IFC playing coy on Net1 allegations

The International Finance Corporation (IFC), a member of the World Bank Group and Net1’s largest shareholder, promises to engage with the management of the company to “promote responsible business practices and behaviour” it said in response to questions put to it by Moneyweb.

This follows on from allegations that Net1, through access to information provided to its subsidiary Cash Paymaster Services (CPS) for the payment of social grants, was engaging in a number of dubious practices with respect to the marketing of financial services and products – including personal loans – to the poor.

The IFC became a shareholder last year when it subscribed for almost 10 million shares in Net-1 for an investment of $107 million (R1.3 billion). Atul Mehta, IFC director of Telecoms, Media and Technology, said at the time: “Net1 has created impressive propriety technology for the delivery of services and demonstrated its effectiveness in South Africa. IFC and IFC AMC’s funds’ investments will 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.”

Moneyweb asked IFC if it would take the same approach as Allan Gray in stridently investigating the company’s business practices and engaging with management on issues following revelations made in a number of media outlets. These reports seemed to indicate that far from assisting the poor, Net1 might well be preying on them through the improper use of beneficiaries’ personal information and the terms and conditions of personal loans, which are deducted before the grant even reaches the beneficiary’s bank account.

This was the IFC’s response:  

“Today millions of people rely on payments that are delivered on behalf of the South Africa Social Security Agency through Cash Paymaster Services, a subsidiary of Net1 UEPS Technologies. IFC supports efforts by the government, Net1 and others to find a solution that ensures timely and efficient payments to South African beneficiaries in line with South African law and at a fair cost to taxpayers for services provided. 

IFC invested in Net1 in April 2016, after Sassa announced that it would directly take over distribution of social welfare payments at the expiration of Net1’s contract in March 2017. IFC’s investment in Net1 UEPS Technologies was based on its plans to extend operations into new segments in South Africa, provide services and access to financial services for low-income consumers in other countries in sub- Saharan Africa and Asia, and roll out mobile solutions to deliver financial services to the underserved. Net1 has developed innovative technology that securely and efficiently provides a variety of financial services at low-cost compared with alternatives. Its services can be easily scaled to reach millions of customers. 

IFC will continue to monitor the activities of Net1.  Consistent with corporate governance requirements, IFC will engage with Net1’s management and other shareholders to promote responsible business practices and behaviour.”

Obviously, recent developments puts the IFC in a very difficult position. It has just made a substantial investment in a company it believes would be aiding financial inclusion for the world’s poorest, not exploiting them. But while Net1 possesses innovative technology that is enabling of the ideals of the IFC, this shareholder needs to figure out if the practices of Net1 live up to the same standards, otherwise it will just be paying lip service to corporate governance.

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