Deductions from social-grant bank accounts a can of worms

21 September 2014 - 02:31 By ANN CROTTY
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PRESSED: Social Development Minister Bathabile Dlamini
PRESSED: Social Development Minister Bathabile Dlamini

IN THE first four days of every month R10-billion in social grants is distributed to 10million recipients - on behalf of 16million beneficiaries - through tens of thousands of paypoints across the country.

IN THE first four days of every month R10-billion in social grants is distributed to 10million recipients - on behalf of 16million beneficiaries - through tens of thousands of paypoints across the country.

It is an extremely impressive logistical exercise and among the largest of its kind anywhere in the world.

If it were an industry the R120-billion annual social grant payments would be one of the country's largest. Cash Paymaster Services (CPS), a subsidiary of Net1, is paid R2-billion a year, equivalent to about R16 a grant distributed, to manage the process.

A critical aspect of the new payment system, which was implemented in 2012, was the use of bank accounts.

"The new system sought to facilitate financial inclusion so that social grant recipients had access to bank accounts that would allow them to access their funds safely," Social Development Minister Bathabile Dlamini told reporters recently.

She stressed the grants were intended to provide poor households with the means to meet basic needs, "especially food".

Less than three years after the system's introduction, civil society is calling on the government to overhaul it entirely, not only to urgently reissue the tender for managing the process but also to amend the Payment Association of SA (Pasa) system to prevent controversial and sometimes fraudulent deductions from grants.

However, with less than two years to go before critical local elections, the government appears loath to do anything that may precipitate a backlash from millions of voters for whom social grants are a lifeline.

If nothing else, the payment of social grants has been a story of unintended consequences.

Blocking debit-order deductions from grant payments may be technically straightforward, and in line with the government's intention to provide funds for basic needs, but it could anger many grant recipients who believe they should be allowed to do what they want with their money, including operating cellphone accounts, clothing accounts, insurance contracts and micro loans.

In addition, as the SA Social Security Agency (Sassa) has already learnt, efforts to block deductions will be met by powerful lobbying efforts from the affected private sector companies. For these companies, who argue they provide well-priced services and products, the use of bank accounts to pay grants has provided access to 10 million new clients.

The Pasa system, which processes debit orders automatically, creates almost the same sort of security for sales to unemployed customers as garnishee orders do in the case of employed customers.

Although the Social Assistance Act allows deductions of only 10% of the grant value and only for funeral insurance, all types of service providers have been able to access grant money on the grounds that once it is in a grant beneficiary's bank account it is no longer a social grant.

Elroy Paulus of Black Sash says the bank-based system intended to provide for "financial inclusivity" has had dire consequences for hundreds of thousands of grant recipients.

Paulus describes a system that not only involves reckless lending but also elements of fraud. He says the system can work satisfactorily only if it is closely monitored, which it is not.

Paulus contends that confidential data that belongs to individual grant recipients and should be protected by the government is now in the public domain and being used by third parties to sell products and services to grant beneficiaries.

David Polkinghorne, the CEO of Grindrod Financial Services, which operates the bank that the grants are paid into, acknowledges "perceived difficulties" around the deductions.

"There are all sorts of discussions taking place right now about how to resolve these issues without compromising the system."

He said the difficulty with blocking Pasa deductions from grant accounts was that "the government is effectively dictating what account holders can do with their money".

Blocking Pasa deductions may be more palatable for CPS, which is at the centre of the storm, and makes no secret of the fact that it markets airtime, electricity and microloans to grant recipients. CPS refuses to sign a new service level agreement addressing the deductions issue despite facing court action by the department.

Analysts say that any such agreement would stop CPS and other Net1 subsidiaries making deductions but do nothing to restrict all the other companies making deductions. "This would achieve little and be prejudicial to CPS," said a lawyer.

A Sassa spokesman said this week the agency had met with Net1. "As part of the meeting Sassa and CPS have in principle agreed to audit the service level agreement with a view to reviewing certain elements."

He said Sassa was continuing to investigate the extent of deductions within the National Payment System.

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