The recent article I wrote on the exploitation of social grant recipients stirred a lot of emotions. This motivated me to research the issue in a lot more detail, to take a closer look at Net1’s financials – a topic of my next article – and to consider the issues of morality versus profit in much more depth.
I have now trawled through Net1’s regulatory filings, their financials and the details of numerous court cases they have fought. I have spoken to investment professionals, journalists and even social grant recipients to try to understand the different points of view.
Fundamentally, though, what cannot be lost in the debate is the very heart and soul of the issue – the poorest strata of our society, people living off R1,600 per month in social grants disbursed by government.
Before I deal with the inhumane, let’s talk first about the people who are receiving the social grants.
Currently there are 17-million social grant recipients in South Africa, which has a population of 55-million people:
What are the primary needs of these beneficiaries?
Housing, food, water, electricity, clothing, health services and access to education come to mind.
What is definitely secondary?
Airtime, micro-loans, life insurance, transactional bank accounts and other forms of financial services. Not unnecessary. But definitely secondary.
I don’t think that there can be any debate about the fact that the social grants that they receive are designed to meet primary needs.
As a society we have an obligation, if not a self-interest, to lift these people out of abject poverty. Education, followed by job creation, are the only solutions. Government’s role, as our representatives in this endeavour, is to help and protect those people and their tiny electronic wallets from exploitation.
What is exploitation? In this context it is actually very simple. It is any form of marketing, sales or incentivisation which makes people divert their meagre incomes away from paying for their basic needs. Targeted marketing is a powerful force. Often it takes away free will, even if only temporarily. It exploits emotions and ignorance. This is doubly so for the less educated, more disempowered people.
Let’s look at microloans – offer drugs to a drug addict or chocolate to a sugar addict and you take away their free will. Short-term relief overwhelms any thought of the long-term consequences.
How can government protect the poor in the context of social grant disbursements? There are two answers. One is to nationalise the grant disbursement process, providing it “at cost”, with no transaction fees associated with accessing the money. The other is to privatise it under extremely strict conditions.
Interestingly, Sassa has been on the right track all along. They have attempted to privatise the process, albeit as incompetently as we are witnessing it these days. They have also tried to rein in the private sector provider, Net1. In June 2016 Sassa brought criminal charges against Net1 and Grindrod Bank for failing to act in accordance with their instructions to stop processing debit orders from social welfare beneficiaries’ bank accounts. Unfortunately our illustrious National Prosecuting Authority reached a “no prosecution” decision on the criminal charges filed by Sassa.
There have been other court cases. In 2014 the South African National Credit Regulator applied to cancel the registration of Net1’s micro-lending subsidiary, Moneyline Financial Services, on the basis that Moneyline contravened the National Credit Act by including child support and foster child grants in the affordability assessments prior to granting micro-loans. The case is pending. The Constitutional Court weighed in, in 2013, when it declared that the contract with Cash Paymaster Services, the grant payment administration arm of Net1, was invalid, although it was allowed to run so as not to disrupt grant payments. In 2014 the same court ruled that CPS should not be allowed to profit from an unlawful contract. This may have severe implications for Net1 if it is forced to repay the profits it has made since 2012.
In 2013 the FSB suspended the life licence of SmartLife, the life insurance company owned by Net1, although the suspension has since been lifted. In 2012 the US Department of Justice opened an investigation into whether Net1 violated the Foreign Corrupt Practices Act and other federal criminal laws in connection with paying bribes to South African government officials to secure the 2012 tender. The investigation remains open, despite SEC closing their parallel investigation.
In 2015, Corruption Watch, a South African non-profit civil society organisation, commenced a legal proceeding challenging Sassa’s R317-million payment to CPS for registering of additional beneficiaries. CPS is defending the charges.
In 2017 the Black Sash Trust, a South African human rights organisation, has asked the Constitutional Court to supervise the renewal of the contract with CPS. In 2016 the CEO of Net1 was found to have been duped into buying an online PhD which he used to call himself Dr Serge Belamant. And so the list goes on.
Should a company with even a whiff of impropriety about its conduct be considered as a suitable distributor of social grants to the poor?
Should this pillar of society be considered a suitable investment for retirement fund members?
You must be the judge.
According to one of its largest shareholders, “the social benefit of the service provided by Net1, which sees millions of people receive social grants every month, far outweighs the social cost of offering micro-loans to these individuals”.
Whatever conclusions you reach, the debate about Net1 is actually a side-issue, interesting as it may be. Given where South Africa finds itself, we must all become the voice of the poor. Many of us in the financial services industry are in a position to help government resolve this problem, if only through the expertise and knowledge we can contribute for free. Please invite us to the table. DM
Sygnia CEO Magda Wierzycka is no stranger to challenging the status quo. The actuary and consumer advocate believes in forcing transparency in the financial services industry, one educated investor at a time. Her outspokenness has earned her a legion of online trolls and is reported to have SA fund managers shaking in their boots. Shes the only female CEO of a fintech company in Africa and loves all things future tech. She tweets from @Magda_Wierzycka.