling of resources, sharing of knowledge and widening of networks

has the potential to assist these businesses in achieving scale, which is currently not

possible in the extant isolationist environment.

Social service enterprise

Not all informal, survivalist businesses that operate in urban townships are purely

commercial enterprises. Certain businesses within this ambit, such as crèches,

traditional healers and churches, also provide crucial social services to their

communities. Though these organisations are typically privately-owned and charge

fees for their services, they also have an element of ‘helping’ the community, which

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extends far beyond that which their customers pay. Their duality, both in terms of the

private income that they generate and the social net that they provide, makes them key

contributors to the financial and social wellbeing of the communities in which they

operate.

For the purposes of this study, these informal, survivalist businesses with a social

outlook will be referred to as Social Service Enterprises (SSEs). In order to examine

how SSEs might use the stokvel model to build capacity, this study will focus on

ECD Centres, commonly referred to as crèches. Crèches seem to typify SSEs, in that

they clearly provide services for which they charge, namely childcare and education.

At the same time, many crèches report the stated goal of ensuring the wellbeing of

children within their communities, which often includes those children whose parents

or guardians are unable to afford the fees charged. In this way, crèches function to

perform a societal role.

The ECD crèche environment

Crèches that operate in low-income communities are faced with seemingly

insurmountable issues. They operate in communities faced with high unemployment,

poverty and crumbling or non-existent infrastructure. Children tend to come from

single parent households that are dependent on government grants; therefore the

crèches are not able to charge high fees for their services (September, 2009).

Parents in these communities generally work very long hours, with crèche owners

reporting children being dropped off from 5am, and often being picked up as late as

7pm. Many parents and guardians do not seem to appreciate the value nor see the

need for educating very young children; they are therefore uninvolved in the early-

stage education of their children (UNICEF, 2005).

Most crèches in urban townships are run out of backyard dwellings, shacks and

unsafe buildings. Very few have adequate sanitation or access to electricity. Although

the Department of Social Development pays subsidies for children who attend

registered crèches, few centres are able to meet the onerous requirements for

registration. There is a well-known shortage of crèches, with the result that registered

facilities cater for significantly more children than what they are officially permitted

to enrol. This results in facilities that are significantly overcrowded. Due to the sheer

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number of children being serviced, most crèches face severe shortages of toys, books,

mattresses, learning materials and space.

There is also a shortage of trained teachers. As a result, crèches operate more as

babysitting facilities, rather than places of learning and development (September,

2009). Crèches however tend to employ more staff on average than any other

informal businesses (Skinner, 2006) and they provide services to many households.

Finding appropriate financing and organising mechanisms that will allow for these

facilities to function at a better level will have a wide-reaching and positive impact.

1.3.2 Traditional financing and collaboration models

Cooperatives

In order to mitigate the failures of the market system in supporting informal,

survivalist businesses, the South African government has enacted various policies to

encourage and support the creation of cooperatives. Cooperatives differ from

‘traditional’ businesses in that they are run for the benefit of their members, in a

collective, inclusive and democratic manner (Urban-Econ Development Economists,

2009). They are intended to increase the coordination between informal, survivalist

organisations in order to give them better access to markets by increasing their

bargaining power, leveraging economies of scale and the sharing of business risk.

By supporting the entrepreneurial efforts of cooperatives, the government hopes to

meet its objectives of decreasing unemployment, poverty alleviation and the reduction

of inequality in the poorest of communities. According to the Department of Trade

and Industry, there were 43,062 registered cooperatives in 2009 (Department of Trade

and Industry, 2012).

The performance of cooperatives has, however, failed to deliver on expectations, with

many organisations struggling to establish viable businesses. They have been ill-

prepared to deal with hostile competition from incumbent businesses. Many have

incurred losses due to poor product pricing and have faced cash-flow challenges

which have made it difficult to service debt and to meet other financial obligations

(Department of Trade and Industry, 2012). A study carried out by Urban-Econ

Development Economists (2009) found that there is limited collaboration and trust

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amongst cooperatives, which means that lessons and experiences are not shared and

networks are not fully leveraged; this further reduces the chances of success.

Microfinance

The need to provide affordable financial services to the poor has been highlighted as

being key to reaching the Millennium Developmental Goals (United Nations, 2014).

To this end, the provision of small loans, known as microfinance, to low-income

individuals and small and/or informal businesses has grown exponentially, driven in

part by the success of the Grameen Bank in Bangladesh (Neverson, 2013). In South

Africa, financial inclusion has been prioritised as a national policy objective (Bank

Seta, 2013), in the hopes of driving policy that supports the development of financial

products aimed at the poor and unbanked.

However, in recent years, the efficacy and sustainability of microfinance in improving

the plight of small and/or informal businesses and poor households has been called

into question. According to Baumann (2004), microfinance institutions have not fared

well in delivering affordable credit to small and/or informal businesses or to the poor.

The sector lacks experience and expertise in effective policy creation, as well as

industry knowledge (Coetzee, 2005). Often the size of loans granted did not

adequately take into account the holistic ability of the borrower to repay, resulting in

over-indebtedness and high default rates (Hietalahti & Linden, 2006).

The collapse of African Bank and the shutting down of numerous micro-lending

institutions and bank subsidiaries, points to a model that has not only failed in

achieving its aims; but one that has exacerbated the condition of the poor.

1.3 Research problem

There have been numerous attempts at finding effective mechanisms for financing

and organising informal, survivalist businesses that will enable these entities to grow

into stable ventures. Cooperatives and microfinance are two such mechanisms. Both

draw on mainstream economic theory, but when practically applied, both have proven

inadequate to provide solutions that result in sustained development and growth in the

informal sector. This is in direct contrast to stokvels, which have been used

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effectively by poor communities to access financing and support from their local

networks.

This study will therefore explore ways in which the success factors of the stokvel

model can be replicated in informal, survivalist businesses of a particular type,

namely crèches in urban townships. It will look at how social capital might be

galvanised by applying the lessons learned from organising and running stokvels, and

whether the pooling of resources, as a function of the stokvel, can create scale.

1.4 Delimitations of the study

This exploratory study will be based on five crèches in the urban township of

Khayelitsha.

Established in 1983, Khayelitsha is a relatively new township that is located

approximately 25km from the City of Cape Town, on the Cape Flats. It has a

population of between 391,750 and 406,779 inhabitants. As is typical of townships in

South Africa, Khayelitsha has a high unemployment rate, poor infrastructure

provisions and experiences high levels of crime.

Township SSEs and crèches, in particular, operate in environments that contain all of

the adverse elements that plague informal, survivalist businesses as detailed above.

The industry is highly fragmented; there are high levels of competition, while there is

a shortage of skilled ECD practitioners. This makes it a suitable area in which to

explore the possibilities of implementing a stokvel model in informal social service

businesses.

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Figure 1: Map of study area. Adapted from City of Cape Town (2013)

1.5 Assumptions

In carrying out this study, the researcher assumes that all intended participants will

have the necessary knowledge and skills to enable them to make meaningful

contributions to the research. It is further assumed that the information given during

observations, interviews and focus groups shall be reflective of the participant’s true

opinions, insights and perspectives.

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Section 2: Literature Review

2.1 Introduction

The focus of this review is to explore literature regarding the key success factors and

the drawbacks of mechanisms and models used to grant access to finance, extend

credit and resource aggregation for informal businesses and poor communities. It

looks at informal savings groups (stokvels), cooperatives and microfinance initiatives.

The review begins by first defining the informal enterprise in which these

mechanisms and models operate and explores an understanding of the ECD

environment.

2.1.1 Informal enterprise

Ligthelm (2005) defined the informal sector as unrecorded commercial activity that

contributed to a country’s GDP. Godfrey (2013) stated further that economic

activities conducted within this sector were unregulated and unregistered.

The informal sector was found to provide employment to more than half of the adult

population in Africa (Irving, 2005). In South Africa, specifically, the informal sector

was estimated to provide employment to between 22% and 30% of the working

population (Valodia, 2013; Yu, 2012). Indeed, the informal sector has been deemed

by many to form an integral part of low-income economies. Godfrey (2013) asserted

that the informal sector not only met the needs of the poor, but that it imbued workers

with a sense of purpose and “social meaning”.

Businesses in the informal sector remain spread across a few industries, mainly retail

and personal services. Employment absorption figures vary across the different

sectors. The table below outlines sectors where business owners employ personnel in

addition to themselves.

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Table 1: Employment rates by sector in informal businesses

Employment Rates by Sector: Informal business in townships

Sector Percentage

Hairdressers

Craft

Traditional medicine

Apparel

Spaza shops

Shebeens

Construction

Crèches

Metal work

26.8

27.5

38.8

42.7

74.2

75.6

79.5

82.1

88.4

Adapted from Skinner (2006)

As important as the informal sector might be, it has been determined that most people

who participated in it were not doing so to exploit identified market opportunities.

Rather, they had entered it out of necessity and in order to escape poverty (Godfrey,

2013; Ligthelm, 2006; Rogerson, 1996) due to lack of formal employment

opportunities. Skinner (2006) found that there was a high correlation between being

poor and being part of the informal economy.

Most businesses operating in the informal sector were discovered to be survivalist in

nature in that they generated incomes that barely supported their owners (Mbonyane

& Ladzani, 2011). Even so, these businesses performed a critical role in meeting the

needs of the poor by supplying goods and services through flexible business models

and lower transactional costs (Godfrey, 2013).

Informal, survivalist businesses faced many challenges that threatened their viability

and prohibited their development. They lacked access to financial resources

(Preisendörfer, Bitz, & Bezuidenhout, 2012; Yu, 2012) that could be invested into

working capital or growth opportunities. Although Ligthelm (2005) argued that this

was not unique to SA, as entrepreneurs in other countries too faced difficulties when

trying to raise financing for their businesses.

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Often the owners were deficient in the skills necessary to effectively manage their

businesses (Mbonyane & Ladzani, 2011; Skinner, 2006) and because the businesses

were usually started out of necessity rather than market opportunity, making a success

of the venture became a difficult proposition.

Informal, survivalist businesses were often situated in rural areas and urban townships

where they were faced with poor infrastructure, lack of services, crime and high

transport costs (Ligthelm, 2005; Skinner, 2006), all of which placed severe constraints

on business activities.

Moreover, these businesses operated within a highly competitive environment. The

competitive nature of the environment led to isolationist and fragmented business

practices (Skinner, 2006). Ironically, the underutilisation of networks increased the

cost of accessing information and by extension, the cost of doing business.

The challenges faced by informal, survivalist businesses were compounded by the

fact that they received little to no support from government agencies. Most

programmes were targeted towards formalised and registered Small Medium and

Micro Enterprises (SMMEs). The needs of survivalist businesses were vastly different

(Ligthelm, 2008) and they were therefore not able to make use of the programmes

offered by government agencies.

In order to tackle poverty and inequality, the South African government set the target

to create 11 million jobs by the year 2030 (Valodia, 2013). Reaching this goal will

require interventions focused on tackling the above-mentioned challenges faced by

the informal sector, especially in light of the numbers currently employed within the

sector and its potential for providing further employment opportunities.

2.1.2 ECD Centres

According to literature, the foundations for all future learning are laid in the first few

years of life; with parental involvement, good nutrition and early stimulation being

key to facilitating the acquisition of skills (Anderson et al., 2003; Dodici, Draper, &

Peterson, 2003; Foster, Lambert, Abbott-Shim, McCarty, & Franze, 2005). However,

in South Africa, opportunities for quality care and education were highly unequal

(Spaull, 2013). These key inputs were found to be either lacking or absent in children

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who came from low socioeconomic backgrounds, which resulted in gaps that lead to

poor educational outcomes later in life. Deficits in learning were apparent from an

early age and worsened over time (Burger, 2010; Eldering & Leseman, 1993).

In an international study, Stipek and Ryan (1997), as cited in Burger (2010), found

that children from poor socioeconomic backgrounds experienced significant cognitive

developmental lags during the school going age, when compared to their peers from

an advantaged background. In South Africa, about 40% of children (aged 0 to 5 years)

from poor communities were estimated as attending formal and informal Early

Childhood Development Centres and crèches. These facilities were often

overcrowded, had untrained teachers, provided poor nutrition, little stimulation and

could not adequately cater for the developmental needs of young children (UNICEF,

2005).

From these findings, it was apparent that interventions targeted at these organisations,

in particular, those which tap into existing community structures to provide the

resources needed to improve ECD centres and crèches, could alleviate some of the

difficulties discussed and might positively impact ECD outcomes.

2.2 Financing and collaboration models

2.2.1 Microfinance

At the beginning of the 21st century, world leaders under the aegis of the United

Nations (UN), agreed to “uphold the principles of human dignity, equality and equity,

and free the world from extreme poverty (United Nations, 2014, p. 3). In terms of this

agreement, known as the Millennium Declaration, signatories, including South Africa,

agreed on eight goals, the Millennium Development Goals (MDGs) with set

timelines, and aimed at addressing the most urgent development challenges of the

time. One of these goals, the achievement of financial inclusion for the poor, became

a priority for global leaders. In order to reach this goal, and to directly or indirectly

impact the remaining MDGs, it was understood that poor people would need to be

provided with access to affordable financial products (United Nations, 2014).

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In a recent review, the Bank Seta in South Africa maintained that offering the poor

better access to affordable financial services would have an impact on driving down

poverty, and reducing inequality (Bank Seta, 2013). Mosley (2001) as cited in

Lahimer, Dash and Zaiter (2013) agreed with the assertion that microfinance

initiatives could reduce poverty, while Hietalahti and Linden (2006) found that

microfinance could assist in ameliorating the circumstances of families living in

abject poverty.

With the success of Grameen bank in Bangladesh, financial institutions realised that it

was possible to service the poor by granting microloans and remain profitable

(Neverson, 2013). This phenomenon was not limited to financial institutions; global

multinationals across industries have begun to look into opportunities at the “bottom

of the pyramid”; Prahalad and Hammond (2002) argued that there existed massive,

untapped potential in servicing the poor, despite the hostility of the environment in

which poor people live.

Baumann (2004) posited that the primary goal for microcredit institutions should be

to extend credit to the marginalised and that the secondary goal would be to do so in a

sustainable manner. However, institutions that have entered the microfinance sector

have done so purely from a profit maximisation strategy; this approach has achieved

poor results “in providing access to small-scale credit for business” (Baumann, 2004,

p. 117).

Recent studies have, however, shown results consistent with the assertion made by

Baumann (2004) that microcredit has had adverse effects on poor communities.

Increased competition amongst lenders has resulted in narrowing margins in the

sector (Volschenk & Biekpe, 2003). Reckless lending practices have caused high

levels of indebtedness and high default rates (Centre for Inclusive Banking in Africa,

2011), leaving the poor worse off (Volschenk & Biekpe, 2003).

In South Africa, the microfinance sector remains in early development, relative to

other industries. Therefore, it is has been struggling with high cost structures, the lack

of skilled and experienced personnel as well as a lack of institutional support

(Baumann, 2004). The spectacular collapse of the biggest micro-lender, African

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Bank, in 2014, illustrated the extent to which the microfinance sector has not yet

established itself as a viable mechanism for the financial inclusion of the poor.

2.2.2 Cooperatives

Pryor (1983) and Zamagni and Zamagni (2012) defined cooperatives as voluntary

groups of individuals or organisations that come together in joint enterprise in order to

enter new markets, lower the costs of doing business and strengthen their bargaining

power. Shiferaw, Obare and Muricho (2008) noted that cooperatives had become an

accepted mechanism for organising economic activity in an effort to overcome the

market-system failures of high costs and coordination problems that hampered the

delivery of services to marginalised poor communities.

It was found that organisations that joined a cooperative were able to retain their

autonomy, although decisions taken on behalf of the cooperative were made

collectively (Wanyama, Develtere, & Pollet, 2009). The International Cooperative

Alliance, as cited in Beesley and Ballard (2013) defined cooperatives as “autonomous

associations of persons united voluntarily to meet the common economic, social and

cultural needs and aspirations through a jointly-owned and democratically controlled

enterprise”.

Wanyama et al. (2009) added to the discourse by highlighting that South African

cooperatives have a “social movement” aspect to them. These organisations were

focused on creating social capital and empowering members from previously

disadvantaged groups. This aspect of cooperatives is particularly prevalent in

cooperatives that were created by government in order to achieve social goals (Pryor,

1983).

In South Africa, various government policies and regulatory frameworks aimed at

supporting cooperatives were introduced with the intent to facilitate job creation,

increase employment and alleviate poverty (Department of Trade and Industry, 2012).

According to the Department of Trade and Industry (2012), there were 43,062

registered cooperatives in South Africa, the majority of which were owned by

previously disadvantaged women in rural communities. The agricultural sector

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accounted for 25% of registered cooperatives, growth of which was driven largely by

government’s focus on rural development (Department of Trade and Industry, 2012).

Yet, despite the sound theoretical basis for cooperatives being a suitable vehicle to

drive commercial enterprises that have social impact, their success in South Africa

has been minimal.

A number of reasons have been cited for the poor performance of cooperatives.

Wanyama et al. (2009) argued that overregulation by government agencies had stifled

the growth and development of cooperatives. Okem and Lawrence (2013) attributed

the lacklustre performance of cooperatives to the fact that most cooperatives in South

Africa were run by previously disadvantaged individuals, who often lacked the

technical skills required to manage organisations, and thus they were hindered in their

attempts to establish robust businesses. In particular, cooperatives operating in rural

areas struggled to access the services they required to run their organisations

successfully (Okem & Lawrence, 2013).

The collaborative decision-making processes that formed the basis of cooperatives

were also found to impede progress and slow down organisational response times

(Beesley & Ballard, 2013). As a result, many cooperatives found it difficult to adjust

to changing market conditions timeously and effectively.

Furthermore, cooperatives tended to operate in industries where competition from

incumbents was high. High competition, coupled with poor networks, made it

difficult for such enterprises to survive (Okem & Lawrence, 2013; Wanyama et al.,

2009).

Wanyama et al. (2009) stated that successful cooperatives have “strong leaders, are

well organised and have a market-driven focus.” In contrast, cooperatives based in

South Africa were found largely to lack these attributes as evinced by the findings of

researchers investigating the success and failure factors for South African

cooperatives above.

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2.2.3 Stokvels

Naong (2009) and (Mashigo and Schoeman (2012) defined stokvels as informal

savings and credit extension groups, predominantly utilised in black communities in

South Africa. The term “stokvel” was derived from the phrase “stock fair”, used to

describe rotational cattle auctions held by early English settlers in the 19th century

(Naong, 2009; Verhoef, 2001a).

Ardener (1964, p. 201) as cited in Naong (2009), defined stokvels as “an association

formed upon a core of participants who agree to make regular contributions to a fund

which is given, in whole or in part, to each contributor in rotation”.

Biggart (2001) and Buijs (1998) found that informal savings groups, commonly

known as rotating savings and credit associations (ROSCAs), were common in mid-

to low-income economies, such as those found in Africa, Asia and India, where

financial institutions were weak and poor rural communities were excluded from any

active participation.

According to Verhoef (2001b), South Africa was an exception in this regard.

Although South Africa had one of the best developed banking and financial industries

in the world, black communities exhibited a preference for using stokvels to save and

access credit. Research estimates suggested that almost one in every two black adults

belonged to one or more stokvel groups (Irving, 2005; Verhoef, 2001b).

Arko-Achemfour (2012) found that stokvel members generally used the proceeds to

purchase groceries in bulk, pay for durable household goods, cover school fees and

repay debt. The largest portion of stokvel proceeds, however, were spent on funeral

and burial expenses; research carried out by African Response Research estimated

that 65% of stokvels were burial societies (Slade, 2014).

In 2013, the size of the stokvel market was estimated at approximately R45.1 billion

(Old Mutual, 2014). Due to its size, the stokvel industry has attracted significant

attention from formal finance and insurance institutions over the years. Numerous

low-cost savings and insurance products have been targeted at members of stokvels

with little success (Naong, 2009). Vermaak (2000), Gugerty (2007) and Irving (2005)

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argued that the reason for this failure was that stokvel members placed other values

on membership, the benefits of which extended far beyond financial gains.

Stokvels appeared to fulfil a social purpose that was not satisfied by members

transacting with formal institutions. Verhoef (2001a) asserted that the social benefits

of stokvels were as important as the economic ones. Stokvels were predicated on the

principles of “Ubuntu”, the African cultural notion of reciprocity, caring for one

another and treating each other with respect (Mukorombindo & Coetzee, 2013; Shale,

2013; Vermaak, 2000).

Mukorombindo and Coetzee (2013) posited that stokvels were necessary for survival

in poor communities in that they provided a social network that could be relied upon

for emotional, physical and financial support. Irving (2005) stated that when women

were imprisoned for various offenses under South Africa’s apartheid laws, members

of her stokvel group would look after her children until her release. More recently,

stokvels have proven valuable in reducing risk and enabling the poor to cope with

unforeseen circumstances and emergencies (Mashigo & Schoeman, 2012;

Mukorombindo & Coetzee, 2013).

Successful stokvel groups had high levels of trust and loyalty amongst members who

shared close personal relationships and often lived in close proximity of each other

(Shale, 2013; Thorp, Stewart, & Heyer, 2005; Verhoef, 2001a). Karlan (2007)

emphasised that the social connections that existed within the group was key to the

success of the group. The close personal relationships and feelings of loyalty made it

possible for members to hold each other accountable to the group, which led to very

low default rates (Irving, 2005; Mashigo & Schoeman, 2012). Members were

reluctant to risk their reputations, and by extension risk their support network, within

the community. They would rather default on bank loans or other debt supplied by

formal institutions (Buijs, 1998).

The finance and administration functions of stokvels were carried out in a transparent

manner. Reports were read out in meetings, cash was counted or reconciled in the

presence of members and decisions were taken through consensus (Arko-Achemfour,

2012; Shale, 2013). This transparency of operations was seen to have been

responsible for the high levels of trust amongst members.

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The transaction costs of belonging to a stokvel were low when compared to those of

financial institutions. Stokvels had few administrative requirements; meetings were

held in close proximity to the homes of members; and payments were made equitably

and efficiently (Buijs, 1998; Casson & Giusta, 2004; Mashigo & Schoeman, 2012).

However, Thorp et al. (2005) criticised informal savings groups for excluding the

truly poor from benefitting from the social networks, as membership depended on the

ability to make financial contributions. This view was echoed by Mukorombindo and

Coetzee (2013) who argued that the benefits of social capital were particularly critical

to the vulnerable poor, who were excluded from stokvels.

When assessed from a purely commercial perspective, the interest earned on stokvel

savings was considerably lower than what could have been achieved with traditional

investment products. Proceeds from stokvels were used primarily for consumption.

Arko-Achemfour (2012) argued that these proceeds could have a potentially deeper

impact on poverty alleviation if they were spent on income generating,

entrepreneurial activities.

2.3 Benefits of cooperation

The benefits of collaboration and cooperation have been well-documented.

Pelaez, Yu and Lang (2013) defined group collaboration and cooperation in business

activity as commerce with social capital. Prahalad and Hammond (2002) argued that

while serving the poor individually might not be a viable business proposition, there

was certainly a business case for serving them in aggregated groups, and that these

aggregated groups had the potential to generate superior profits.

Pelaez et al (2013) forwarded the idea that improved coordination and cooperation

amongst businesses had the capacity to improve outcomes for all individual

stakeholders. Networks, too, had the potential to reduce the cost of doing business,

and to forge paths to new markets. Okem and Lawrence (2013) stressed that building

and entrenching such networks would allow members to achieve economies of scale.

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Through membership of a group, businesses or individuals might gain access to the

skills they lacked; furthermore, belonging to a group reduced the cost of accessing

information to members, while deepening the varieties of information they were able

to access (Hardy & Magrath, 1987). Joshi and Smith (2002) as cited in Okem and

Lawrence (2013), agreed that networks and groups were able to cut down on the costs

of production by sharing knowledge, pooling risks and acting in a coordinated

manner. This coordinated action had the ability to lead to improvements in quality

standards and service levels.

Hardy and Magrath (1987) found that group purchasing could protect businesses that

operated in markets sensitive to changes in price. Group purchasing also placed

members in strengthened positions when negotiating pricing and contract terms with

suppliers (Hardy & Magrath, 1987).

2.4 Conclusion

Literature on mechanisms aimed at achieving financial inclusion for the poor revealed

that significant work remained to be done in order to accomplish this goal.

On one hand, the stokvel model appeared successful in providing poor people with

access to funds and extending credit to them. Stokvels had high participation and

adherence rates, while at the same time groups provided members with a supportive

and reliable social network. Membership of a stokvel reduced the risks associated

with unforeseen circumstances that would otherwise result in devastation for a

household. However, stokvels generated low rates of interest, and proceeds from

stokvels were primarily used to fund consumption. An opportunity therefore exists to

improve on this model by encouraging the funding of income generating and

investment activity.

Cooperatives, on the other hand, have had mixed results both in their ability to

strengthen social networks and their ability to develop viable business practices.

While the concept of businesses working together had powerful potential,

cooperatives had not yet found a way to streamline their internal practices or to fully

leverage networks and relationships. Though well-intentioned, high regulation by

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various government agencies resulted in stifling development and growth for

cooperatives.

The microfinance industry succeeded in highlighting the need to offer poor people

access to affordable finance. However, this new industry has grappled with low

margins, reckless practices and a lack of skills and experience. All of these factors

have resulted in the poor bearing the brunt of the negative consequences of over-

indebtedness.

The table below summarises the critical factors that influence the financing and

collaboration models discussed in the literature review.

Table 2: Summary of critical success and failure factors of financing models

Model Advantages Disadvantages

Microfinance Provides access to finance for the

poor

High transaction costs

Reckless lending practices

Increased indebtedness

High default rates

Instruments difficult to understand

Little or no social capital

Cooperatives Lowers costs of doing business for

informal businesses

Strengthens buying power

Organisations retain autonomy

Social goals

Heavily regulated, therefore onerous

legislative requirements

Contracts difficult to understand

Lack the skills required to run them

Lack leadership required to make

them work

Weak networks

Cumbersome decision-making

processes

Poorly organised

Stokvel Provides access to finance

Low transaction costs

Strengthens individual buying power

Provides a social net (reduces risk)

Strong social capital

Negligible default rates

High levels of trust and loyalty

Transparent administration

Democratic decision-making

Low interest earned

Used primarily for consumption

Excludes the very poor

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By providing employment opportunities for a significant portion of the population and

supplying services to the poor, informal enterprises perform a critical function in the

economy. SSEs contribute even further by providing a social net for the very poor,

who are excluded from all other forms of enterprise. However, SSEs are plagued by a

lack of critical skills, lack of financial resources and isolation. Owners and operators

of such enterprises are in clear need of a business model that can help them achieve

cohesion and allow them to aggregate their social and financial resources to create

viable, sustainable businesses.

ECD centres or crèches in urban townships are often inadequate to the needs of the

communities they serve, both in terms of quality and number. Yet, very few ECD

owners and operators of ECD businesses have access to the resources required to

enhance operations.

In view of these concerns and challenges and in consideration of the importance of

the services they provide to the neediest and most vulnerable segment of South

Africa’s population as exemplars of social service enterprises, this study determined

to investigate the viability of SSEs operational in the ECD field in urban townships,

utilising the stokvel model to build capacity and access financial and other resources.

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Section 3: Research Methodology

3.1 Research approach and strategy

The purpose of this study was to explore the transferability of the stokvel model to the

informal business setting.

The study followed a qualitative, inductive approach. A qualitative approach was

deemed appropriate for the study as the objective was to generate a working theory,

rather than to test one that exists (Bryman & Bell, 2011). A qualitative approached

was taken because it allowed the researcher the latitude to be able to engage more

specifically with the participant’s perspectives, their understanding of events and their

lived context (Locke, 2001).

Due to the exploratory nature of the study, the investigations involved the drawing of

inferences from the patterns gleaned from the data collected from observations and

interviews; which made it suitable for an inductive approach (Eriksson & Kovalainen,

2008).

This study took on a “social constructionist” (Bryman & Bell, 2011, p. 23)

ontological approach because the participants formed an integral part in shaping the

process by bringing in their own views and attaching their own meaning to the

research questions. The interactions amongst the participants and observations made

at their places of business all formed part of the research data.

Bryman and Bell (2011) highlighted a few limitations of qualitative research, namely,

that it is subjective, as researchers tend to find it difficult to maintain distance from

their “subjects”. They further state that it is “difficult to replicate” (p. 408) and that

the findings cannot be generalized.

To minimize the effects of the limitation of subjectivity, the researcher recorded all

interviews and reviewed them later, once removed from the participant’s

environment. This process created some distance and increased the researcher’s

ability to remain objective.

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3.2 Research design

Regarding the design of a study, De Vaus states that “research design refers to the

structure of an enquiry” (2001, p. 16). The research design for this study is one that

allowed the participants to feel comfortable to state their views openly and within in a

non-threatening environment. It was of utmost importance that participants were able

to state their views and perceptions in an open and truthful manner.

Bryman and Bell (2011) state that “a research method is simply a technique for

collecting data” (p. 41). The research methods that were applied in the study included:

(1) semi-structured interviews, (2) participant observations, and (3) a focus groups

discussion.

The advantage of semi-structured interviews is that they are likely to produce rich

data and insights that may have been missed by both the researcher and participant

(Eriksson & Kovalainen, 2008). They offer flexibility which allows for clarification

and probing (Bryman & Bell, 2011); this makes them appropriate for an exploratory

study.

(Eriksson & Kovalainen, 2008) define participant observation as “the most

demanding” (p. 86) research method. It requires that the researcher act both as

participant and distant observer. In order to participate fully, and to successfully

decode observations and the data collected, it is paramount that the researcher

possesses an in-depth understanding of the crèche environment.

The participants’ ability to work together formed the core focus of this study. The

focus group discussion was thus important in that it allowed the researcher to observe

the dynamics between the participants and their shared understanding of the research

area. Interactions amongst focus group participants are described as the “heart of

modern focus group research” by Eriksson and Kovalainen (2008, p. 173).

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3.3 Population and sample

Population

The population for the study includes all informal, survivalist businesses that operate

in the township of Khayelitsha in Cape Town. The exact number of those businesses

is unknown as they are not registered by any formal body.

Sample

Due to the nature of the study, which required that participants who were all in the

same line of work and who would have to imagine scenarios where they could

collaborate, a combination of non-probability snowball and purposive sampling

methods were used. The first participant was asked to recommend a known crèche

owner who would be willing to be part of the study. The first crèche owner who

agreed to take part then identified two others. Although non-probability sampling

methods limit the ability to generalise the findings, they do allow for more in-depth

investigations to be conducted (Bryman & Bell, 2011).

Additional criteria for inclusion for the crèche owners were as follows:

the crèche must have been in existence for three years or longer

the crèche must have a minimum of 20 children

each crèche must be within a 5km radius of the other participants

Participants that were included in the study appear in the table below.

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Table 3: List of study organisations

No. of

Participants

Participant Expertise Expected knowledge area

1 Entrepreneur, with businesses across

townships in Western & Eastern Cape

Insights into the township business climate

1 NGO working in the ECD industry Insights into the general ECD landscape

1 NGO working running Group Savings

in rural communities in KwaZulu-Natal

and the Eastern Cape

Insights into the mechanisms that drive

successful savings groups

3 Crèche owners in Khayelitsha Insights into the challenges faced by crèche

organisations

Their perspective on stokvels and

collaboration

3.4 The research instrument

A questionnaire was used for the semi-structured interviews (see appendix 2). A

semi-structured interview protocol was used as it allowed flexibility to the researcher,

which would enable the exploration of any new themes that emerged (Bryman & Bell,

2011).

The questions for the semi-structured interviews were intended to gauge if the

participants had found value in being part of a stokvel and to ascertain if they thought

that value could be transferrable to their business environment.

The focus group questions (see appendix 3) were open-ended and kept broad in order

to facilitate discussion amongst participants (Eriksson & Kovalainen, 2008). The

objective of the focus group discussion was to gain an understanding into how the

individual crèche owners would structure an organisational group savings scheme.

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3.5 Data collection

Data was collected through interviews, focus groups and observations. Face to face

interviews were conducted with all but one participant, whose interview was

conducted telephonically. Interviews were recorded with permission from each

participant and were conducted at a time and venue that was convenient for the

participants. Interviews were conducted in both English and isiXhosa. Observations

were carried out at all five of the participating crèches, where the researcher made

detailed notes about the environment and interactions between subjects.

3.6 Data analysis

The grounded theory approach was used to analyse the data. Bryman and Bell define

this method as deriving theory from data (2011, p. 576). This approach seems suited

to this explorative research at it allows for themes to emerge guided by “logic” and

“creativity” (Locke, 2001). However, criticisms of grounded theory research have

included questioning the claim that it leads to the actual formation of theory (Bryman

& Bell, 2011). For the purposes of this research, gaining an understanding of how the

participants engage with the propositions of the study was far more valuable than

acquiring a transferrable theoretical framework.

Process of analysis

Once the data had been collected, the recordings were transcribed. Interviews that had

been conducted in isiXhosa were translated and transcribed in English. It was then

coded, which resulted in the generation of concepts and general themes (Bryman &

Bell, 2011). The coding and concept generating cycle was repeated several times

(Eriksson & Kovalainen, 2008). The coding process involved all three coding types;

“open, axial and selective” (Eriksson & Kovalainen, 2008, p. 160). During the open

coding process, the researcher constructed broad categories from the data, which

constituted general summations of findings. Once broad categories were identified,

they were constantly compared and relationships between the categories were

established during the axial coding process. Once the categories had been saturated,

the relationship between them were explored in depth (Bryman & Bell, 2011) and as

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stated by Bryman & Bell (2011), “hypotheses about connections between categories

emerged” (p. 580).

3.7 Limitations

The researcher views the limitations of this study as including the following:

Researcher bias: the researcher brought her own biases, preferences and mental

models to the research project. These biases become particularly impactful during the

data analysis phase of the study.

Responder bias: findings in this study were limited by the specifics experiences and

perceptions of the responders.

Language barrier: the crèche owner respondents communicated predominately in

isiXhosa, which was then translated into English by the researcher. Certain nuances

may have been lost during the translations process.

Small sample size: a sample size of five crèches is not statistically significant and

therefore further inferences cannot be made from the findings.

Tightly-defined geographical area: the study was carried out in Khayelitsha with

participants who have established relationships and live in close proximity to one

another. Therefore the findings may not be valid outside of those exact parameters.

3.8 Validity and reliability

Validity of the study was maximised by the researcher interviewing and interacting

with the same group of people across different scenarios. There were opportunities to

ask the same questions from different perspectives and contexts. This ensured that the

researcher was able to ascertain if the observations and responses given, all related to

the actual research question and could be attributable to nothing else (Bryman & Bell,

2011). This served to maximise the internal validity of the study.

To maximise the internal reliability of the study, the interviews and focus group were

recorded and the researcher will make the recording (or parts thereof) available to her

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supervisor, to further validate the observations of the researcher (Bryman & Bell,

2011).

3.9 Informed consent and research ethics

The researcher at all times conducted herself with integrity and respect, for both the

process and the participants in the study.

The purpose of the study was to be clearly and simply explained to all participants,

after which their consent was requested. Participants were made to understand that

they had the right to withdraw their consent at any time during the process and that

participation is voluntary. They were also told of their right to refrain from answering

any question they may have found uncomfortable.

All of the participants did not require anonymity and agreed to be identified.

The findings of the final report will be made available to participants should they be

interested in the outcomes.

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Section 4: Findings

This exploratory study revealed findings that can be grouped into two distinct sets of

themes. The first group of themes defined ways in which the crèche might be

described as a hybrid organisation. These findings illuminated the characteristics that

distinguish social services organisations, such as crèches, from other forms of

organisations, such as NGOs or purely commercial informal enterprises.

The second group of themes outlined elements or parameters that would have to exist

in order to create an environment conducive for crèches working together within the

framework of a stokvel.

The sample of the study consisted of eight participants: five crèche owners,

representatives from two NGOs and one entrepreneur with businesses in townships

across the Western and Eastern Cape.

Table 4: Details of study participants

Name Organisation No. of years in

operation

Participant 1 TM Crèche (105 children) 4 years

Participant 2 ZV Crèche (108 children) 5 years

Participant 3 JP Crèche (50 children) 5 years

Participant 4 NZ Crèche (28 children) 6 years

Participant 5 PT Crèche (60 children) 3 years

Participant 6 AK SaveAct, NGO 7 years

Participant 7 SL Ilifa Labantwana, NGO 8 years

Participant 8 LR Entrepreneur 10 years

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4.1 The nature of crèches as organisations

4.1.1 Owners/principals set the tone for the crèche

The owners/principals of the crèches set the tone, mood and culture of the facility.

The energy and drive of the owners who were part of the study, was reflected in their

staff as well as the children in the crèche. The owner of one of the participating

crèches had been recently widowed; he took over the running of the crèche from his

late wife. His sense of mourning and loss was palpable and was felt in the general

mood of the crèche. The researcher observed very sombre teachers and lethargic

children with low energy levels, which seemed to mirror that of the owner. In

contrast, the personality of a loud and cheerful crèche owner was reflected in all

aspects of the crèche, from the brightly coloured exterior, to the garrulous, engaged

teachers and energetic children.

There seemed to be correlation between the level of ECD training of the owner and

that of the teachers. Owners who had training appeared to encourage the training of

their staff. Conversely, owners who had little training did not seem to actively seek

out training for their staff. The owner with the highest level of ECD training amongst

the cohort of owners had the most trained staff; training within her facility ranged

from First Aid courses for all staff members to nutrition courses for the cook. In

contrast, an owner who had no ECD training stated that none of their staff had any

further education beyond various high school levels.

Registered crèches are required to have a board of directors in order to comply with

DSD statutes. From discussions with the owners during observations, it emerged that,

although board members were listed on registration papers, they played no part in the

running or administration of the crèche. The owners took all decisions, with no input

from the ‘board’. When asked about this apparent discrepancy, one crèche owner

asserted that the “whole thing is nonsensical and a waste of time,” as she believed

that few people in the township would know how to run the crèche better than she did.

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Figure 2: The transference of knowledge and energy in crèches

4.1.2 Strong social capital

From the study, it was apparent that the crèche owners seemed to have strong

established relationships amongst themselves. They were organised in sector ECD

Forums and used these platforms to check in with each other and to discuss industry

related issues. Both registered and unregistered crèches belonged to the same

network. The participants reported that most crèche owners were very transparent

with each other within this forum. As a result, those within the network were all

aware of the challenges faced by each centre.

All of the five crèche owners within the sample indicated that they were part of an

ECD forum and that they often interacted with other crèche owners within their

community. During the first observation, one crèche owner shared with the researcher

a long list of other owners whom she claimed to know very well and with whom she

often worked with in some way. Another said that the forum was a good place to get

advice on matters related to running her crèche. Several participants added that they

had become friends with other crèche owners and that they socialised with them

outside of the forum.

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All participants reported feeling supported by other crèche owners in their forums.

One told the researcher during an observation, that he was often given excess

groceries by another, well-funded crèche. He stated further that there were several

crèche owners within his network from whom he sought advice. Another study

participant too spoke about how she received help and support from fellow crèche

owners: “I have a great relationship with other owners. They are the ones that help

me […] they visit me at my crèche.”

During an interview, a participant said that she appreciated the mentoring from more

experienced owners – but that the group welcomed input from everyone, including

those new to ECD. Another respondent, who stressed the importance of collaboration,

shared this view, and stated to the researcher, “… not working together is what causes

people to not progress.”

In response to a question relating to theft, a participant told the researcher that

“thieves do not steal books and chairs because there is no market for them because

other crèche centres would never buy them knowing that they were stolen from

another centre.”

Responses such as these served as an excellent illustration of the level of support and

trust that seemed to exist amongst crèche owners. The participants reported that

although they worked under difficult circumstances, none of them felt alone or

isolated within their communities.

The strength of the social capital was most evident in how every participant stated

that they felt an obligation to help crèches that were worse off than what they were.

One participant, the owner of an unregistered, poorly resourced crèche, confirmed this

by stating the following during her interview: “I often go to the other crèches’ owners

and they try to help me with different things”

In discussing the possibility of crèches working together in a stokvel, one

participant’s conditions was that every group should have a poorly resourced crèche

that they support.

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4.1.3 Crèches not viewed as commercial enterprises

Given that all the crèches were privately owned and charged fees for their services,

the researcher had expected that the owners would consider them business enterprises

and themselves, entrepreneurs. However, this assumption proved incorrect, as profit

generation was not the key driver for these owners.

The study participants appeared not to view their crèches as commercial enterprises,

but rather as ‘social service enterprises’. This was evident in the ways in which they

speak about themselves, their community and the children in their care. One crèche

owner remarked, “… we’re not making profit; we’re just taking care of the children.”

In a different interview, another crèche owner shared a similar sentiment by saying:

“We do this for love. It makes no money.”

The crèche owners and operators viewed themselves as custodians of children. Two

crèche owners stated that they had each started a crèche because they could no longer

“look after the madam’s children” while children in their own communities were

being neglected and subjected to violence.

Another crèche owner stated that she had been unemployed and had already been

looking after a few of her neighbours’ children; when the numbers grew, she made the

decision to make it official and open a crèche.

Children spend a significant amount of time at the crèche centres. These centres

seemed less like educational service providers and more akin to surrogate homes. The

owners fulfilled the roles of surrogate parents. One respondent stated during his

interview that “most parents are working and there are no aunties or gogos

[grandmothers to look after the children]; they are in the Eastern Cape. So there has

to be someone that’s taking care.”

The crèche owners and operators all described a sense that they existed to keep

children off the streets, safe and fed while their parents and guardians were at work or

school. One defined the purpose of her crèche as being there to look after the

children’s wellbeing. “We’re here to keep children off the street […] even the poor

ones,” she said.

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Overcrowded facilities might be considered a manifestation of this idea. All of the

crèche owners surveyed seemed to feel obligated to take children in, even if the

crèche was full. For as one explained, they’d said that they would be helping the

community and could therefore not turn away a child in need.

The crèche centres provided a social net for very poor families. When asked how they

dealt with non-payment of fees, all the crèche owners told the researcher that they

offered the parents extended payment terms or that sometimes they accepted that they

would never receive back-payment of outstanding fees. One crèche owner lamented:

“Parents don’t pay school fees. They pay when they can, but we must be patient.”

However, none of the study participants expelled children due to non-payment. One

commented that even if fees were not paid, they would “never throw the child into the

street”. Another added that if she knew that the family was very poor, she would send

leftover food to the home with the child.

All crèche owners reported that the financial situation of their crèches was somewhat

alleviated by certain working parents handing over the entire childcare grant that they

received from the government to the crèche. In effect, this often meant that they paid

more in fees than was stipulated. The researcher surmised from this that crèches

cross-subsidise children from very poor families by means of the additional fees paid

by working parents.

All of the owners reported that they attempted to keep fees as low as possible in order

to ensure that they were affordable to the majority of their parent body.

4.1.4 Crèches as a source of pride for owners

All the participants evinced a great sense of pride in the work that they do, as though

it were a vocation. One commented that her status had been elevated as a result of

owning a crèche, both in her home town and within her current community.

All the crèches observed by the researcher were immaculately clean and tidy even

though they might have been housed in a basic shack that had no running water or

electricity. They all had brightly painted exteriors and neatly swept sand in the tiny

front areas; all of which stood in stark contrast to their immediate environment and

the homes surrounding them.

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The owners recognised that many crèches in the community failed to meet the

standards and norms set out by the Department of Social Development. They seemed

to consider it their collective duty to work towards ensuring that all crèches reached a

point of meeting minimum standards. To this end, the better resourced, better

functioning crèches actively helped those that were struggling. One crèche owner

spoke of receiving assistance from a few crèches in his community; another said that

she received regular assistance from neighbouring crèches, while another respondent

reported that she often checked in on crèches that she was concerned about.

All the crèche owners and operators in the study seemed to possess the ability to

stretch what little resources they had, very far. Given the lack of management

training, low rates of computer literacy and the dearth of resources, the researcher

assumed that such crèches would not remain operational for very long. However, the

owners and operators in the study demonstrated remarkable tenacity and

resourcefulness in their ability to be highly efficient in the allocation of the meagre

resources they had at their disposal.

4.1.5 Low levels of education and training

All of the participants had low levels of tertiary education. The crèche owners were

all at varying levels of ECD training. ECD training comprises five modules, each of

which takes 18 months to complete. This training is provided free of charge by the

government. None of the crèche owners in the study had completed all five. One

owner possessed no ECD training at all. She did, however, indicate an intention to

enrol in a course. “There is a training place in Claremont, but I am still waiting,” she

said, but did not clarify her reasons for delaying the start of her training.

The teachers too had very little training. Two of the owners in the sample had

enrolled their teachers in the ECD training programme. Both reported that the most

any of their teachers had completed was one or two modules. The teachers at one of

the crèches have no ECD training at all, and there was no plan to enrol them at the

time of the study.

During the focus group, all of the participants indicated that lack of training was an

impediment to their ability to run their crèches effectively. They all indicated a

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yearning for computer training, in particular. There was a feeling that being able to

use computers would lighten their current workload.

4.1.6 Lack of infrastructure

Three of the crèches observed were in an informal settlement, in shacks. Two had no

water or electricity, while the other had an illegal electricity connection but no water.

During the focus group discussion, the crèche owners spoke about their concern that

their “structures” were not entirely safe for children. As one described it, “… the

structure that is there is not comfortable for children […] so it’s not a safe structure.”

Notwithstanding the comfort of their facilities, all owners and operators indicated that

providing safer buildings would be a priority should they be able to raise the capital.

None of the crèches in the study had onsite access to computers, printers or fax

machines. All of the required administration and educational worksheets were done

manually. In order to email, fax or print, the owner had to travel by taxi to the nearest

shopping hub in order to find an internet café, which was both expensive and time-

consuming.

4.1.7 Onerous legislative requirements

All of the crèche owners recognised the importance of being registered with the

various government departments. However, they each bemoaned the difficulty of the

process.

When asked about the most difficult aspect of running a crèche, they each indicated

that dealing with DSD procedures and trying to stay compliant was the biggest

challenge that they faced. Each crèche owner felt burdened by the various, onerous

legislative requirements for registration. As the owner of an unregistered crèche, one

respondent told the researcher of her desire to become registered but that she was

unable to meet the minimum requirements. “… all the things that social development

wants, we don’t have,” she stated.

In order to be compliant, crèches need to register with various departments that have

differing requirements. One respondent stated that even within the same department,

different people communicated different requirements; she explained, “… the things

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they want, they don’t tell us. We are not clear […] You get to this office, they say they

want this and this; then you get to another office, they say, no, that one was wrong…”

One of the respondents, a worker from Ilifa Labantwana an NGO that conceptualises,

implements and manages national ECD programmes that are based on best practice,

also raised this issue. She explained that in her organisation’s work, they found that

ECD practitioners were inundated with onerous requirements from many different

departments.

In order to operate a crèche, the owner needs approval from the Department of Social

Development, the City of Cape Town Zoning, the Department of Education and the

Department of Health. No central place was apparent where crèche owners could go

to access accurate information about the registration requirements and the process

involved.

Table 5: Summary of the characteristics of the crèche organisation

Characteristics of the crèche organisation

Owners/principals set the tone

Strong social capital

Crèches not viewed as commercial enterprises

Crèches a great source of pride for owners

Low levels of education

Lack of infrastructure

Onerous legislative requirements

4.2 Findings relating to HOW a stokvel might work

During the individual semi-structured interviews, all of the participants indicated that

they would be willing to form a stokvel in order to access funds for their crèche. A

focus group was then convened to discuss what a crèche stokvel might look like. The

findings from the individual semi-structured interviews, together with the discussion

points from the focus group, indicated that although the participants would welcome a

stokvel, they would consider it only if it were defined within tight parameters. These

parameters are discussed below.

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4.2.1 Groups must have autonomy

All the participants agreed that it was important that they were able to select the

individuals with whom they would form a stokvel group, One respondent stressed this

during her interview by saying, “I would invite people I know and live with already

[…] you know the crèche owners that you would choose […] there are some people I

cannot mix with.” Another echoed this sentiment by adding: “the people who join

must be screened.”

In an interview with the participant from SaveAct, an NGO that runs group saving

schemes in rural SA, this ‘self-section’ criterion was highlighted as being key to the

successful savings groups that were part of his organisation.

Once formed, the group must be free to set their own rules, without interference from

external people or groups. It was also stated that all decisions must be made

collectively, as one participant asserted, “If you are going to commit to something,

then you need to consider what the rest of the people in the group have to say”.

The researcher found it interesting that the crèche owners were describing the

importance of the stokvel group being self-managed, which is the same idea that

underpins the SaveAct model, which is based on self selection, total transparency and

self management by the group.

4.2.2 Group members must agree on the purpose of the stokvel

During both the individual interviews and focus group discussion, it came through

very strongly that the guiding principle for the crèche stokvel should be passion for

ECD. All the participants agreed that they would want to work with people ‘who

share the same values’ only. When pressed by the researcher to elaborate on what

those values were, the participants mentioned criteria such as a “passion for children”

or “passion for what they do” and “people whose intentions are true or pure”.

It was unanimously agreed that the purpose of the stokvel should be to uplift crèches

in the community. Therefore, all money raised should go into the running or

infrastructure of the crèche. One owner said that it would be important that all

proceeds were invested back into the crèche because she wanted “to see them

[crèches] grow. They need their standards raised,” she explained. The rest of the

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group echoed this sentiment. It was agreed that part of the mandate of the stokvel

would be to ensure that progress was made towards reaching standards and norms set

out by the different departments and that the ultimate goal would be to get all crèches

within a stokvel registered.

4.2.3 Financial benefit for members

The primary reason for the crèche stokvel to exist would be to allow the individual

crèche owners to gain access to large sums of money that they would not be able to

raise on their own. All participants acknowledged that stokvels were a great

mechanism for ‘forced’ savings that would allow members to achieve things they

could not achieve on their own. When asked to elaborate on the benefits of ‘forced’

saving, one respondent exclaimed, “… because you can’t have R10 000, you can’t

[…] but then you get together with other women; they help you save.”

The participants further stipulated that monthly contributions needed to be capped at a

level affordable to all group members. One pointed out that unaffordable

contributions could create problems in the group, while another indicated that

affordability would be a significant determinant for her joining a stokvel. She

lamented: “I’m struggling [financially] at the moment, so that would hamper me.”

In order to make the returns more attractive, the participants agreed that the stokvel

should lend out some of its proceeds and charge interest on the loans. However,

members should not be allowed to borrow more than what they’d contributed.

Participants referred to this as “security”.

4.2.4 Stringent oversight

All participants were of the view that the group would need to exert stringent rules

and ways of working that would ensure that there was oversight and accountability.

This would entail all members attending compulsory stokvel meetings with

“penalties” being imposed on absent members. One spoke of the importance of

attending each meeting and stated, “If you can’t make a meeting you must phone and

let the people know.” Another’s view was more strongly articulated when she added,

“and it’s strict – you must come to the meeting. If you didn’t come to the meeting you

must give us maybe R50 or R20 or something. You have to come to the meeting.”

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The group must monitor members closely to ensure that money is spent as agreed. In

her interview, one respondent stated that it would be important to visit other member

crèches in order to “keep my eye on them […] have you done the things you were

talking about?” The other participants agreed that site visits would be key in ensuring

adherence to the stipulations of the stokvel ‘constitution’.

It was stated further that the group should evaluate the performance of members

against specific outcomes. One respondent sketched the following example: “If you

said that you are going to buy this cabinet, if we give you our money – you have to.”

The participants indicated that such stringent oversight was necessary in order to hold

members accountable to the group. As one opined: “When it comes to the stokvel,

there is no story, you have to give the ladies their money, raining or not.” Another

respondent expressed the same view during her interview, stating: “There can be no

excuse when it comes to the time for contributions.”

Any deviation or noncompliance should result in penalties and eventually expulsion

from the group.

4.2.5 Must be about more than just money

Nearly every study participant brought up the notion that a stokvel must provide more

than “just money.” One respondent suggested that the only way to unlock value in

groups was to provide “mentorship, support and advice”. Another, an NGO worker,

added that they had found that successful groups included “additional training in

other aspects of their lives…” as part of their stokvels.

The crèche owners stressed that the stokvel should provide a platform to “share

things” and “discuss things and learn from each other”. They seemed to view the

stokvel as an opportunity to build something that was not just about the money. One

creches owner described it as having a group of people who help each other or ‘have

each other’s backs’. Her explanation, “uyakwazi ukufihla umqolo womunye” directly

translates as, “you are able to hide another’s exposed back”. Another crèche owner

expressed her expectation of a stokvel as a place where “you get to know people

better. You become like a family.”

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It seemed important to each respondent that the stokvel be a vehicle used to improve

the state of education and care in ECD; with a focus on assisting non-registered

facilities. Respondents often referred to “meeting standards” or “helping them

[crèches] reach standards.”

When asked to elaborate on the type of support they thought the stokvel should offer,

the crèche owners listed helping each other navigate the challenges faced by the ECD

sector, sharing of best practice, computer training and assistance with navigating the

DSD registration process.

4.2.6 High levels of trust amongst members

High levels of trust amongst members was highlighted as being critical to the success

of a crèche stokvel. This came through in all interactions that the researcher had with

the participants. A common refrain uttered by crèche owners was, “You need people

that you know.” In responding to a question regarding the selection criteria, one

crèche owner said, “I would choose people that I have a good relationship with.”

This view was shared by another owner who indicated that in choosing the group, “for

a start, it has to be people you know.”

Most respondents agreed that transparency was crucial to building trust. All but one

of the crèche owners agreed that all information pertaining to the stokvel and the

respective crèches should be available to members. One respondent stressed that in

order to make the stokvel work “there’s nothing to hide […] we have to give all the

information … you give the books”. Another agreed that complete transparency was

necessary. “I would tell them everything. Because in a stokvel, you trust one

another,” she said.

One respondent, an NGO worker, emphasised the importance of every member

knowing exactly what the status of the stokvel was at every moment. One crèche

owner disagreed with the prevalent view that full disclosure and transparency was

necessary for the success of the stokvel. She felt that a more cautious approach was

required because one could never be absolutely certain of the trustworthiness of

individuals; she stated: “I cannot talk about money to the group. It’s not possible that

everyone is trustworthy, even in a stokvel. You can have your person that you speak

to. Not all of them.”

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These divergent views could be present a possible area of conflict, as in response to

the earlier statement in the focus group, another owner indicated that she would not

form a group with any individuals who withheld information. “There are those people

who don’t want to talk about their crèches. I would not have them in my group,” she

said.

The crèche owners also indicated that they would only choose members with a proven

track record. In naming the criteria for new members, “they must have started

something”, was on each crèche owner’s list.

The crèche owners were asked about the ideal group size for a stokvel. They all

seemed to think that it would be preferable to keep the group small, as it would

become more difficult to maintain trust and oversight of a bigger group. There

seemed to be consensus that a group of five crèches would be ideal. One of the NGO

workers was of a similar view, saying that in an urban setting where social ties were

not as strong as in the rural areas, he would suggest keeping the group small with

between 6 to 12 crèches.

4.2.7 Must be easy to administer

The crèche stokvel must be something that is easy to administer and run. Crèche

owners are currently inundated with paperwork, administration and other duties that

are involved in the running of their facilities. In order for a stokvel system to be easily

adopted, it must not significantly add to the burden they already carry. This is not so

much a finding as a recommendation by the researcher based on her experiences and

observations in the crèche environment.

Conclusion

The findings have highlighted various characteristics of the crèche organisation. All

of the crèches in the study exhibited high levels of social capital. Their social

connectedness seems to be valued above the commercial viability of the enterprises.

Although the crèche organisations are plagued with issues such as low levels of

education among owners and teachers, poor infrastructure and lacking access to

services, they are willing to collaborate in order to improve their circumstances.

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All of the study participants thought that collaboration through a stokvel model would

suit these organisations well. There was consensus that any collaboration through a

stokvel mechanism would have to be defined within tight boundaries. All though

there were some nuanced differences between the participants regarding the exact

parameters of the ‘crèche stokvel’, there were a few components that were

unanimously agreed on. These parameters included the following: (1) autonomy of

the group, (2) members must share a common purpose, (3) stokvel must provide

financial returns, (4) the group must have stringent oversight over members, (5) the

group must provide other forms of support and (5) there must be high levels of trust

between members.

Figure 3: Critical components of a crèche stokvel

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Section 5: Discussion

This section presents the qualitative characteristics of SSEs; including ways in which

crèches are similar to informal, survivalist businesses; it defines the SSE; discusses

suitable financing mechanisms for SSEs; and attempts to correlate the needs and

characteristics of crèches with three types of financing models, namely, microfinance,

cooperatives and informal savings groups as typified by stokvels. It presents the key

elements of an SSE stokvel model and draws pertinent conclusions based on the data

mined from study participants.

Qualitative characteristics of SSEs

Crèches seem to typify the average informal, survivalist enterprise in many of the

ways described by literature. Godfrey (2013) and Ligthelm (2006) have found that

informal, survivalist businesses are generally created out of the owner’s need to

escape poverty and not because of a clearly defined market opportunity. All of the

crèche owners in this study reported that they had started their enterprise due to a lack

of job opportunities. Each of the crèche owners clarified that they had chosen the

crèche business specifically in response to the urgent need they witnessed amongst

the children living in their communities. The researcher was particularly interested to

note this finding: that although poverty alleviation ignited the idea of creating an

enterprise, it was the delivery of the social benefit that drove the operation of each

crèche owner or operator surveyed. This reversal or inversion of business focus has

not previously been covered by literature. In this respect, the crèche shares the

characteristics of an NGO. It is owing to this duality in form and function that the

researcher coined the term Social Services Enterprise to describe such organisations.

Godfrey (2013) found that informal businesses were very often unregistered and were

therefore unregulated. The findings of this study report the same pattern, in that three

out of the five crèches were not registered with any official body and therefore there

was no oversight or regulation over their activities. The two registered crèches were

faced with onerous regulatory requirements and stipulations with which they made

great effort to comply. However, neither had the capacity to fully carry out each

regulatory requirement as stipulated. Government bodies tasked with overseeing the

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activities of the ECD environment seemed to pay but cursory oversight and appeared

to lack the rigor to be effective.

All of the facilities that were part of the study were survivalist and struggled to

generate adequate income to support the owners and their families. This was

consistent with the conclusions drawn by Mbonyane and Ladzani (2012) who stated

that informal businesses “fail with regard to financial management” (p. 557.)

Despite the failure to generate satisfactory levels of income for their owners, crèches

provide significant levels of employment. Skinner (2006) listed businesses that

provide employment for personnel other than the owners and highlighted that 82% of

crèches have additional staff, compared with 26% of hairdressing salons, for example.

The three crèches that formed part of this study were a good illustration of this. The

smallest crèche had three members of staff and the largest had nine members of staff,

all in addition to the respective owners. This finding supports the assertion made by

Ligthelm (2005) that although informal enterprises might not be registered, their

commercial activities made a significant contribution to the country’s GDP.

All of the crèche owners in the sample expressed a desire to grow their businesses.

However, outside of attracting increased numbers of paying customers, which would

in turn exacerbate the extensive overcrowding, the respondents each reported that

they had no other avenues to attract the financial resources needed to drive expansion.

As highlighted by Preisendorfer, Bitx and Bezuidenhout (2012), this conundrum was

not unique to crèche owners, but was general to most informal, survivalist businesses.

Skinner (2006) and Mbonyane and Ladzani (2001) argued that owners of informal,

survivalist businesses lacked the required technical and managerial skills to

effectively run their enterprises. Crèches are no different in this regard. All of the

owners professed to very low levels of education and no formal post-school

qualifications, outside of the ECD modules that they were engaged in. Staff members’

levels of education and training were significantly lower than that of the owners. The

crèche owners who participated in this study expressed an awareness of their

shortcomings and intimated that they would be interested in furthering their education

levels since they had an idea of how additional education and training would enhance

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the functioning of their crèches. Yet, none had any knowledge about free and relevant

training courses and where to access them.

Poor infrastructure, lack of basic services and inconsistent service delivery places

significant constraints on informal businesses. Ligthelm (2005) and Skinner (2006)

maintained that issues such as crumbling roads, limited access to water and electricity

affected survivalist business in ways that were detrimental to their sustainability. The

lack of services and poor infrastructure means that owners of informal businesses

have to travel, at great cost, outside of their area of work to access services such as the

internet, printing and faxing facilities. These considerations severely hamper the

services they provide and drastically increase the costs of running their businesses.

All of these issues were observed as impacting the enterprises that formed part of the

study. All of the facilities were located far from business centres; owners and staff

often had to travel substantial distances to access the internet, to make photocopies of

documents and to procure supplies needed for their crèches. The study participants

bemoaned the costs of travel; particularly, the time travelling took away from

business-related issues.

Skinner (2006) asserted that a lack of strong networks amongst informal businesses

resulted in fragmentation and isolation that increased the cost of accessing

information and as a result, the cost of doing business. This assertion holds true in the

case of crèches, but not completely. These enterprises appeared to exhibit strong

industry networks. None of the study participants reported any feeling of isolation,

rather the converse was true, as a sense of connectedness and camaraderie seemed to

exist amongst crèche owners.

However, these networks appeared to be used for the purpose of emotional and social

support and were underutilised commercially. This underutilisation proved to increase

the cost of accessing reliable information. For example, many crèches have had to

deal with the strenuous and gruelling process of registration with DSD. Yet there

existed no formal or anecdotal “help guides” for ease of reference, though countless

crèches within the broader South African context, within the community under study

and two participants in the group, had already undergone the registration process. As

a result, misinformation, confusion and anxiety surrounded the registration process.

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Respondents reported feeling bewildered and out of their depths when attempting to

decipher the requirements for registration.

This study confirmed the many ways in which crèches might be considered to be

informal, survivalist businesses as defined by the literature. These similarities are

summarised below.

Ways in which crèches are similar to informal, survivalist businesses:

Created to escape poverty

Largely unregistered and unregulated

Do not generate enough income to fully support owners and their families

Provide employment and a contribution to GDP

Lack access to financial resources

Owners lack business skills and training

Poor infrastructure and lack of service places severe constraints on activities

Underutilisation of networks for commercial purposes

Defining the Social Service Enterprise

However, crèches differ in certain critical ways to traditional, informal, survivalist

enterprises. These differences and nuances were determined from the study findings

and had not been identified nor addressed in the literature relating to informal,

survivalist businesses.

Although informal, survivalist businesses are started out of necessity, to escape

poverty; at their core they are driven and sustained by a profit motive. The same

criteria appeared to be inapplicable to the crèche environment. The owners might

have started the business out of necessity, but they viewed their enterprises, not as

profit-generating organisations, but as social service delivery organisations that were

able to support their households as well. This sentiment was repeatedly echoed by

each of the owners with statements such as: “We collect them [poor children] at least

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here they can get that lunch and the snacks.” Or, “As long as the children’s needs are

met … then you keep on going.”

Comments such as these highlighted key differentials between crèches and purely

survivalist businesses. They provided clues to a hybrid organisation, one that is

neither an NGO nor a purely commercial enterprise but a Social Service Enterprise.

Owners of such enterprises work towards not only the betterment of their individual

organisations, but are active in improving conditions for the industry as a whole. The

crèche owners who participated in the study were either actively involved in helping

other facilities, because as they claimed, “They need their standards raised.” Or they

were actively receiving assistance from a nearby crèche. The researcher learned that

any excess resources accrued by SSE organisations were distributed to organisations

in a worse off position. The owners of the SSE felt unentitled to amass any excess

resources for themselves, particularly if another organisation was in need.

As with typical businesses, SSEs charge fees for their services, although, only to

those who can afford to pay. Those who are too poor to pay for their services are not

cast out; rather they are brought in and supported. The SSE seems to be a mechanism

for distributing incomes and effectively reducing inequality. Those who have the

means, subsidise those who do not.

Within the context of the urban township environment, characterised by high

unemployment, crime and poverty, SSEs view themselves as custodians of social

good and utilise any resources and social capital that the owners and operators of

crèches have at their disposal to advance societal aims. In the case of crèches, the

societal aim is the wellbeing, development and education of children. This notion of

working towards the good of society was articulated by one of the crèche owners

when she remarked: “We had to take in more children, because we said we were

helping the community.”

Due to this perception of their being custodians for the advancement of social good,

many crèche owners in densely populated, low-income areas, as typified by the urban

township of Khayelitsha in this study, find it very hard to turn children away. This

might serve to explain the issues with overcrowding that many crèche owners in this

study faced.

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Suitable financing models for SSEs

Although SSEs may seem to be typical informal, survivalist enterprises, their social

connectedness and social orientation means that they have needs that are vastly

different to that of commercial enterprises. Nor do SSEs fit the standard definition of

an NGO as SSEs are privately-owned and have customers who pay to receive a

service. Therefore the needs of an SSE are vastly different to that of a pure NGO.

Traditional mechanisms for accessing resources, both in terms of networks, and

access to finance, have not been successfully utilised by SSEs. The researcher

speculates that traditional models and instruments for assisting informal, survivalist

businesses have been inappropriate for SSEs because they have assumed that the

needs of the SSE are the same as those of the purely commercial or non-governmental

enterprises (i.e. grow market share, attain economies of scale, profit maximisation or

effective donor engagement for funding etc.). Banking institutions for example, grant

loans to qualifying enterprises based on their performance measured by profit

generation or anticipated return on investment. As evidenced by the research

respondents, SSEs measure their performance by their ability to serve the children

within their communities. Traditional financing instruments have not taken into

account the deeply embedded social service aspects and the social connectedness of

these organisations.

Microfinance

On one hand, Microfinance institutions, in particular the successful Grameen bank in

Bangladesh, have been effective in turning the global spotlight on the importance of

achieving financial inclusion for the poor (United Nations, 2014). However, these

institutions come with attendant risks to poor people because of their high transaction

costs and reckless lending rates, making them an unsuitable vehicle to provide

informal businesses access to credit. These practises by microfinance institutions have

resulted in increasing indebtedness, which as illustrated by Volschenk and Biekpe

(2003), has left many households and informal businesses worse off.

Microfinance institutions have done poorly for informal businesses, but they have

been completely ill-equipped and inept at servicing SSEs. The owners and operators

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of SSEs often do not have the necessary documentation to enable them to apply for

credit or loans.

Most microfinance institutions are situated far from the urban township environment

in which many SSE owners live and operate. Travelling to the institution is often

onerous and once there, many SSE owners lack the necessary education levels to

enable them to understand the complex contractual stipulations of agreements.

Furthermore, microfinance institutions are viewed as corporate entities, which cannot

be attributed or connected to any one individual. This is at odds with the need for

social connectedness that SSEs seem to share. This lack of a personal relationship or

connection to the corporate entity means that owners and individuals feel no duty

towards the microfinance institution and are thus less inclined to honour payment

terms.

Cooperatives

Cooperatives on the other hand, have been utilised successfully by a number of

farming communities in South Africa to overcome market system failures. Although

their successes have been limited, where cooperatives have worked, they have helped

informal enterprises lower the costs of doing business. Participating enterprises have

been able to leverage their bargaining and purchasing powers. The success of

cooperatives has been in their ability to harness the social capital that is within the

communities. Wanyama et al. (2009) defined cooperatives in SA as being more akin

to “social movements” (p. 367).

However, even with their strong social orientation, cooperatives are not well-suited to

SSEs. Cooperatives are heavily regulated (Wanyama et al., 2009), and come with

onerous legislative requirements that make them difficult to manage. Given that SSEs

already face burdensome regulations and that they are largely owned by individuals

who lack training and technical skills, it is fathomable that organising around a

cooperative framework is neither desirable nor effective.

Stokvels

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The notion of informal savings groups has been around for hundreds of years as a

mechanism for achieving financial inclusion for people in low-income economies. In

South Africa, stokvels are a very common savings and credit extension vehicle with

an estimated 50% of black adults belonging to one or more stokvel groups (Irving,

2005, Verhoef, 2001b).

All of the crèche owners in this study had been part of a stokvel group in the last 12

months. Each of them understood the concept very well and attributed many of their

material financial successes to the stokvel. One of the owners reportedly bought his

first car using proceeds from a stokvel; another told the researchers that she used the

stokvel pay-out to complete the building of her home. This supports the findings from

literature that state that stokvels are a significant industry, currently estimated to be

worth R45.1 billion (Old Mutual, 2014). In a similar way, SSEs do not only provide

income for their owners, they also provide employment, in numbers greater than most

informal businesses.

The participants described stokvels as being more than just about finances; they

iterated that the stokvel group provided emotional and physical support to members.

Irving (2005) linked the foundations for this support amongst members to the

turbulent times of apartheid when neighbours banded together to look after each

other’s families should one of them be imprisoned.

Karlan (2007) argued that stokvels were underpinned by the deep, social connections

that exist within the groups. This characterisation of stokvels mirrors how SSEs view

themselves. The crèche owners see their enterprises as being more than a vehicle for

generating an income, but as a delivery mechanism for social good. As with the

stokvel, crèche owners provide a social net for the most vulnerable members of their

communities.

Literature tells us that successful stokvel groups have high levels of trust and loyalty

amongst members (Shale, 2003; Verhof, 2001a), and that members tend to live within

close proximity to one another. In much the same way, SSEs as embodied by crèches,

exhibit high levels of trust amongst the owners and operators. Those in this study

often referred to visiting one another and helping each other with any problems they

faced. Their responses iterated both the bonds that they shared, and that they operated

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in relative proximity to one another. Living in close proximity of group members,

greatly reduces transactional costs of stokvels (Buijs, 1998); likewise, crèche owners

living and working in close proximity of one another can reduce the cost of acquiring

information.

Stokvels are not regulated. Each group administers its affairs simply and in a

transparent manner (Shale, 2013). Every member, irrespective of education level,

understands the administration of the group; all reports are read out in meetings and

monetary contributions are counted in the presence of each member (Mashigo &

Schoeman, 2012). Although, not quite to the same extent, all the crèche owners

involved in this study ran their enterprises in the same, completely transparent

manner. One owner commented, “There is nothing to hide […] we are used to giving

out our information.” The sharing of information within a trusted group appears to be

another shared characteristic between SSEs and stokvels.

Stokvels seem to share many of the characteristics that define social services

enterprises. They both operate in high trust environments that are underpinned by

transparency and rich social capital. Both models are driven by the need to provide a

social net to the marginalised within their communities. Moreover, they both provide

financial benefits – the stokvel to its members, and the social service enterprise to its

owners and employees.

Table 6: Comparing the characteristics of a crèche to those of financing models

Crèche

Characteristics

Microfinance Cooperatives Stokvel

Transparency ✗ ✗ ✔

High trust ✗ ✗ ✔

Social capital ✗ ✔ ✔

Provides social net ✗ ✗ ✔

Financial benefits ✔ ✔ ✔

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Given these correlations, the researcher postulates that the stokvel model will best suit

the needs of an SSE. Co-opting the model will provide individual SSEs with easier

access to much needed financial resources, while at the same time drawing on the rich

social capital that exists within these enterprises. The stokvel mechanism has at its

core a social focus, rather than a financial one. This is congruent with how SSEs

perceive themselves.

Stokvels are known for their high adherence rates (Irving, 2005) and low default rates.

Members do not act outside of the rules set by the group. Any payments due to the

group are paid promptly. The strong social ties are what ensure strict compliance by

members. The cost of being expelled from the group is too high for any one

individual to risk breaching the constitution.

Given that SSEs have exhibited that they have strong social ties, that they have trust

capital, and that they seem to share a common purpose, it stands to reason that

organising through a stokvel offers such enterprises the best chance of accessing

resources while maintaining their focus on the social good.

Elements of a SSE stokvel

During individual interviews and within a focus group discussion, the participants of

this study were asked to describe possible ways in which an SSE stokvel could be

structured.

Their responses outlined a structure that has all of the same characteristics of a

‘normal’ stokvel as defined by their previous experiences in stokvel groups and as

defined by literature. Most of the characteristics and parameters described by the

participants, such as autonomy, shared purpose, trust, etc. (refer to figure 3), were not

about the financial benefits that can be derived from pooling resources, but around the

social-relational aspect of the model. This was in line with the findings of Shale

(2013) and Vermaak (2000) who asserted that successful stokvels were founded

primarily on the principles of “Ubuntu”, which are about respect, reciprocity and

caring for one another. The participants stressed that the SSE stokvel would have to

be “more than just about the money”.

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Arko-Achemfour (2012) proposed that the power of stokvels might be better

harnessed if the proceeds were used for income-generating activities rather than for

consumption. The study participants shared this view. All stated that in order to

achieve sustainable results from a SSE stokvel, the member enterprises would have to

include in their stokvel constitution, a requirement that all proceeds would be spent on

strengthening their enterprises, and not on private consumption. This was stated as

having a ‘shared purpose’ for the stokvel.

The participants stressed the importance of regular meetings and stringent oversight

by the members of the SSE stokvel group. The researcher inferred from these

strictures as stated by the study participants, that it might be by these means that

groups hold members to account, and by so doing, increase the likelihood of

adherence to the conditions listed in the SSE stokvel constitution. Irving (2005) as

well as Mashigo and Schoeman (2012) recognised that close personal relationships

amongst members facilitated increased loyalty and made it possible for groups to hold

one another accountable; the frequent meetings suggested by the participants would

enable this to take place.

Conclusion

This study has highlighted the dual characteristics of SSEs that make them similar to

both informal, survivalist businesses and NGOs. Traditional mechanisms of granting

financial inclusion, such as microfinance and cooperatives were discussed and found

to be inadequate in delivering on the needs of SSEs. The stokvel framework,

however, was shown to share many of the same features as SSEs and therefore how it

may be the best model to give SSEs access to financing while advancing their social

purpose. The owners and operators of SSEs not only demonstrated that they had a

deep understanding of the advantages of stokvels, but that they also appreciated how

this model might benefit their enterprises if deployed in a disciplined manner. If

employed, the stokvel model would not be something foreign or out of place within

the context of SSEs.

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Section 6: Conclusions

For generations, stokvels and other forms of informal savings groups have been used

by low-income communities to pool resources and mitigate risks. The success rates of

these savings groups have been astounding, with the South African stokvel industry

currently estimated to be worth R45.1 billion (Old Mutual, 2014). Successful groups

span the gamut of income brackets and geographical locations. Groups have

flourished in impoverished rural areas, where communities are faced with adverse

socioeconomic and infrastructural environments. While in similar or better resourced

environmental contexts, informal businesses fail to thrive. Several models in addition

to stokvels have been attempted to achieve financial inclusion for the poor and for

informal businesses. However, these mechanisms, such as microfinance and

cooperatives have not been very effective at bringing about sustained stability and

growth.

This study sought to explore whether the familiar stokvel model might be better suited

to informal, survivalist businesses than any other mechanism as a means for such

businesses to access necessary financial resources, pool resources and spread risk.

The findings of this study quickly revealed significant, nuanced differences amongst

informal, survivalist businesses. The ECD environment, in which the study took

place, showed that crèche owners did not view their businesses as purely commercial

enterprises that provide an important service to their customers, but rather as private

enterprises that deliver social services to their communities. The sense of community

and the shared custodianship of social good were found to be more important than

profit generation for the participants. This led the researcher to conclude that crèches

and other types of informal businesses such as traditional healers and churches, which

in essence served the needs of the community, should not be treated like other

enterprises whose main motivation is profit maximisation. Their hybrid nature makes

them Social Services Enterprises.

Given the hybrid nature of SSEs, it became clearer why mechanisms of accessing

financial resources such as microfinance or cooperatives might not be suitable.

Microfinance institutions lacked the social connectedness that owners of SSEs

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believed was the core of their organisations. Cooperatives tended to be complex

structures, with onerous legislative requirements that often required skills that owners

of SSEs did not possess.

Conversely, the stokvel model was shown to share numerous similar aspects to SSEs:

they both satisfy social needs; both are built on the embedded social capital of

communities; the groups have high trust amongst members and transaction costs

associated with membership are low. Organising SSEs through stokvels can therefore

be the most appropriate mechanism to provide these organisations with access to

much needed financing. Owners of SSEs are likely to be or have been part of a

stokvel in their individual capacity, and can therefore easily identify with its

structures. It is for this reason that SSE stokvels must be run along similar structures

to normal stokvels; but in order to ensure that the objective of building capacity is

met, the requirement that proceeds are to be used to build capacity within the member

enterprises and not for private consumption, should be stipulated.

This model will build on the strong social capital and entrenched networks that

already exist in regard to SSEs. Adoption of the model will be organic since many

owners of SSEs are familiar with the stokvel model and the model is one that is fully

integrated with the nature of SSEs. It is therefore the model most appropriate to

facilitate the organisation, collaborative efforts and capacity building within SSE

organisations.

While it must be noted that the stokvels will not provide the highest financial returns

when compared with mainstream financial instruments, they will, however still fulfil

the key requirements of SSEs who place social good at the core of what they do and

who measure their success based on their impact in their communities.

Future research

Stokvels function on the basis of high levels of trust and social capital. The potential

of the SSE stokvel model is predicated on the high social capital that exists within the

crèche environment. Future research should focus on exploring the possibilities of

adapting the stokvel model to other industries where social networks are not as strong

or entrenched, such as the taxi industry.

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Section 8: Appendices

Appendix 1 Schedule of interviews and observations

Date Type of Interaction Name Organisation Address

10-09-2014 Semi-structured interview LR Entrepreneur (township) Khayelitsha

18-09-2014 Semi-structured interview SL ECD NGO Claremont

19-09-2014 Semi-structured interview AK Group Savings NGO Pietermaritzburg, KZN

22-09-2014 Participant Observation T Crèche Khayelitsha

30-09-2014 Participant Observation ZV Crèche Khayelitsha

09-10-2014 Participant Observation JP Crèche Khayelitsha

24-10-2014 Semi-structured interview TM Crèche

24-10-2014 Semi-structured interview ZV Crèche

24-10-2014 Semi-structured interview JP Crèche

24-10-2014 Focus Group JP, TM and ZV Conducted in Khayelitsha

17-11-2014 Semi-structured interview NZ Crèche Khayelitsha

17-11-2014 Semi-structured interview PT Crèche Khayelitsha

19-11-2014 Participant Observation NZ Crèche

21-11-2014 Participant Observation PT Crèche

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Appendix 2 Semi-structured interview questions

Questions: OWNER SEMI-STRUCTURED INTERVIEWS

1. Are you part of a stokvel?

2. How long have you been part of the stokvel?

3. Tell me about what the stokvel has helped you achieve?

4. Please describe to me how your stokvel works?

5. What is the best part about being part of a stokvel? Please give examples.

6. Tell me about some of the challenges you face in your business?

7. Can you think of what/who could help you deal with these challenges?

8. Do you know any other crèche owners in your community?

a. Are you in touch with them?

b. Please describe your relationship with them?

9. Who do you seek business advice from?

10. Do you think that some of the things that work in your stokvel could work for your

business? Please give examples.

11. Would you be willing to be part of a business stokvel?

12. What would stop you or make you uncomfortable about joining a business stokvel?

13. If you could start a business stokvel, tell me how would design it?

a. Describe what it would be like?

b. Which crèche owners would you ask to join?

14. A stokvel requires a lot of commitment, trust and transparency from members in

order to make it work – would you be willing to share the following with other crèche

owners?

a. Best practice/advice

b. Financial information

c. Commit to monthly or quarterly meetings

15. From your experience as a crèche owner and as a member of a stokvel, do you think

it is possible for crèche owners to create stokvel for their businesses?

16. What would need to be in place or happen for something like this to work?

17. What would need to happen for something like this to fail?

18. Any questions that you feel I have missed? Or other insights you wish to share with

me?

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Appendix 3 Focus group discussion questions

Guiding Questions: FOCUS GROUP

1. If you got a large sum of money (R20 000) that you had to use in the crèche, what

would you do with it?

2. We have spoken about Stokvels for crèches – what do you think of this idea, and

why?

3. Do you think the crèche owners in this area forum would be able to work together in

a crèche stokvel? Why?

4. What would you need to see or have happen before you joined a crèche stokvel?

5. If you were in charge of starting a crèche stokvel, tell me the 5 criteria (or rules) you

would have for someone who wanted to join you? How would you choose your

members?

6. If you were I charge of putting together the constitution of this stokvel, what rules or

guidelines would you include in it.

7. What kinds of things do you think would be important to spend the crèche stokvel

money on?

8. Stokvels generally hold monthly meetings. Crèche stokvels would have the same, but

during the meetings there would be a “formal sharing / learning session”. What types

of things do you think would be important to know more about or learn about or have

training on, during these sharing/learning sessions?

9. If you were giving advice to people staring a stokvel for their business, what would

you tell them?

10. Is there anything else that you would like to discuss relating to crèche stokvels?