Profiting from Poverty: Debt, Finance and Social Grants in South Africa

Every month around 16.8 million Social Grants are deposited into the accounts of around 10 million South Africans. These accounts are controlled by GrindRod bank, which is owned by GrindRod Logistics, a freight, shipping and financial services company based in South Africa but operating worldwide.

There are many ways in which people can access their social grant money. If you visit a place like Gugulethu Square on the first of each month, you can see that the ways in which people access their grants is shaped by their class position. Those who are willing to pay the transaction fee wait in shorter lines at Capitec or Nedbank ATMs where they can draw their money directly from their SASSA card. Those who can’t afford to pay the R30 transaction fee wait in long winding queues outside Shoprite and Spar, often these are pensioners and single mothers. When we visited Gugulethu Square in June, people had been queuing outside since 5am to get their grants. 

The actual infrastructure for the payment of social grants, meaning the machines that scan people’s thumbs and that dispense the money, are managed by a company called Cash Paymaster Services (CPS). In January 2012 Net 1, the company that owns CPS, was granted a tender to provide payments services for social grants in all nine provinces for a period of five years. The tender was valued at R10billion. Net 1 specializes in “alternative payment systems” using “biometrically secure real-time electronic transaction processing to unbanked and under-banked populations around the world.” They are active everywhere from South Korea to Ghana to Iraq. They are listed both on the JSE and on the New York Stock Exchange.

In 2014 the constitutional court ordered SASSA to re-issue the tender after allegations of corruption emerged and the US Department of Justice and FBI began investigating Net 1 for paying bribes to SASSA. Net 1 was also criticized for illegally selling social grant recipients air time, insurance policies and providing loans.

Net 1 has since decided not to apply for the new tender, choosing to focus instead on expanding services to “unbanked and under-banked citizens including social grant beneficiaries, but independently and without SASSA’s limitations and constraints.” Which is precisely what they are doing in places like Philippi Plaza where hundreds of social grant recipients line up on the first of each month to apply for loans.

The loan office in Philipi is called Money Line Financial Services, which owned by Net 1. Here recipients can take out loans from R410 to R1050 to be paid-off over 3 or 6 months. For a loan of R850 borrowers pay back R1140 over 6 months. This comes to an interest rate of 34% over half a year. However, Money Line claims they do not charge interest, that the 34% you pay back is merely a transaction fee that covers the high risks associated with lending to the ‘unbanked.’ However, repayment on these loans almost guaranteed because they come directly from borrower’s social grants. They claim that they are not using social grants as collateral on loans, which is illegal, but everyone we spoke to told us they had to bring their SASSA cards in order to get a loan.

When people get a loan they are given the ‘Green Card,’ also called the Easy pay card. The Green Card allows them to get a loan from Money Line, but it also effectively becomes their SASSA card as their social grant is deposited into the account connected to this card each month.

In short, this is how it works: Let’s say I receive a pension of R1500 each month and I take out a R650 loan that has payments of R150 over six months. My pension money goes into one GrindRod bank account, but then each month it is transferred to another GrindRod account which is connected to my Easy Pay Card. For this I’m charged a transaction fee. The R150 is then deducted from this Grindrod account. So technically the money isn’t deducted from the social grant, it’s deducted from an account that the social grant money is transferred to. Aside from interest on loans, this allows Net 1 to benefit from multiple transaction and other associated fees. For example, when people check the balance on their Net 1 card the charge is R2.34 each time. 

I just want to read some of the stories we collected from social grant recipients waiting for their grants and those taking loans from Money Line:

1. An elderly man told us he had borrowed R1000 from Money Line in November with a monthly repayment of R220 over 6 months. His monthly pension should be R1280, but this month he only received R1160. When you get your social grant money at places like Shoprite there is no transaction breakdown, so there’s no way of knowing where this money is going. In order to get a transaction statement, you have to go to Spar where you are charged for checking your balance. Many people do this so they won’t get scammed by cashiers. If these deductions appear on your Green Card, then SASSA isn’t responsible and you have to deal with Money Line.

2. A woman was lined up outside Spar waiting to check the balance on her SASSA card. She receives 2 child grants coming to R700 each month, and yet this month her account balance was only R412. R300 had been deducted for prepaid airtime and electricity that she says she never purchased. Unauthorized deductions for cellphone airtime is the most common complaint received by SASSA. In April this year 84% of complaints received by SASSA were for unauthorized airtime deductions.

3. An elderly woman waiting outside the Spar in Gugulethu square told us that she received 2 child grants, however she also had R64 deducted this month for Emerald Life Insurance. She told us she had never signed up for life insurance and that these deductions had been coming off her account since January. In a 2015 Emerald Life Insurance agents in Paarl and Franschoek were arrested and charged after it emerged that they were deducting funds illegally from people’s social grants.

These are just some of the stories we collected, but the general feeling among recipients is one of powerlessness and confusion. The limited amount of money they receive from the state is being transferred from their accounts with relative ease, both legally and illegally, and recipients have little recourse. Despite assurances from SASSA that they’re clamping down on illegal deductions, they still appear to be quite common. But it is not only the illegal deductions that are cause for concern. Low levels of financial literacy combined with desperation frequently compel recipients to make decisions that allow these companies to drain their social grants one rand at a time through transaction and transfer fees. It is no wonder that Net 1 withdrew from the tender process for social grant payments, because they are continuing to make money from social grant recipients in myriad ways.
  
While neoliberalism is frequently seen as the rollback or the shrinking of the state, social grants suggests an expansion of the state and a process of social inclusion. It is important, however, to understand the neoliberal logics that inform this expansion. A key part of this was in 1992 when existing legislation restricting the interest rate lenders could charge was removed. The rationale behind doing so was that it would allow banks to lend to the poor, which would allow them to open up businesses and become entrepreneurs. Unsurprisingly, this never really happened. What happened is that people began borrowing money to finance consumption. Those lined up outside Money Line in Philipi aren’t potential entrepreneurs, they just don’t have enough money for food and school fees.

Because of this South Africa witnessed an explosion of micro-lending in the late 90s and early 2000s. The most notable examples are institutions like Capitec and African Bank which were set up with the purpose of extending credit to those previously excluded from the financial system during apartheid. According to banks removing the cap on interest rates was necessary because lending to the poor is high risk and can generate debt bubbles. However, as we see with the case of Money Line, this is entirely false as loans are effectively guaranteed through withdrawals from social grants. Post 94 the state also allowed banks to collect debts directly from people’s payroll (especially in the case of civil servants) or from borrower’s banks by taking their ATM cards and pin numbers. It should come as little surprise then that finance capital has found a way to tap into people’s social grant accounts, once again with state sanction.

The growth of debt has been underpinned by the expansion of finance capital. Finance has been a critical component perpetuating neoliberalism and since 1994 the role of finance in systems of capital accumulation has expanded rapidly. A major area of growth in the financial sector has been in government tenders secured by various BEE groups. These kinds of deals reveal the financialized nature of the BEE elite and their close relations with the state. Take the R10Billion tender secured by Net 1 for example. The granting of this tender was conditional on Net 1 signing a BEE deal. Just days after Net 1 got the tender it announced that it had finalized a major new Broad Based Black Economic Empowerment partnership led by Mosomo Investment Holdings. This deal was worth R264million. Mosomo is headed by Brian Mosehla, a Coal of Africa Director, who was formerly head of finance at the Mvelaphanda group, established by Tokyo Sexwale. Mosomo Investment and Sexwale’s Mvelaphanda group had previously worked together to secure a massive Coal of Africa deal. A 2012 Mail and Guardian story pointed out that if Sexwale had a financial interest in Mosomo investments, this would be a major conflict of interest, because when he was Human Settlements minister his director general Thabane Zulu was a member of the SASSA adjudication committee that awarded Net 1 the tender. The BEE deal was one of the main reasons Net 1 were investigated by the US Department of Justice.  

At the same time as the state has expanded social welfare to the poorest South Africans it has facilitated the expansion of a predatory form of finance targeting those same people. The attempt to open access to credit to the poor may have been informed by an ethos of democratization, but the result has been an expansion of predatory lending and debt. Understanding the variety of neoliberalism at work in South Africa thus involves looking not at the rolling back of the state from welfare provision, but the ways in which its expansion have been shaped and informed by finance capital.

Research conducted by: Nandi Vanqa-Mgijima a researcher-educator at ILRIG and Chris Webb an associate researcher at ILRIG. Important research by ilrig
Profiting from Poverty: Debt, Finance and Social Grants in South Africa

Every month around 16.8 million Social Grants are deposited into the accounts of around 10 million South Africans. These accounts are controlled by GrindRod bank, which is owned by GrindRod Logistics, a freight, shipping and financial services company based in South Africa but operating worldwide.

There are many ways in which people can access their social grant money. If you visit a place like Gugulethu Square on the first of each month, you can see that the ways in which people access their grants is shaped by their class position. Those who are willing to pay the transaction fee wait in shorter lines at Capitec or Nedbank ATMs where they can draw their money directly from their SASSA card. Those who can’t afford to pay the R30 transaction fee wait in long winding queues outside Shoprite and Spar, often these are pensioners and single mothers. When we visited Gugulethu Square in June, people had been queuing outside since 5am to get their grants. 

The actual infrastructure for the payment of social grants, meaning the machines that scan people’s thumbs and that dispense the money, are managed by a company called Cash Paymaster Services (CPS). In January 2012 Net 1, the company that owns CPS, was granted a tender to provide payments services for social grants in all nine provinces for a period of five years. The tender was valued at R10billion. Net 1 specializes in “alternative payment systems” using “biometrically secure real-time electronic transaction processing to unbanked and under-banked populations around the world.” They are active everywhere from South Korea to Ghana to Iraq. They are listed both on the JSE and on the New York Stock Exchange.

In 2014 the constitutional court ordered SASSA to re-issue the tender after allegations of corruption emerged and the US Department of Justice and FBI began investigating Net 1 for paying bribes to SASSA. Net 1 was also criticized for illegally selling social grant recipients air time, insurance policies and providing loans.

Net 1 has since decided not to apply for the new tender, choosing to focus instead on expanding services to “unbanked and under-banked citizens including social grant beneficiaries, but independently and without SASSA’s limitations and constraints.” Which is precisely what they are doing in places like Philippi Plaza where hundreds of social grant recipients line up on the first of each month to apply for loans.

The loan office in Philipi is called Money Line Financial Services, which owned by Net 1. Here recipients can take out loans from R410 to R1050 to be paid-off over 3 or 6 months. For a loan of R850 borrowers pay back R1140 over 6 months. This comes to an interest rate of 34% over half a year. However, Money Line claims they do not charge interest, that the 34% you pay back is merely a transaction fee that covers the high risks associated with lending to the ‘unbanked.’ However, repayment on these loans almost guaranteed because they come directly from borrower’s social grants. They claim that they are not using social grants as collateral on loans, which is illegal, but everyone we spoke to told us they had to bring their SASSA cards in order to get a loan.

When people get a loan they are given the ‘Green Card,’ also called the Easy pay card. The Green Card allows them to get a loan from Money Line, but it also effectively becomes their SASSA card as their social grant is deposited into the account connected to this card each month.

In short, this is how it works: Let’s say I receive a pension of R1500 each month and I take out a R650 loan that has payments of R150 over six months. My pension money goes into one GrindRod bank account, but then each month it is transferred to another GrindRod account which is connected to my Easy Pay Card. For this I’m charged a transaction fee. The R150 is then deducted from this Grindrod account. So technically the money isn’t deducted from the social grant, it’s deducted from an account that the social grant money is transferred to. Aside from interest on loans, this allows Net 1 to benefit from multiple transaction and other associated fees. For example, when people check the balance on their Net 1 card the charge is R2.34 each time. 

I just want to read some of the stories we collected from social grant recipients waiting for their grants and those taking loans from Money Line:

1. An elderly man told us he had borrowed R1000 from Money Line in November with a monthly repayment of R220 over 6 months. His monthly pension should be R1280, but this month he only received R1160. When you get your social grant money at places like Shoprite there is no transaction breakdown, so there’s no way of knowing where this money is going. In order to get a transaction statement, you have to go to Spar where you are charged for checking your balance. Many people do this so they won’t get scammed by cashiers. If these deductions appear on your Green Card, then SASSA isn’t responsible and you have to deal with Money Line.

2. A woman was lined up outside Spar waiting to check the balance on her SASSA card. She receives 2 child grants coming to R700 each month, and yet this month her account balance was only R412. R300 had been deducted for prepaid airtime and electricity that she says she never purchased. Unauthorized deductions for cellphone airtime is the most common complaint received by SASSA. In April this year 84% of complaints received by SASSA were for unauthorized airtime deductions.

3. An elderly woman waiting outside the Spar in Gugulethu square told us that she received 2 child grants, however she also had R64 deducted this month for Emerald Life Insurance. She told us she had never signed up for life insurance and that these deductions had been coming off her account since January. In a 2015 Emerald Life Insurance agents in Paarl and Franschoek were arrested and charged after it emerged that they were deducting funds illegally from people’s social grants.

These are just some of the stories we collected, but the general feeling among recipients is one of powerlessness and confusion. The limited amount of money they receive from the state is being transferred from their accounts with relative ease, both legally and illegally, and recipients have little recourse. Despite assurances from SASSA that they’re clamping down on illegal deductions, they still appear to be quite common. But it is not only the illegal deductions that are cause for concern. Low levels of financial literacy combined with desperation frequently compel recipients to make decisions that allow these companies to drain their social grants one rand at a time through transaction and transfer fees. It is no wonder that Net 1 withdrew from the tender process for social grant payments, because they are continuing to make money from social grant recipients in myriad ways.
  
While neoliberalism is frequently seen as the rollback or the shrinking of the state, social grants suggests an expansion of the state and a process of social inclusion. It is important, however, to understand the neoliberal logics that inform this expansion. A key part of this was in 1992 when existing legislation restricting the interest rate lenders could charge was removed. The rationale behind doing so was that it would allow banks to lend to the poor, which would allow them to open up businesses and become entrepreneurs. Unsurprisingly, this never really happened. What happened is that people began borrowing money to finance consumption. Those lined up outside Money Line in Philipi aren’t potential entrepreneurs, they just don’t have enough money for food and school fees.

Because of this South Africa witnessed an explosion of micro-lending in the late 90s and early 2000s. The most notable examples are institutions like Capitec and African Bank which were set up with the purpose of extending credit to those previously excluded from the financial system during apartheid. According to banks removing the cap on interest rates was necessary because lending to the poor is high risk and can generate debt bubbles. However, as we see with the case of Money Line, this is entirely false as loans are effectively guaranteed through withdrawals from social grants. Post 94 the state also allowed banks to collect debts directly from people’s payroll (especially in the case of civil servants) or from borrower’s banks by taking their ATM cards and pin numbers. It should come as little surprise then that finance capital has found a way to tap into people’s social grant accounts, once again with state sanction.

The growth of debt has been underpinned by the expansion of finance capital. Finance has been a critical component perpetuating neoliberalism and since 1994 the role of finance in systems of capital accumulation has expanded rapidly. A major area of growth in the financial sector has been in government tenders secured by various BEE groups. These kinds of deals reveal the financialized nature of the BEE elite and their close relations with the state. Take the R10Billion tender secured by Net 1 for example. The granting of this tender was conditional on Net 1 signing a BEE deal. Just days after Net 1 got the tender it announced that it had finalized a major new Broad Based Black Economic Empowerment partnership led by Mosomo Investment Holdings. This deal was worth R264million. Mosomo is headed by Brian Mosehla, a Coal of Africa Director, who was formerly head of finance at the Mvelaphanda group, established by Tokyo Sexwale. Mosomo Investment and Sexwale’s Mvelaphanda group had previously worked together to secure a massive Coal of Africa deal. A 2012 Mail and Guardian story pointed out that if Sexwale had a financial interest in Mosomo investments, this would be a major conflict of interest, because when he was Human Settlements minister his director general Thabane Zulu was a member of the SASSA adjudication committee that awarded Net 1 the tender. The BEE deal was one of the main reasons Net 1 were investigated by the US Department of Justice.  

At the same time as the state has expanded social welfare to the poorest South Africans it has facilitated the expansion of a predatory form of finance targeting those same people. The attempt to open access to credit to the poor may have been informed by an ethos of democratization, but the result has been an expansion of predatory lending and debt. Understanding the variety of neoliberalism at work in South Africa thus involves looking not at the rolling back of the state from welfare provision, but the ways in which its expansion have been shaped and informed by finance capital.

Research conducted by: Nandi Vanqa-Mgijima a researcher-educator at ILRIG and Chris Webb an associate researcher at ILRIG.