With a 17% stake, Allan Gray is the second biggest shareholder in Net1 UEPS, parent company of CPS, which delivers social grants to 17 million South Africans. Net1 also owns other subsidiaries which make profits from selling financial services to grant recipients.
As the drama over the SA Social Security Agency (Sassa) payment contract has played out over the last few weeks, Allan Gray has been under pressure to answer for its investment, seen as increasingly controversial.
But this focus on Allan Gray has obscured the largest institutional owner of Net1. The World Bank’s investment arm, the International Finance Corporation (IFC), edges out Allan Gray with a 19% share.
On 11 April 2016, the IFC invested $107.7m (almost R1.6bn) in Net1.
The timing of this investment is interesting. The IFC investment came well after the CPS tender had been declared invalid by the Constitutional Court (April 2014). It also came after Sassa promised the Court it would develop its own capacity to pay grants when the CPS tender ended (November 2015).
The IFC investment also came after the Black Sash had launched a campaign to stop unlawful deductions from beneficiaries’ accounts by Net1 and affiliated companies, and even after the Minister of Social Development issued new regulations to stop deductions from social grants in February 2016. The regulations were published in May 2016.
In other words, there was substantial information in the public domain questioning the ethics of Net1, particularly its use of beneficiary information and proprietary technology to profit from the social grant programme.
But in a press statement about its investment, the IFC’s Atul Mehta trumpeted Net1’s prowess as a supplier of technology for financial inclusion in South Africa. “Net1 has created impressive proprietary technology for the delivery of services and demonstrated its effectiveness in South Africa”, Mehta said. Mehta also promised that the IFC investment would help Net1 expand regionally, “especially into African countries where there is limited banking infrastructure and availability of financial services for the poorest segments of the population.”
So why did the World Bank, one of the largest development finance institutions in the world, ignore all the information circulating about Net1 and, instead, invest R1.6bn, less than a year ago?
The answer is to be found in the way the World Bank has promoted social grant programmes worldwide for the last decade. The Bank has developed a discourse about what a “good” social grant programme should do: pay grants electronically to beneficiaries verified by biometric technology, through a competitive tender process resulting in the selection of a bank or private financial firm, which can profit by cross-selling products to beneficiaries. The World Bank has consistently used the South African case as a model.
“Good” social grant programmes
From the early 2000s, there was a series of debates between academics and activists at conferences and in journals about the “best” use of international aid money, with some people arguing that the billions spent on international aid should not be tied up in government but should be given to the poor directly.
These debates sparked numerous books and articles promoting and evaluating social grant programmes. Evidence from Mozambique, Brazil, Mexico, Bangladesh and South Africa seemed to prove that giving money to the poor offered far better developmental returns than other types of aid. For example, a well-publicised study by Marisa Coetzee demonstrated that children who received a Child Support Grant grew taller, studied longer in school, and benefited from increased expenditure on food.
By the late 2000s, since much of the global South was experimenting with social grant programs – and their efficacy was seen as beyond dispute – development technocrats clamoured to demonstrate the “best” possible payment arrangements for social grants. Several “principles” were put forward.
Full story at Fin24.
By Erin Torkelson, GroundUp.
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