File picture: David Ritchie
Johannesburg - Social grants distributor Cash Paymaster Services (CPS) faces more woes with investment management company Allan Gray launching an investigation into the business conduct of Net1 UEPS Technologies for allegedly extending loans to poor beneficiaries.

Through Allan Gray, clients who include ordinary South Africans have a 16 percent shareholding in Net1 UEPS, the parent company of CPS, which is accused of extending micro-loans to the poor and making illegal and unlawful deductions from their grants.

Chief investment officer Andrew Lapping said the company had launched an investigation into Net1’s affairs because the matter was viewed in a serious light.

“We cannot take what they tell us at face value. If new information comes to light we will take strong action,” Lapping said, adding that the form of the action would be determined by the outcome of the investigation.

The deductions that CPS makes from recipients of social grants looks set to dominate proceedings in the Constitutional Court on Wednesday when the application of advocacy group the Black Sash will be heard.

The Black Sash wants the court to put a stop to these deductions. It has made an urgent application for the Constitutional Court to have oversight over the proposed contract before it is a fait accompli.

The organisation, which had accused the South African Social Security Agency (Sassa) of dragging its feet to find a lasting solution to the grant payments, also wants the court to ensure that grant beneficiaries continue to receive payment of grants from April 1.

It also wants the court to protect the integrity of the social grant system; and to protect grant beneficiaries from harmful practices by, among others, CPS.

The Black Sash is not opposing the proposed new Sassa contract with CPS to distribute social grants when the current contract ends on March 31.

Its major concern is that the court should have oversight of the extension to prevent the new deal from being timeless, and that it should be in the interests of social grants recipients.

“In brief, the Black Sash submits that, given the situation Sassa has created, the court should compel Sassa to enter into a contract on terms designed to protect grant beneficiaries,” Black Sash national director Lynette Maart submitted in her founding affidavit.

Maart submitted that Sassa had failed to inform the Constitutional Court that it was unable to distri- bute social grants after it promised to do so in November 2015.

“I submit further that both its conduct during the previous litigation and its more recent conduct make it imperative that there be such oversight. The events indicate that whatever oversight the minister is able and willing to provide cannot be relied upon to be adequate,” Maart said.

Social Development Minister Bathabile Dlamini faces a mammoth task to persuade the Constitutional Court judges to endorse a new deal Sassa brokered with CPS to distribute social grants from April.

The deal is expected to run for the next two years.

Sassa and CPS have already agreed on a new deal but it is up to the 11 judges to ratify it.

The deal entails that Sassa would pay CPS R17.64 for every beneficiary a month. Effectively, Sassa would pay about R300-million a month and R3.6-billion annually. This was a nominal increase of R1.10 compared with R16.54 CPS was paid in the current agreement which ends on March 31.

But the Allan Gray investigation puts more pressure on CPS ahead of Wednesday’s court case.

Allan Gray started investing in the company in 2012 when, according to Lapping, Net1’s track record of implementing payment techno- logies globally, across different businesses and countries, was the main basis for the investment.

But CPS ventured into micro-lending and because it has access to the database of millions of grant beneficiaries it has sold what it called financial products, including funeral policies and loans, to the grant recipients – its sole clients.

It has also been accused of making illegal and unlawful deductions to grant recipients for airtime and electricity, which it offers through Net1 UEPS subsidiaries like Umoya Manje and Smartlife.

Net1 reported a revenue of over $57.6-million in the first quarter of 2017, 13 percent higher on a constant currency basis.

Its micro-lending book stood at R850-million, compared with R750-million in 2016.

It also sold more than 200 000 life insurance policies in one year.

From 2013 to 2015 its share price on the Johannesburg Stock Exchange rose from R50 a share to R160 a share, delivering a good return for Allan Gray’s shareholders.

Lapping said that when Allan Gray became aware that Net1 was involved in micro-lending to social grant recipients, it questioned the company on issues of corporate governance and sustainability.

“They insisted that they were the cheapest provider and never took more than 25% as a repayment. But in light of what we are now hearing, we are concerned, both from a moral and ethical perspective.

“We will take the hard road,” Lapping said.

Sunday Independent