Asset management entrepreneur Magda Wierzycka, founder of the Sygnia group, is not stepping down from her campaign to expose wrong-doing in the financial services sector in the scandal involving Net1 subsidiary Cash Paymaster Services and grant payments to the poor. In an interview with Fin24’s Matthew le Cordeur she explains how she started to unpeel the layers of the onion. Wierzycka has taken aim at the large private investment management company Allan Gray, revealing that it is many ordinary investors who are propping up the Nasdaq-listed company at the expense of the poor. Allan Gray initially stood its ground on why it had made the investment in Net1, but has slowly backtracked – recently indicating that its clients would take some pain for the scandal. Allan Gray isn’t the only company with egg on its face in this saga. The regulators and others in the financial services sector also need step up to the table, argues Wierzycka. – Jackie Cameron
By Matthew le Cordeur
Cape Town – Shareholder governance, regulation and financial literacy are required in the bid to prevent social welfare recipients being exploited, Sygnia CEO Magda Wierzycka explained this week.
The Constitutional Court ruled that the South African Social Security Agency (Sassa) could only extend Net1’s Cash Paymaster Services (CPS) contract for a year at the existing contract rates.
While the contract has been deemed invalid and unlawful, the court ruled that CPS must continue paying social grants until another entity which can do so is found.
The alternative was the possibility of 17 million people who depend on social welfare being left stranded on April 1 2017. That eventuality seems to have now been averted.
“As much as the Constitutional Court ruling means that Net1 lost a battle, it has not lost the war,” Wierzycka told Fin24 in a studio interview this week. “I think the war has just begun – this has just been one battle.”
Wierzycka explained how CPS is only the administration arm of Net1 in terms of processing.
“That is hardly where they make their money,” she said. “The stated objective of Net1 is to use their technologies they have as an enabler to sell financial services to the poor.
“They have exploited that CPS contract that was awarded to them in 2012 and then withdrawn, but they were allowed to perform that contract for the subsequent three years, to literally cross sell micro loans, insurance products, airtime and electricity to the grant recipients.”
She said that the service fee (or interest) on their micro loans ranges from 164% to 280%. “We really are talking about preying on the poor,” she said.
Wierzycka has been investigating the CPS saga for some time now, writing analysis stories on Daily Maverick on the topic.
Explaining why the war just begun, she said: “This ruling does not prohibit it from doing what they’ve been doing to date: which has been to market and sell all these financial services.
“They have a much bigger game on the table. They are in the process of buying a stake in Blue Label, which is a company in the process of buying 45% of Cell C. So the stated intention of Net1 is to use this kind of cellphone technology to continue to flog these financial services, but now to broaden their audience away from just grant recipients to all low-income earners in South Africa.”
Wierzycka said the CPS story is highly ring-fenced, which is why she started looking at the shareholders of Net1.
“The one is the World Bank’s IFC and they are very embarrassed about the fact that they didn’t realise what this company was up to. The other shareholder is Allan Gray.
Gordhan: Net1 shareholders should ask serious questions about public utterances and “gross statements” of CPS CEO.#Sassa
— Ranjeni Munusamy (@RanjeniM) March 14, 2017
“Between them, they really hold the bulk of the shares.
“When you look at someone like Allan Gray, the money that they invested in Net1 – it’s your money, it’s retirement fund money. So it’s the average South African who is propping up this Net1, which has been very busy, very happily and merrily exploiting the poorest strata of society.
“It didn’t help matters that 96% of grant recipients are women and 12 million out of 17 million grants paid are children’s grants paid of R380 a month.
“We really are talking about exploiting the most vulnerable people in the society. They are also not financially literate, so it is very easy to exploit them.”
She said shareholders have stated policies of economic, social and governance factors that they take into account when making investment decisions and that is what they market to investors.
“They need to step up and live up to what they say in those policies. They can influence this board of directors and the management team at Net1 and prohibit them from engaging in those practices – or at least regulate the way they do business.
“They have got that power and we will see them stepping in – they really have no choice. Their shareholdings are such that they can’t sell these shares. So they have to intervene.
“As much as we manage money – and the sums of money are huge – you can never forget that that money represents the savings of the average South African. We are merely custodians of that money.”
Wierzycka wants to see more regulation of the sector.
“Unless they start getting regulated – it’s not CPS, it’s all the other subsidiary companies within Net1 – until the regulators step in and start looking at what is happening in those companies, that exploitation of the poor will continue, just not on a grand scale.
— Karyn Maughan (@karynmaughan) March 16, 2017
“This company wouldn’t be able to do what it does without being enabled through regulation. You have the Reserve Bank, which regulates Grindrod Bank, you have the Financial Services Board, which regulates the life insurance company which they own, you have the National Credit Regulator, which regulates the provision of microloans. All these people need to step up to the table to make sure this company operates within very narrow parameters.”
In addition, Wierzycka wants to see more financial literacy.
“The broader financial services industry should step up and – instead of donating money in arbitrary ways – maybe donate money into education programmes, which can reach that broader audience, just out of pure social good.” – Fin24