In lack of money, social recipients borrow from a surprising source

Elderly and disabled people queue to collect their social benefits outside Net1 Financial Services at Soshanguve Plaza in Pretoria on the first Friday in June. Many also take out loans at the same office.

This article first appeared on GroundUp.

  • People who depend on social grants say they find it difficult to make ends meet with their grant money and have to resort to loans.
  • Many take out loans from the same Net1 offices where they go to withdraw their social benefits on payday.
  • Taking a R1,400 loan and paying it back in six months usually costs them R462.
  • There are approximately 415,000 EasyPay Everywhere green cardholders with loans.

Most of the time, queues form outside the Net1 Financial Services office in Soshanguve Plaza, Pretoria. People withdraw their social allowances there but many also come to borrow money on their EasyPay Everywhere green cards because they cannot make ends meet with their meager allowances.

On the first Friday in June, there was a queue of around 250 people to collect old-age and disability benefits, and another queue of around 100 people who wanted to take out loans from their benefits. social, a controversial but thriving business.

There are queues almost every day for loans and they start to form hours before the office opens at 8am. People sometimes have to come back the next day because the office can’t process everyone who is in line before 4 p.m.

Annah Zondo, 68, who lives in a shack in Soutpan, Tswaing, says her family has reduced meals to two a day and has always had to resort to a loan. On the day of the grant disbursement, there was nothing to eat at home for her family of seven. An old-age allowance is R1,980. She said that after deductions she had received around R1,500 in June.

“I got my money yesterday but it’s already over,” Zondo said.

She spent it mostly on groceries, then bought paraffin and paid her dues for a funeral society.

“I’m here to borrow again because I finished paying off my loan that I took out in December,” she said. She had borrowed R1,800 from Net1 and repaid it in six months.

“I know that even the loan they give me [now] won’t last. I will suffer before the end of the month,” Zondo said. “I’m busy smashing up the cans I’ve collected to earn some extra money.”

Taking a R1,400 loan and repaying it in six months costs the borrower R462.

Some people take out loans to repay their loans.

Solly Mokoena, 64, from Soshanguve Block TT joined the queue before 6am. His old-age grant helps support a family of five. He took out a loan of R1,800 from Net1. He also borrowed from FinBond, first R600 and then another R600.

“If only I could find a job because the grant money is too little. I owe Net1 R1,800 and I have five months left to finish paying it. At FinBond I have a loan of R1200… By the time they took their money I have nothing left,” he says. “I live by borrowing. I’m used to it. The cost of living is too high. »

We came back on a Wednesday and there were still a hundred people in line. One of them was Mpho Mosima, who relies on child support payments she receives for four of her children. She was there to ask for a loan.

Samuel Mosetlana, 67, from Winterveldt, said: “I borrowed money from Net1 because I was tired of owing loan sharks where I live. I have three months left to finish repaying the 2,000 rand. My wife is only 54 and has no income. So my family is counting on me. That’s why we turn to loans. The subsidy is too little, everything is expensive.

Moneyline Financial Services (Pty) Ltd, a subsidiary of Lesaka Group (the new name of Net1) said it offered loans ranging from R100 to a maximum of R2,000, with a loan term of up to six months. “We don’t charge interest on the loans,” the company says, but there are “service fees” (which can be around 32% of the loan value).

To obtain a Moneyline loan, an applicant must be an existing EasyPay Everywhere customer and “must demonstrate that they have three months of income, can afford the loan, and have a good credit history” .

In his last quarterly report, Net1 reports that Lesaka Technologies is working to increase the number of EasyPay customers and also micro-loan customers and promote “cross-selling”, such as funeral insurance. It took out 5,500 new such standalone policies in the first quarter of 2022.

The report said the company had 1.1 million active customers and 415,000 active loans from EasyPay Everywhere customers with a total loan portfolio of R359 million as of March 31, 2022. The average loan size is R1,417.

Background: how EasyPay Everywhere got nearly 1 in 10 grant recipients on their books

The following is an abridged version of the introduction to the September 2020 Black Sash Research Report: SOCIAL SUBSIDIES: Challenging irresponsible lending in South Africa

  • In 2012, the South African Social Security Agency (SASSA) signed a contract with Cash Paymaster Services (CPS) for the payment of social grants. Under this contract, CPS registered all recipients and grant recipients, collected their biometric information and opened nearly 10.5 million SASSA-branded Grindrod Bank accounts.
  • In 2015, Net1 feared its unlimited access to grant recipients would end with the SASSA contract. As a result, they added another product to their portfolio in the form of an EasyPay Everywhere (EPE) bank account with Grindrod Bank.
  • Moneyline, a subsidiary of Net1, has made it mandatory for grant recipients applying for credit to open a new EPE bank account, which will continue beyond the end of the CPS contract with SASSA.
  • Net1 was able to migrate grant recipients to these new accounts.
  • The CPS/Net1 payment system – which was separate from the national payment system – transformed the social grant into a credit guarantee for all lenders with a debit order facility.
  • Across the country, small lenders in every city displayed signs reading “pension loan” or “SASSA loan”, specifically marketing their products to social grant recipients.
  • Lenders wanted to offer credit to scholarship recipients because social scholarships are secure and regular monthly installments from the government.
  • When the illegal CPS contract ended, SASSA implemented a change of service providers from CPS to South Africa Post.
  • Despite the termination of the CPS contract, some aspects of the lending environment it established remain in place.
  • As of March 2019, just under a million, or 9.5% of all grant recipients, were still using their EasyPay accounts, which allow direct debits.
  • Many microlenders and payday lenders require grant recipients to open accounts with EasyPay or one of the other banks in order to continue borrowing money as usual.
  • EasyPay continued to provide subsidies to some downgraded sites for their customers.

It’s easy to view lenders like EasyPay as better alternatives to abusive practices. But to say that formal lenders like EasyPay are better or worse than informal lenders is to miss the fact that their preferential access to this vast market was handed to them “on a plate” when CPS was awarded the SASSA contract in 2012.