Net1 UEPS Technologies Inc. profiting off the poorest and most vulnerable in South Africa

The social grants system in South Africa is a lifeline to over 17 million people, and grant payments cover for example, pensions, disability payments and child support payments. The grants payments system was established in 1994 to alleviate poverty in South Africa, especially focused on creating a better life for children1. The grant payments are provided to the poorest individuals in South Africa and the funds provided reach far wider than the 17 million individuals who collect grants, often they support an entire household.2

Net 13 is the US-listed parent company of Cash Paymaster Services (CPS), which pays social grants on behalf of the South African Social Security Agency (Sassa). The awarding of the contract to CPS in 2012 was mired in controversy and allegations of corruption45 . The contract  was given with the aim of facilitating financial inclusion, providing social grant recipients with bank accounts allowing them to safely access their funds.

Net1, the parent company of CPS, also created a range of subsidiaries in South Africa through which it markets other financial products. These include: MoneyLine (loans), EasyPay Everywhere (smart cards), Manje Mobile (airtime and electricity), and SmartLife (insurance).6

It is alleged by NGOs and human rights groups in South Africa that Net1 has been illegally deducting funds directly from individual’s social grants, and that it has been using the grants system as a backdoor to gain information about these individuals and sell them additional products such as loans and insurance through its subsidiaries, for which it makes large profits7.

Through extending services to the previously unbanked, Net1 has gained access to the biometric, personal and financial data of grant recipients. Net1 has according to reports8 provided this personal data to subsidiaries in order to push its loans, insurance and funeral schemes as well as airtime and electricitySadly, the regular cash flow of grant recipients makes them an attractive target for predatory lenders.9 The loans that are provided by Net1 subsidiaries, such as Moneyline, are given with high rates charged10, as lending to the poor is considered ‘risky’ due to a high rate of default, however because Net1 provides its subsidiaries with the ability to directly deduct money for loans before the grant is given to the beneficiary there is no risk to the lender that he wont be repaid. Net1 claims the rates are in line with legal limits.

Research by human rights organisations in South Africa showed that since 2012 when the contract to pay social grants was awarded to Cash Paymaster Services (CPS), the rate of debit deductions from grant beneficiaries increased dramatically. These deductions were from subsidiaries and partners of Net1 and  included loan repayments, prescribed debt, multiple funeral schemes, advance electricity and airtime – including deductions for water, despite this being a free service. Deductions that had not been authorised by beneficiaries.11. These deductions are at times legitimate loans or services taken out by the individual, however, the case is often that these loans are fraudulently obtained, ie made by an unknown person other than the grant beneficiary. Net1 and its subsidiary CPS, according to their own statements released, have since identified scams on the accounts which they have addressed12

An allegation being made against Net1 is that these deductions are made directly from social grants without the authorisation of the bank account holder and before the grant money goes into the account of the holder. This makes it difficult to identify fraudulent vs real deductions and there are no fraud protections on the account.

Additionally there is limited recourse for people to question these deductions, evidence collected by investors and investigative journalists have shown that contacting Cash Paymaster Services is difficult if not impossible13, additionally these are people without the means to travel to towns or cities or even make expensive phone calls. An impact of taking loan repayments directly from grants means that people often receive no or very little grant money, which is intended to spent on food and other essentials. By deducting the loans repayment illegally straight from the source people are unable to make the choice between food and essentials and repayment. This is why in 2015 the South African Government made it illegal to deduct any funds other than funeral services, directly from grants. Yet according to sources, the deductions have continued.14

The scale and level of these illegal deductions in South Africa by CPS have left thousands of poor people with difficult choices to make. The impact of not receiving social grants on poor households is devastating and has led to increasingly difficult situations, for example, Sophia a rural grant receiver, after deductions were made she needed to make a choice: either she could feed herself and her six-month-old baby, or she could feed her 8 and 13-year-old daughters. She chose the latter. When she stopped eating, she also stopped producing milk. Her baby’s weight dropped from 11.3 kg to 8.8 kg in three weeks15.

Far from the projects designed aim to increase financial inclusion, the company Net1 has created a segregated banking system designed to allow corporations to profit off the social grant system at the expense of the poorest. Anecdotal evidence is continuing to increase against Net1. The Financial Services Board in South Africa is investigating Net 1 over allegations that it abuses its clients – mostly social grant beneficiaries – and breaks financial laws.16.

Net1 refutes these allegations and has made a statement to this affect which is available here. (link to FAQ)

Additionally KPMG has provided an assessment of the company operations and allegations at the request of Net1.(link to KPMG report)

The two largest investors in Net1 are Allan Grey17  and the World Bank, through the IFC, as well as International Value Advisors. All three of these investors have voiced concern and are laying substantial pressure on Net1 to improve their governance and complete assessments of their lending practices. International Value Advisors have stated “A company that appears to rely on unethical and unlawful practices to sustain their business is not worth much. Thus, UEPS shares should not be owned at any price,” and has slashed their investment in Net1 UEPS18 Allan Grey has also slashed their investments.

PGB, the Dutch Pension Fund, and  Deutsche Asset Management are in the top 20 investors in Net1 UEPS. Both have increased their investments in the company over the last three years. These shareholders should divest from UEPs until such time as the allegations against the company are resolved and should add their voice to the current shareholders above who are advocating for change in the organisation.

 


  1. http://www.vukuzenzele.gov.za/social-grants-bring-relief-poor []
  2. http://www.huffingtonpost.co.za/2017/02/17/why-social-grants-matter-in-south-africa-they-support-33-of-th/ []
  3. http://www.net1.com/about/overview/ []
  4. http://www.news24.com/Archives/City-Press/AllPay-wins-against-Net1-20150429 []
  5. http://www.corruptionwatch.org.za/taking-their-dirty-deeds-abroad/ []
  6. http://www.groundup.org.za/article/deductions-social-grants-how-it-works/ []
  7. http://www.corruptionwatch.org.za/sassa-gate-profit-service/ and https://www.blacksash.org.za/index.php/your-rights/social-grants  []
  8. https://www.blacksash.org.za/index.php/your-rights/social-grants []
  9. http://www.timeslive.co.za/local/2017/03/24/The-World-Bank%E2%80%99s-role-in-SA%E2%80%99s-social-grants-payment-system []
  10. http://www.groundup.org.za/article/spotlight-social-grants-how-grants-are-used-pay-back-loans_3370/ []
  11. https://www.blacksash.org.za/index.php/sash-in-action/stop-sassa-cps-debits-campaign []
  12. See net1 FAQ below []
  13. http://amabhungane.co.za/article/2017-04-03-how-net-1-flaunts-the-financial-rules []
  14. http://www.iol.co.za/news/politics/sassa-still-in-hot-water-over-grant-deductions-8564981 []
  15. http://www.groundup.org.za/article/sophias-choice-farm-worker-has-decide-which-her-children-feed/ []
  16. http://amabhungane.co.za/article/2017-04-03-how-net-1-flaunts-the-financial-rules []
  17. http://www.timeslive.co.za/sundaytimes/businesstimes/2017/04/07/Net1bossresignsaschairman%E2%80%9AremainsCEO%E2%80%9AafterSassadrama []
  18. http://www.groundup.org.za/article/us-analyst-urges-clients-sell-net1-shares-concerns-mount-over-social-grant-payments/ []
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