Sassa’s big loan rip-off
REPORT: CONTRACTORS ASSISTING WITH PAYMENTS CONTINUE TO CASH IN
Policy changes recommended to stop lucrative lending practice.
Research by the Black Sash and the London School of Economics and Political Science has found that lenders who target social grant beneficiaries charge high interest rates despite the loans being low-risk.
The report recommends that all lending by those who are contracted by the South African Social Security Agency (Sassa) to assist in the payment of social grants should be banned.
At the online launch of the report, Challenging Reckless Lending in South Africa, hosted by Black Sash national director Lynette Maart, the report’s research team of Professor Deborah James, David Neves and Dr Erin Torkelson presented findings drawn from nine towns and suburbs across six provinces.
More than 18 million people rely on social grants to survive and with employment opportunities scarce and grant disbursements insufficient to cover living expenses, borrowing has become a lifeline for grant beneficiaries.
The report found that systems set up by Net1/CPS while the company was administering Sassa grants created an environment in which lenders lend at high rates of interest.
That environment persists, the report finds, with lenders of all types using the built-in reliability of social grants to make low-risk loans and charging high-risk rates.
Although it is illegal, children’s grants and temporary grants are widely used as collateral for debt.
The report diagnoses three kinds of lending targeted at beneficiaries.
The EFT/debit model works within the formal banking system, with loans sent to bank accounts and repayments automatically deducted from those accounts.
Since the Post Office took over the Sassa grants system from Net1/CPS, the number of beneficiaries taking out loans within the Net1 system has dropped.
But almost one million people still have their grants paid into EasyPay accounts, which allow for automatic debit orders, particularly through Net1 subsidiary Moneyline.
The hybrid cash/debit model offers beneficiaries cash loans, with repayments automatically deducted from their accounts.
The report found that lenders using this model most often engage in illegal practices, even when registered with the National Credit Regulator.
Maps produced for the report show how these lenders have sprung up in the areas around Sassa pay points.
The cash/cash model covers much of the informal sector, or mashonisas, where cash loans are repaid with cash.
The report says many borrowers prefer this, even when higher rates of interest are charged, as repayment terms are easily negotiated. But the system is open to abuse with borrowers saying Sassa cards are confiscated, with the lender extracting repayment from the borrower at an ATM.
In the formal sector, Net1’s Moneyline offers “no-interest” loans to grantees. However, the report argues that the service and initiation fees attached to these loans are “effective interest”, and these amounts range from 54% to 112% of the loan. Beneficiaries borrowing from Moneyline need only their EasyPay card and biometrics. Under current legislation, this form of short-term credit is lawful due to the prevailing interpretation of interest – if these charges were seen as interest, the rates would often exceed the current permitted maximum of 60%.
The report recommends policy changes that would align provisions in the Social Assistance Act, Sassa Act and National Credit Act to ensure that grants are not depleted; that all lending by those who are contracted by Sassa to assist in the payment of social grants should be banned; and that “social grant-based credit ought not to be treated as ‘unsecured’ credit with high interest rates”. The researchers also propose stricter enforcement of legislation, and financial education to help borrowers.
Net1’s response will be published when it arrives.
Although illegal, grants are used as collateral