World Bank division presses Net1 UEPS on lending practices and lack of transparency

The World Bank’s International Finance Corporation (IFC) said it’s pressing Net1 UEPS Technologies to complete an assessment of its lending practices this year as human rights organisations allege that the company’s subsidiaries are improperly marketing goods and services to the more than 17-million South Africans on welfare.

Last year, the IFC bought a 17% stake in Net1 for $107m, its biggest-ever investment in the financial technology industry, making it the largest shareholder in the company that distributes welfare payments to the poorest third of South Africans on behalf of the government. Allan Gray, Net1’s second-biggest shareholder with a 15.6% stake, has said it’s concerned about the company’s communications with shareholders about loan charges and deductions.
Net1, which has denied behaving improperly, holds stakes in a range of companies that sell services and goods, such as loans and cellphone airtime, to welfare recipients in SA. Human rights groups, including The Black Sash Trust, say the company uses personal information gleaned from the payments it makes to help its associate companies market their services.

 

"We pushed the company to look again at their processes and have a third party certify them as a responsible lender. We started tge process in September last year," said Andi Dervishi, global head of financial technology investments at the IFC, in an interview last week. "In the light of what we have seen and what we are hearing in public, we are pressing harder. It should happen this year."
Net1’s Cash Paymaster Services unit won the contract to distribute welfare payments in 2012. In 2014, the Constitutional Court ruled the contract invalid because of the way it was awarded. By the end of last month, when the contract expired, the South African Social Security Agency had failed to comply with an order to find a new distributor and the court ordered Net1 to continue making the payments for another year — and also stipulated that it couldn’t use data gathered from welfare recipients for marketing.

In another court case, in which a ruling has yet to be made, Net1 is challenging an amendment made by the government to regulations that would stop deductions being made from welfare grants.
The controversy from the court cases and the criticism of its lending practices has resulted in increased scrutiny from its biggest shareholders.
"The IFC is working alongside other shareholders in urging the company to increase its transparency on marketing and lending practices and engage more constructively with a wider range of shareholders," Dervishi said. "We will continue to make our voice heard and exert pressure on the company to adhere to good lending principles to which the IFC is committed."
Net1 didn’t immediately respond to questions submitted to its public relations agency, Burson-Marsteller.

The IFC and other shareholders need to do more to scrutinise the company, said Bonita Meyersfeld, head of the Centre for Applied Legal Studies at the Wits University. "The source of their information cannot come solely from the company. Are they engaging with the grant beneficiaries?" said Meyersfeld, whose organisation is representing The Black Sash in the court cases. "The IFC is a development organisation that has rendered antiseptic a company that has made billions of rand off the poorest people in this country. As a development organisation it is disingenuous."
Bloomberg