Allan Gray worried over Net1's lending

File picture: David Ritchie/Independent Media

File picture: David Ritchie/Independent Media

Published Apr 21, 2017

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Johannesburg – Allan Gray, one of South Africa’s biggest

money managers, said it’s “increasingly concerned” over the running of Net1

UEPS Technologies, a company whose lending practices to people on welfare have

been criticised as unethical by human rights organizations.

The second-biggest shareholder in Net1, with a 15.6

percent stake, said its research into the company shows that the business

doesn’t always answer its phones when called by clients, who are among South

Africa’s poorest and least educated. Net1 has the contract to distribute

welfare payments to more than 17 million South Africans and has been accused of

illegally using information it gleans to help its subsidiaries sell those

people services such as mobile-phone airtime and loans.

“It’s not illegal not to answer your phone but it’s not

good business practice,” Andrew Lapping, Allan Gray’s chief investment officer,

said in an interview on Thursday. “We’ve been trying to find out exactly how

beneficiaries are treated. If you have a problem how easy is it to get hold of

them? How easy is it to cancel debit orders?”

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“We’re increasingly concerned. Our concerns have not been

alleviated,” he said.

Investment changes

Last month, South Africa’s Constitutional Court ordered

the nation’s welfare agency to extend Net1’s contract, which it had ruled

invalid in 2014, to distribute the monthly grants for a year to prevent the

system from collapsing after the government failed to comply with an order to

find a replacement. It expressly prohibited the use of information about grant

recipients for marketing purposes.

The Cape Town-based fund manager is compiling research

into how Net1 treats its customers and areas for improvement, which it will

present to the Net1 board.

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Bridget von Holdt, an official at Burson-Marsteller, a

public relations company employed by Net1, wasn’t immediately available when

called by Bloomberg.

Allan Gray wants Net1 to appoint several non-executive

directors to strengthen the board. The company currently has five directors,

three of whom are non-executive. “It’s extremely important because we need

change,” Lapping said.

More oversight

Allan Gray will also make changes to the way it makes its

investments and has hired someone to investigate companies’ social and economic

impact.

“We’ve had introspection and looked at our processes

extremely carefully and we’ve made a few changes in our investment process in

terms of oversight,” Lapping said. “There’s stuff we should have known and we

didn’t know it. We need to be on the ground getting the facts.”

Equal Education, a South African non-governmental group,

said in a statement on Wednesday that it has met with Allan Gray and asked it

to sell its investment in Net1, saying its members have been affected by the

activities of the company.

Net1 said April 7 that it split the chairman and chief

executive officer roles and would appoint “additional independent directors.”

Net1’s biggest shareholder is the International Finance

Corp., the private finance arm of the World Bank. IFC has also asked the

company to improve its lending practices. The IFC declined to comment.

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