The spotlight is once again on the Facebook-owned messaging platform, WhatsApp, as many South Africans are once again engaging in the latest iteration of a financial scheme they are calling ‘WhatsApp gifting’.
Many have likened it to a pyramid scheme or financial scam but a lot of its participants insist that it isn’t. Others have likened it to WhatsApp stokvels which trended late last year.
This after a video explaining how the idea works started doing the rounds on social media.
In the video, a presumably older man can be heard explaining the mechanics of the group.
“It’s not totally a stokvel, we like to call it a gifting group because you can gift your investment to someone else,” said the unidentified man.
He further explained that participants are invited to the group by someone they know via an invitation link. Others often find that the group already contains participants who have already paid their contribution to be added to the group. Those who have already paid their contributions then have the added homework of inviting 1 – 3 acquaintances to fill up whatever vacant spots may be left in the group.
“As you come in, say you were at number six, you would have paid your investment to John (the group admin) and then you would help the rest of the five top people introduce the concept to other people.”
One the group gets “filled up” and all dues are paid, the group get split up into two groups, with members split according to odds and evens with the numbers they were assigned upon entry.
In a weird turn of events, the new groups get new group heads or admins and the initial admin falls away having pocketed all the contributions. If said admin wished to rejoin a group, they would have to start from scratch with a new contribution entering a new group as an ordinary member.
The entire process then starts from scratch and continues on a cyclical basis until you as a participant becomes the group admin who pockets all the contributions, thus allegedly getting your investment back.
“As you can see, once you have received your investment back, or you’ve gifted it to someone, you fall away.”
The man in the video claims that this mechanism is what differentiates WhatsApp gifting from a pyramid scheme.
“This is not a pure pyramid scheme. A pure pyramid scheme would be something someone pays into and number one stays at the top the whole time.”
South African comedian Carvi Goldstone has taken issue with the recruitment aspect of the gifting shame and has posted numerous YouTube videos questioning the premise of the scheme and asking participants if they are aware of the reputational risks involved in recruiting from their immediate pool of contacts.
National Stokvel Association of South Africa’s Andrew Lukhele cautioned people against referring to it as a stokvel. Lukhele also said that participation in such a scheme was not advisable.
Speaking to eNCA, Lukehele stated that the association was very wary of those conduction schemes using the term “stokvel” to lure members.
“This is one of the latest in many, many schemes that masquerade as stokvels. Last year or so, there were many of these so-called WhatsApp stokvels. While we encourage people to come up with financial innovations and engineering, we are very wary of people who use the term stokvel for some of the dodgy operations that they are involved in.”
This is because the association believes that using terminology people are familiar with, such as the word ‘stokvel,’ is used as a tool to lure them in.
In Lukhele’s opinion, WhatsApp gifting is very similar to a pyramid scheme because it’s functionality is heavily dependant on recruitment of new members and the promised returns are far greater than those offered on the legitimate market.
“There comes a time when that recruitment is not sufficient to satisfy every participant and that so-called stokvel collapses and people lose money as a result,” said Lukhele.
He further explained that stokvels differ from these schemes due to the fact that group members are almost always physically present upon the establishment of the stokvel group and can, therefore, participate in dictating how the group will be run as well as what rules it will operate by and how often members will meet face to face.
Although WhatsApp gifting group participants are supposed to invite people they know, many do not always play by these rules and can sometimes try to recruit strangers.
“As a result, when something goes wrong, there is no recourse. Chances of losing money in the environment is great,” added Lukhele.
He also believes that those who run pyramid schemes are “masters of group psychology”, hence the recruitment model which dictates that people must recruit those that they know so that it is easier to allege that the great returns are legitimate.