The Impact of Stokvel and Banking Sector Efficiency: an Econometrics Model using (ARDL) Approach to Cointegration

Background. Despite playing second fiddle to formal banking institutions, stokvel are community-based savings schemes aimed at improving the lives of low- and middle-income earners. Aim. The aims are to attempts to capture the relationship between stokvel and banking sector development across its proxy of banking sector efficiency. The aim is to determine the relative attractiveness of the needs of low- and middle households saving with banking sector/financial institutions. Methods. Using Autoregressive Distributed-lag (ARDL) Bounds Testing Approach using quarterly time series secondary data ranging from 2009Q4 to 2020Q2 collected from the South African Reserve Bank and Old Mutual South Africa. Results. The Bounds F-tests integration statistics of the combined cointegration test revealed a long-run association between stokvel and banking sector efficiency. Additionally, using the error correction model, a short-run relationship was observed between stokvel savings and banking sector efficiency. The negative and statistically significant coefficient of the error correction model (ECM) also confirmed the prevalence of a causal relationship between stokvel and banking sector efficiency. The standard diagnostics tests confirmed that ARDL results are significant and serially correlated. Stability tests were carried out using the cumulative sum of recursive residuals (CUSUM) and the cumulative sum of the squares of recursive residuals (CUSUMSQ) measures of model stability and the results showed that the models were highly stable over the sample period. Thus, it can be said that including stokvel in the banking system does not help with the development of the banking sector. Recommendation. A similar study can be conducted with the inclusion of all banks that make up the banking sector and their impact on South Africa’s economic growth.