South Africa recently accomplished one of the greatest feats of financial inclusion in the history of the region – and few people batted an eye. In just 18 months, the South African Social Security Agency (SASSA) opened more than 10 million new bank accounts for grant recipients, incorporating an unprecedented share of the nation’s poor into the formal banking system. Yet behind this well-intentioned effort lies serious abuse. The company overseeing the distribution of grants has heavily exploited its position, undermining the welfare of grant recipients that the state is meant to protect.
Cash Paymaster Services (CPS), a subsidiary of the financial services behemoth Net1 and winner of the tender to distribute R10 billion in SASSA grants each month, undertook a mass re-registration of all 16 million beneficiaries between March 2012 and August 2013. By opening bank accounts for grant recipients in this process, South Africa surpassed the National Development Plan’s target of 70% financial inclusion by 2013. The new system was heralded as a way to reduce grant fraud, cut distribution costs and improve accessibility for recipients.
But the contract stood on questionable ground from the start. Central features of the tender procedure had been changed days before submission, all but excluding most bidders. The bank chosen for the accounts was Grindrod Bank, a subsidiary of a freight logistics and shipping services provider with virtually no branches accessible to grant recipients. To make matters worse, last year the United States department of justice investigated Net1 for violating the Foreign Corrupt Practices Act, citing falsification of financial reporting. In November 2013, the Constitutional Court declared the awarding of the tender to CPS to be “constitutionally invalid”, though it was left in place out of fear of disrupting the grant system.
All along, behind the scenes of this legal and political debacle, grant recipients have suffered.
Net1 and its multitude of subsidiaries have leveraged their access to grant recipients to market their own products. SASSA recipients, expecting a simple grant to help make ends meet, are bombarded with offers for micro-loans, insurance packages and airtime advances. In dire straits, countless recipients capitulate, and the consequences are dismal; loans have been found to include up to 100% annual interest and service fees can quickly accumulate to over 50% of the principal. Though SASSA has attempted to intervene, recent reports suggest that these offerings have continued. Many recipients, who live hand-to-mouth, find themselves heavily indebted to the very corporation that was chosen to help the government provide for their welfare.
Recipients have been subjected to a range of other deductions as well. When their bank accounts were opened in the re-registration process, they were inadvertently tied to a national debt registry. As a result, outstanding debts that they had incurred in prior years, such as for house furniture they had not fully repaid, suddenly began to be deducted straight from their SASSA bank accounts. While one could argue that the companies have a right to collect on these debts, it is not the role of the state, and certainly not in its social security arm, to force this to happen. The integration of recipients into the open banking economy without protection has channelled millions of rands directly to corporations.
Moreover, these factors have severely undermined the ability of recipients to use their new bank accounts to save. Several studies have shown that simply having access to a bank account can drastically increase savings. But largely because of the debit orders and extortionate loans described above, trust in bank accounts and the grant system as a whole has eroded. Recipients, unaware of the complex financial instruments operating behind the scenes, do not understand why their money is disappearing and largely assume that SASSA is deducting funds from their grants. Rather than securely saving their money, recipients instantly withdraw their entire grant in cash, increasing both immediate expenditure and risk of theft. Despite the country opening millions of new bank accounts for the poor, recipients cannot use them to save, devastating any chance of using the grant as a ladder out of poverty.
The constitutional right to social security hangs in the balance. The foster parent, the disabled and the elderly are finding it harder and harder to make ends meet as Net1 makes money hand over fist. If it was difficult enough to put food on the table for a month with R300, how are families supposed to cope with R150? Not only are we failing to provide for citizens’ social welfare, we’re granting corporations an unprecedented opportunity to make immense amounts of money off of the backs of the most vulnerable. And they are taking advantage of it.
A new tender for the SASSA grant distribution was released just weeks ago. To SASSA’s credit, they have closed several loopholes in the tender guidelines and have rebuffed Net1’s attempts to withdraw and change the tender. But the battle has not yet been won. We must be hold SASSA accountable as it awards the new contract. We must push our legislators to close legal loopholes that allow for aggressive banking tactics aimed at the most vulnerable in society. And finally, we must be highly vigilant as the new distributor begins implementing its new system next year.
The design of a social grant system is not morally neutral. It represents and enacts a set of values of the state as it provides for the welfare of its citizens. With the new tender, the social grant system finds itself at a defining crossroads. We can affirm the remarkable gains that have been made over the last 20 years, or continue to thrust the balance of power in favor of major financial institutions. What values does the country want to promote in its social security system – justice and human dignity, or corporatism? The answer to this question stands to define South Africa’s social welfare system for decades to come. DM
"I know of a cure for everything: salt water...in one way or the other. Sweat or tears or the salt sea." ~ Karen Blixen