World Bank's IFC Pushes Net1 to Finish Responsibility Study

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

The IFC last year bought a 17 percent stake in Net1 for $107 million, 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 Ltd., Net1's second-biggest shareholder with a 15.6 percent stake, has said its 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 mobile phone airtime to welfare recipients in South Africa. Human rights groups including The Black Sash Trust say that 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 a 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.”

Invalid Contract

Net1's Cash Paymaster Services unit won the contract to distribute welfare payments in 2012. In 2014 the country's 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 on March 17 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.

“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.”

‘Rendered Antiseptic'

Net1 didn't immediately respond to questions submitted to its public relations agency, Burson-Marsteller. Its shares fell 0.2 percent to $11.354 as of 9:42 a.m. in New York, bringing to 14 percent their decline since the March ruling.

The IFC and other shareholders need to do more to scrutinize the company, said said Bonita Meyersfeld, head of the Centre for Applied Legal Studies at the University of the Witwatersrand in Johannesburg.

“The source of their information cannot come solely from the company. Are they engaging with the grant beneficiaries?” said Meyersfeld, whose organization is representing The Black Sash in the court cases. “The IFC is a development organization that has rendered antiseptic a company that has made billions of rand off the poorest people in this country. As a development organization it is disingenuous.”

To contact the reporter on this story: Antony Sguazzin in Johannesburg at asguazzin@bloomberg.net.

To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net, Rene Vollgraaff