Durban - The company that pays the government's social grants has been accused of taking advantage of the poor by allowing beneficiaries to borrow against their monthly grants and then taking back the debt from the next payout - trapping people in a cycle of debt.
Cash Paymaster Services (CPS) has been tasked by the government to pay welfare grants, but it has also become one of the country's biggest microlenders.
Now, the Black Sash is questioning the morality of the loans and has described the process of repayment as illegal as its flouts the Social Assistance Act, which states that a social grant cannot be "transferred, ceded, pledged or in any other way encumbered or disposed of".
"The law states that only up to 10 percent of a social grant can be deducted for a funeral policy or insurance but, since June 2012, we've discovered a number of deductions made before payouts. Most of them were unauthorised - for things like airtime and prepaid electricity which the beneficiaries never bought or received," said Black Sash spokeswoman Evashnee Naidu.
CPS is owned by Net1 Universal Electronic Payment Systems which, in 2009, was awarded the multibillion-rand tender to distribute social grants monthly. The company's assistant manager in the Kokstad office, Nara Nkanyana, said the loans "come in very handy for those experiencing financial emergencies before they are due for their grant payouts, but we do not charge interest, just service fees".
The Mercury's research revealed that beneficiaries paid up to 34.1 percent in "service fees" and debtors had six months to settle the loan.
A person can borrow from R440, with R160 in service fees, to R850 with R290 in service fees.
"This is better than going to loan sharks because we don't charge interest and do a thorough credit check before giving out the loan," said Nkanyana.
The Black Sash has launched a Stop Sassa-CPS Debits Campaign (Sassa is the SA Social Security Agency).
It is calling on the Minister of Social Development, Bathabile Dlamini, to amend the Social Assistance Act by criminalising the use of social assistance grants as collateral by lenders and to stop the sale of credit and other related financial products to beneficiaries.
"It's illegal for the micro-lender to be within 100m of a social grant pay point and we are questioning the legality of these loans because now the paymaster and the microlender are one and the same," said Naidoo. She was referring to the clause in the Social Assistance Act that prohibited creditors and other persons from enforcing the payment of a debt near a pay point.
The organisation also wants Parliament to amend the National Credit Act so that social assistance grants are not considered an income. "Our argument is that if the beneficiary doesn't have other means of income other than the social grant, then giving them a loan is reckless."
Naidu said they were hopeful that a solution was near, as Dlamini had invited them to be part of the ministerial task team involving representatives of the Social Development Department, Sassa and other advocacy groups.
"We have been tasked to investigate the extension of credit to vulnerable people receiving social grants and see how these unauthorised and illegal deductions can be stopped. The Black Sash strongly believes that Sassa should be its own paymaster instead of outsourcing the function."
Sassa spokesman Kgomoco Diseko refused to discuss the loans but confirmed there was a task team working on the matter. He said the Department of Social Development would make an announcement on its progress next week.
Attempts to get comments from Net1 chief executive Serge Belamant were unsuccessful.
By Nokuthula Ntuli