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IFC pressures Net1 to review lending practices

Backs Allan Gray’s call for Net1’s practice of offering loans to social grant beneficiaries to come under scrutiny.

The International Finance Corporation (IFC), a member of the World Bank and Net1’s largest shareholder, has found its voice over the technology company’s controversial lending practice.

The IFC is pressing management of Net1 to assess its practice of selling loans with high interest rates to social grant beneficiaries in SA. The IFC holds a 17% stake in Net1.

“IFC will continue to make its voice heard and exert influence on Net1’s board to promote robust management, governance and good lending practices, along with improved transparency,” the company said in a statement to Moneyweb.

Nasdaq and JSE-listed Net1 holds stakes in companies that cross-sell goods such as unsecured loans, insurance products, prepaid airtime, water and electricity to social grant beneficiaries.

Net1 is responsible for distributing social grants to 10.6 million recipients in SA through its subsidiary Cash Paymaster Services (CPS).

It has been accused of using the personal and confidential information of grant recipients to sell financial services products. This information is at CPS’ disposal by virtue of it being responsible for grant payments.

The IFC purchased a 17% stake in Net1 for $107 million (R1.47 billion at the time of writing) in 2016, marking its biggest investment in the financial technology industry and to help the company expand into African regions with limited banking infrastructure.

“Since becoming a Net1 shareholder, IFC has been working alongside other shareholders in urging the company to increase public understanding of its marketing and lending practices, and engage more constructively with a wider range of stakeholders,” the company said.

IFC said its engagements with Net1 have ensured it will undertake an external review to certify its lending practices –  a process it wants Net1 to complete with “greater urgency”.

Net1 announced on Friday that its outspoken CEO Serge Belamant has resigned as chairman but will remain at the helm of the company – effectively splitting the chairman and CEO roles to bolster corporate governance. Massmart director Christopher Seabrooke replaced Belamant as chairman. 

This is not the first time that CPS has come under fire for its controversial practice of offering financial products to social grant recipients. Advocacy group The Black Sash has documented many complaints of unauthorised deductions for financial services products from the accounts of social grant beneficiaries by Net1’s other subsidiaries.

This laid the basis for The Black Sash’s recent application to the Constitutional Court, asking it to supervise a new social grant payments contract when CPS’s contract expired on March 31.

The contract between CPS and the South Africa Social Security Agency (Sassa), which concluded five years ago, was declared invalid by the court as the tender process was flawed. Sassa subsequently assured the court that it had the capacity to take over grant payments but reneged on this, asking for the CPS contract to be extended.

At the eleventh hour, the court extended the CPS contract for the next 12 months, with strict instructions that it was no longer allowed to invite grant recipients to “opt-in” to sharing their personal and confidential information for the marketing of goods and services.

Net1 said CPS had already made changes to its new contract with Sassa in line with the court’s orders.

Mounting shareholder pressure

Net1’s second largest shareholder Allan Gray, which owns a 15.6% stake, is also pushing for the company to assess its lending practices.

Allan Gray has started an investigation to ascertain whether the personal information of Sassa grant recipients is used improperly for deductions on their accounts. It has also asked Net1 to consider cancelling all monthly deductions to its subsidiaries for airtime.

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