Cashing in on social grants

Leading payment systems provider Net1 has ignored demands by the minister of social development to stop lending to social grant recipients and is continuing to grant loans to some of the country’s poorest citizens.

Net1 Universal Electronic Payment Systems wholly owns Cash Paymaster Services (CPS), which in 2009 was awarded a tender to distribute R10-billion worth of social grants each month. Both the Constitutional Court and the high court have deemed the awarding of this tender as improper.

Listed on both the JSE and the Nasdaq, the company is regularly mired in controversy.

Micro-finance industry sources who wish to remain anonymous claim that Net1 and CPS are abusing their position by offering loans at pay points and by making preferential deductions to ensure they collect what they are owed before grant payments are made.

No interest is charged on these loans, just service fees. But these can add up to 50% of the principal amount over a six-month period. On an R800 unsecured loan, with a repayment period of six months, the service fee is R280 – equivalent to 70% annual interest. A loan of just R200 will attract fees of R100 – equivalent to 100% annual interest. As Net1 points out, this is compliant with the National Credit Regulations.

Old age grants are R1 350 a month and the child support grant is R310 a month.

Halt to loans
At a meeting between the minister, Bathabile Dlamini, the South African Social Security Agency (Sassa) and the Net1 chief executive, Serge Belamant, in October last year, the minister “demanded” that Belamant instruct the Net1 Group to stop lending to beneficiaries using the Sassa payment card, and also to stop loading other micro-loans on the card.

The minister also instructed CPS not to allow micro-lenders and vendors, including those of the Net1 Group, within the perimeters of any social grant pay points.

But evidence shown by micro-finance industry sources to the Mail & Guardian reveals that Net1’s subsidiaries were giving loans to grant recipients as recently as March this year. Documents show signed loan agreements between the Net1 subsidiary Moneyline and South Africans who are over 60 years old.

In response to the M&G‘s questions, Belamant said CPS responded to the minister’s demand, saying it did not offer products to grant beneficiaries but cannot speak on behalf of any other company in the Net1 group.

“The provision of loans by credit providers to grant beneficiaries is not outlawed,” said Belamant, but added that CPS does not allow any micro-lender, including Moneyline, to enter any pay point venue.

Eligible to apply
In a recording of a recent call to the Net1 call centre, an agent tells a social grant recipient that recipients are eligible to apply for a loan from the company but must do so at the pay point.

The minister also insisted that Net1 must stop selling advance cellphone airtime through its subsidiary Net1 Mobile Solution to social grant beneficiaries. Her demand followed allegations about the abuse of beneficiaries, especially deductions made for micro-loans and airtime from their grants, which, in some cases, were allegedly done without the beneficiaries’ consent or authorisation.

These concerns have been highlighted by the human rights organisation Black Sash, which launched the “Hands off our grants” campaign in November last year in a bid to stop “unlawful and illegal” debit deductions from the grants of Sassa beneficiaries.

These deductions, the Black Sash and its campaign partners believe, can be traced back to Net1 Applied Technologies South Africa (which is 100% owned by the Net1 Group) and its subsidiaries, which they claim are sharing confidential information about beneficiaries, such as ID numbers and Sassa bank card numbers.

Elroy Paulus, the Black Sash’s national advocacy manager, said CPS and Net1 appear to have a preference for deducting the repayments before Sassa transfers the cash into the accounts of grant beneficiaries.

“Black Sash raised the matter with the minister on February 26 this year and she found that the deductions presented were indeed unwarranted and unlawful and asked they be reversed,” he said.

The deductions are “haemorrhaging social grant money from Sassa bank accounts”, Paulus said.

Beneficiary authorisation
Belamant told the M&G a direct deduction from a grant is regulated by law but nothing prevents a beneficiary from utilising debit orders to pay debts. And in signing a credit agreement with Moneyline, for example, the beneficiary authorises such an order.

Belamant said transactions are reversed because they are disputed and not because they constitute “erroneous deductions” and he denied CPS does, or could, supply any third party or any of its subsidiaries with grant beneficiary data.

According to an article published by GroundUp this week, Sassa officials said the head office helpline has received 330 complaints about these deductions, which are being resolved. But the Black Sash has questioned this figure as the help­lines have not proved to be efficient.

The issue about whether loans should be extended to grant recipients at all remains a matter for debate.

Clark Gardner, the chief executive of Summit Financial Partners, said the National Credit Act does not mention who can or cannot access debt but it does refer to affordability.

“With the low levels of grant amounts, surely all loans will be, by default, reckless and therefore in breach of section 80 [reckless credit provision] of the Act,” he said. “Further, the repayment process on these loans is where I believe the greatest breach lies … So before the grant reaches the recipient or their bank account, the social grant provider has abused their position by making the loan repayment deduction.”

Grant manipulation
Some lenders say people have a right to access financial instruments, including loans, but the Black Sash disagrees in the case of grant recipients. The Social Assistance Act states that a grant cannot be “transferred, ceded, pledged or in any other way encumbered or disposed of”.

The only legal deduction is for one funeral deduction a month to a maximum of 10% of the value of the grant, the Black Sash says.

Net1, through its subsidiary Smart Life, also provided funeral cover to grant recipients, although the Financial Services Board has ruled it can no longer sign up new members.

Kgomoco Diseko, the Sassa national spokesperson, said a task team has been appointed to investigate the extension of credit to vulnerable people receiving social grants. “The team consists of Sassa and key advocacy groups such as the Black Sash. A pronouncement will be made once the team delivers a report to the minister of social development.”

Lesiba Mashapa, the National Credit Regulator company secretary, said it will act when credit is granted recklessly.

“Credit providers must also observe the regulations under social security legislation applicable to social income,” he said. “The National Credit Act also forbids the changing, manipulation, maintenance or application of a payment system in a manner that provides preferential treatment of payment instruction over others.”

Disputes continue with Net1 transactions
Net1, a leading provider of payment solutions and transaction processing services, has been shrouded in controversy in recent years and has been left with egg on its face in both South African courts and newspaper headlines.

– April 2014: The Constitutional Court set aside a tender to administer R10-billion in monthly social grants that had been awarded to payment solutions provider Net1 over Absa’s All Pay and ruled it should be rerun.

This followed a ruling in December last year in which the tender procedure had also been declared invalid, but it was decided it would not be scrapped given the risks it posed to the distribution of social funding.

Net1 chief executive Serge Belamant subsequently said the company would sue Absa for R2-billion.

– February 2014: the Sunday Times reported how the City of Tshwane cancelled its contract with Net1’s subsidiary Fihrst upon learning that it had entered into a deal with microlender Propratt and deducted money directly from the city’s payroll for the repayment of loans and allowed Propratt to receive its dues before employees received their salaries.

– January 2014: A United States law firm brought a class action litigation on behalf of all those who purchased or otherwise acquired the securities of Net1 between August 27 2009 and November 27 2013 alleging, according to the Wall Street Journal, that the company “made false and/or misleading statements and/or failed to disclose that: the company’s practices to secure contracts in South Africa were in violation of the Foreign Corrupt Practices Act; and as a result of the above, the company’s financial statements were materially false and misleading at all relevant times”.

– February 2013: the Financial Services Board prohibited life insurance company Smart Life, 90% of which is owned by Net1, from entering into new long-term policies. Among the regulator’s concerns, reported by the M&G at the time, was that Net1 insisted on using Cash Paymaster’s social grant infrastructure to sell insurance policies. The regulator was also highly critical of Belamant’s conduct, saying that he did not function within the confines and parameters of the Smart Life board. The prohibition remains in effect.

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